After the entertainment back to dal roti.

Everyone in India has been breathless during the last 2 days of tumultuous events. Journalists have been engaged in contests to see who can scream the loudest, so as to attract commercials for their respective channels. Every self appointed savant has been giving advice to Mr Modi on the best policies his government should follow. The exit polls were spectacularly wrong except for one called Chanakya. Much to our relief astrologers were much closer. Now that we have a chance to settle down the old problem of survival is again occupying our minds. The Consumer Price Index increased to 8.59% in April compared to 8.31% in March while the Index of Industrial Production was down by 0.5% in March compared to a fall of 1.8% in February. Production of consumer durables fell by 11.8% in March and by 12.2% in the whole of the financial year showing that rising prices are killing off demand. More worrying was the fall of Capital goods  by 12.5% in March and by 3.7% in the whole fiscal, signifying a fall in new investment. The Congress never understood that high inflation kills demand, reduces investment, reduces employment, reduces growth and increases poverty. The Wholesale Price Index fell from 5.7% in March to 5.2% in April due to a fall in vegetable prices but retail food inflation increased to 9.66%. The WPI maybe important for politicians but for us only the CPI matters and inflation, especially in food, acts as a huge tax on everything we buy so we stop spending. The good news is that economists are predicting a slight fall in inflation numbers in this fiscal because of measures taken by the Reserve Bank and due to a high base effect. The bad news is that a weak monsoon due to El Nino could lower GDP growth by 0.5%, lower agriculture growth by 2.5% and increase retail inflation by a full 1%. Falling demand will reduce profits and lead to more bad debts. Around 5-6% of bank capital will be erased once bad debts have been written off. The good news is that manufacturing can improve as labor costs are still cheap in India, especially as wages are rising in China. The non-financial private sector debt to GDP ratio in China is 181% compared to just 57% in India. Public debt in China is around 53% compared to 70% in India so that the total debt burden of China is 240% of GDP compared to half that in India. Vietnam also has enormous debt burden. If the new government controls inflation, invests in infrastructure and has a low stable tax regime India could boom. We can only pray.