Something has to give.

In other countries a fall in demand leads to a fall in prices which explains why Japan has suffered deflation for over a decade. As demand fell prices came down which tempted people to wait for prices to fall even further leading to a cycle of ever falling demand - lower prices - a further fall in demand. This severely reduced company profits leading to loss of jobs which again led to fall in demand as people became fearful of spending. Not here in India. Although demand has not grown in the last quarter of last year profit margins have stayed the same because companies have increased prices as well as cut costs. An analysis by Crisil Research into 163 top companies listed on the National Stock Exchange shows that revenues of these manufacturing and services companies ( excluding banks ) grew by 15.3% compared to last year while their net profit grew by a whopping 41.5%. TOI, 29 January. Excluding oil companies, Earnings Before Tax or Ebidta grew by 12.2% while net profit grew by 18.2%. " The tepid revenue growth was due to continued pressure on volume growth in sectors like auto, IT, cement, and FMCG. Ebidta margins have remained flat on a Y-o-Y basis, supported by price increases and tight cost control by India Inc.," said Mukesh Agarwal, President of Crisil Research. These figures reveal 2 lies that are fed to us constantly by politicians and the freeloading press - 1. Oil companies are not making losses as claimed and 2. Company profits were not being affected by the high interest rates. So why was there a hysterical clamor for cutting interest rates in spite of CPI at over 10%. The real reason is the real estate sector which wants even further reduction in rates to boost demands. " Although RBI has made a good beginning, the repo rate cut of 25 basis points is just not enough," said one Lalit Kumar Jain. But even if interest rates were reduced to 1% would it see a jump in property sales and prices as these fellows think. Everyone talks about the enormous pent up demand for housing as the middle class grows in number to 20% of the population or some 200 million people. Trouble is that as per our Finance Minister only 35 million people pay tax which means most properties are sold on black money. State governments, greedy for tax collections, have increased Circle Rates, which is the minimum amount that has to be paid in white, to such high levels that the Circle Rate is now almost the same as the market rate. Any buyer will have to prove the source of his income to tax fellows and this is scaring buyers. Also the pent up demand is in properties in the range of Rs 1-3 million whereas builders have built luxury apartments selling at over Rs 10 million. The market is so skewed that something has to give. Either property prices have to fall by 90% or the rupee will. Economics is maths after all.