Consulting|Technology|International business

Rising inflation/tax rates/purchasing power parity

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I chose three distinct topics for this post because all these are affecting those living in India one way or the other:

1. Rising inflation – Inflation is broadly measured in terms of either CPI (consumer price index) or WPI (wholesale price index). The current inflation rate is hovering around 7% – expected to go down due to fiscal policies instrumented by the Central Government. Lets see what happens.

2. Tax rates – Chidu (PC) had some cheer for the middle class when he changed the tax structure so people save an average of about Rs. 4K per month with this new system announced in the Budget.

3. Purchasing power parity – Ths has gained significance all the time esp. because the USD is depreciating vis-a-vis not just the Indian rupee but a whole basket of currencies. This does not however, affect the PPP by much. A dollar in the US will still buy a set of goods which its counterpart here (an INR) will but much lesser.

On a PPP level, I would say the USD is equvalent to about 15 INR. This means what 1 USD in the USA can buy (in terms of a basket of goods) will buy you exactly the same quality of the basket of goods if you spend Rs. 15 (INR) in India.


Written by Naveen Athresh

April 15, 2008 at 2:13 pm

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