Ignorance leads to optimism.

Repeated surveys show that Indians are one of the most optimistic people. When the cost of living has doubled in the last 3 years, investment has almost come to a halt, few jobs are being created, prices of fuel, electricity and travel are being increased daily in a desperate effort to control the deficit and the standard of living is dropping why should we be so optimistic? It maybe because of our belief in karma,  because we have such little expectations from our politicians that a small piece of good news is a joyful surprise and because we receive such contradictory information that we do not know what to believe. Seems that investors have been withdrawing money out of mutual funds and Unit Linked Income Products or ULIPs. This has forced institutional investors to dump Rs 1 trillion worth of stocks in the last 15 months till the end of March, Rs 700 billion worth in 2012-13. This is the highest in any year. Livemint 22 April. But instead of collapsing the stock market is booming, it is above 19000 today. The reason is that Foreign Institutional Investors have poured in $25 billion, about Rs 1.3 trillion, into our market. If people are getting out of shares where is the money going? After all, Rs 1 trillion is too much to be stuffed into pillows and mattresses. Must be going into fixed deposits in banks to lock in a high interest rate before rates fall, right? No. According to SBI Chairman, Pratip Chaudhuri," The biggest challenge for the banking system is to fend off competition from non-banks such as mutual funds, debt funds, liquid mutual funds and tax-free bond funds, who are all having an unfair advantage." Livemint 17 April. So on the one hand we are told that people are getting out of mutual funds while the SBI Chairman says that mutual funds are robbing banks of investment. RBI figures show that average deposit growth was 13.8% last year, just 11% in December, while it was 27.4% in 2008. One reason why people are saving less is because of falling interest rates. The SBI has reduced its 6 months savings rate by 125 basis points to 6.5%, which is almost half of the Consumer Price Index, while in China it has gone down by 50 basis points to 2.8%, which is above its CPI at 1.9%. Why is China able to control its inflation while we cannot? Because the CPI for farm workers was 12.64% in March and 12.72% in February. For rural laborers it was 12.62% in March and 12.52% in February. This is because the Congress started the NREGA scheme which pays rural poor for 100 days every year for fictitious work It started at Rs 100 per day but has already reached Rs 214 per day because it is linked to inflation. So rural people get higher handouts because of inflation, which raises labor costs, leading to higher food inflation, which leads to higher handouts. We are optimistic because no one explains anything to us.