The rupee will fall more.

The cost of electricity is set to rise exponentially. Apparently electricity companies are buying gas at $20 a unit which will translate to electricity costing Rs 12 per unit. TOI, 30 May. At present domestic customers are charged according to an escalating scale. The first 100 units at Rs 2.50, the next at Rs 4 and so on. The more you consume the higher the charges. The rationale being that poor people, who have fewer gadgets, use less electricity and so should pay at a lower rate while higher use indicates possession of air conditioners which indicate extreme extravagance for our socialist politicians, never mind that their homes, offices and cars are all air conditioned at taxpayer expense. Commercial rates start at around Rs 10 per unit. Increasing cost of electricity will have an immediate effect on prices of everything pushing up the Consumer Price Index which is already at a painful 9.39%. This will decrease consumer spending even further hurting retail sales, forcing companies to postpone investment and job creation. Economic growth fell to 4.8% in the final quarter of the last fiscal and is expected to remain range bound for many years. Unless it falls even more. Nobody seems to have any solution expect hysterical cries for reduction of interest rates which, they say, will help companies to borrow cheaply for further investment and for consumers to spend more. If inflation remains uncontrolled consumers will be forced to spend only on essentials and companies will not need to expand capacity. Just as they were swanning around Davos a few years back, oblivious to the dangers to the economy these idiots seem to be completely unaware of the dangers of inflation. They should look at Venezuela which has the highest oil reserves in the world. With a population of just 30 million, equal to Delhi and Mumbai, its GDP is around $350 billion, 80% of which comes from oil. In 1937 $1 dollar bought 3.18 bolivars. In the 80s inflation began to rise and reached 100% in 1996. The bolivar collapsed so that notes of 20,000 and 50,000 were being printed. On 1 January 2008 the Bolivar Fuerte or the strong bolivar was introduced which was equivalent to 1000 old bolivars. At that time its rate against the dollar was 2.15. On 8 January 2010 it was 2.60, on 8 January 2011 it was 4.30 and on 13 February 2013 the Venezuelan government devalued it to 6.30 to the dollar. Already the black market rate is 6.80 to the dollar. Of course, the inflation rate in Venezuela is 30%, 3 times higher than ours. The rupee has dropped to 56 to the dollar and, if we see property prices, the fair value maybe 80. That will increase inflation to 30%. Cheers.