Friday, June 25, 2010

Deregulation of Oil Prices in India

Effects of the de-regulation of oil (and its derivatives') prices

1. Reduction in potential deficits and meaningless subsidies of the Indian Govt.
2. Oil Bonds start vanishing.
3. Reality (in terms of prices) takes hold.
4. Stokes Inflation significantly in the short run but turns into a structural level thereafter.
5. The deficit on this front won't need future financing - which is very very good in terms of controlling money supply.

It's a great move by the Indian Govt., rewards of which will be enjoyed by future generations (if the world can support any :| )

On the topic of inflation, Jim Rogers said something interesting; something that I had been thinking of for a long long time. He said that inflation in India is a cause for concern but the best thing about India is that it is one of the few countries that is honest about its inflation numbers. Inflation numbers in Europe, USA and China are hard to believe.
I remember having the same opinion, especially about China and the US
US: I was there for a year and I heard people talking about how expensive fruits, bread, milk, meat, etc. have become. I also know that gasoline prices have increased tremendously in the last 10 years in the US. Why then are inflation numbers always so low? It is nigh impossible to believe.

China: Crazy credit growth, wage increases, real estate boom but inflation was at 3.1% according to recent numbers. How?!? Ag Bank: Assets - $1.4 trillion and it is still the 4th largest bank in China. A country that has developed so rapidly primarily through an investment boom related to manufacturing capacity has had low inflation for too long a time period.

In addition, both these countries report CPI which tends to be higher than WPI.

Something is very wrong with this world right now. Transparency and accountability is needed

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