Inflation stops growth.

Inflation affects everyone in the country, the poor infinitely more than the rich. With finite earnings rising prices mean that people can buy less so they make choices. For the middle class it may mean postponing the purchase of a car or replacing the old fridge. For the poor it means having less meat or milk and doing without washing powder, a visit to the dentist or an essential blood test. Thus it affects the entire economy from automobiles to white goods to the FMCG sector. High interest rates, on the other hand, is good for those with less income because they get higher interests on their fixed deposits in banks which augments income and savings. However high interest rates are bad for builders, property dealers and land grabbers who make profits out of creating a bubble. Property prices have increased 800% since 2002 and have reached fairy tale levels. This is good for criminal politicians and thieving civil servants who have invested their black money in property which is why the government is so keen to see the RBI reduce interest rates. The constant chatter is about growth with ministers debating whether it will be 7.6 instead of 7.4%. With the rupee in free fall inflation will rise preventing the RBI from reducing rates so in a fit of panic the government has decided to invite hot money from abroad. First banks were freed to set interest rates on Non Resident External accounts. A few banks promptly set the rate at 9%. Second the government has now allowed Qualified Foreign Investors to buy shares in the Indian market directly. Foreign Institutional Investors have apparently lost Rs 2 trillion on Indian shares because the Sensex has fallen 24% in 2011. That,coupled with the fall of the rupee, has meant that FIIs have got fewer dollars on repatriation. So why should foreign investors, individual or otherwise, rush to invest in India when the future looks so foggy? Recent outcry over corruption and black money held abroad may have forced the issue. This would provide a nice channel for bringing the money home. In the process the Sensex and the rupee would stabilize. Problem is that general elections are in 2014 by which time things could really get really rough. Still the politicians would never call early elections. What if they lose? That will cut 2 years worth of loot. They seem to be like the monkey with its hand stuck inside a bottle, desperate to get its hand out yet too greedy to let go of the nut. Would it be stupid to enjoy?