Make no mistake, Aadhaar is not for the benefit of you and me, but for the government to cut its fiscal deficit and current account deficit.
India is a inefficient and noisy economy with several leakages across the bureaucracy. Beneficiaries of the leakages include the hotels (gas), PDS card holders (agri essentials, kerosene), households (gas), transporters (diesel), fabricated low income group certificate holders. When the noose tightens, which would be very very gradual, all the parties start passing on the increased costs to the consumer. We are talking about 20% more cost of Diesel, 100% on gas etc (forget fertilizers, natural gas and kerosene for a moment). These increases are good enough to keep the inflation kissing double digits for the next 6 years. Even the RBI has increased its acceptable inflation levels to 6% from the below 5% target earlier.
With such inflation scenario, growth cannot kick, low inflation is key for growth and prosperity. For the time being, inflation driven asset prices should be taken as consolation for hard asset holders. Those who do not own hard assets will see lot of pain.
Update August 2015 - The slump in oil prices seems to have come like a blessing for economies like India. WPI is hitting new lows though CPI remains sticky. Lets hope CPI below 5% makes RBI comfortable to lower the rates. But, Rajan is not going to blink in a hurry. I guess he would like to see what FED does in early September before committing to a rate cut in late September 2015.
India is a inefficient and noisy economy with several leakages across the bureaucracy. Beneficiaries of the leakages include the hotels (gas), PDS card holders (agri essentials, kerosene), households (gas), transporters (diesel), fabricated low income group certificate holders. When the noose tightens, which would be very very gradual, all the parties start passing on the increased costs to the consumer. We are talking about 20% more cost of Diesel, 100% on gas etc (forget fertilizers, natural gas and kerosene for a moment). These increases are good enough to keep the inflation kissing double digits for the next 6 years. Even the RBI has increased its acceptable inflation levels to 6% from the below 5% target earlier.
With such inflation scenario, growth cannot kick, low inflation is key for growth and prosperity. For the time being, inflation driven asset prices should be taken as consolation for hard asset holders. Those who do not own hard assets will see lot of pain.
Update August 2015 - The slump in oil prices seems to have come like a blessing for economies like India. WPI is hitting new lows though CPI remains sticky. Lets hope CPI below 5% makes RBI comfortable to lower the rates. But, Rajan is not going to blink in a hurry. I guess he would like to see what FED does in early September before committing to a rate cut in late September 2015.
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