Inflation, Infrastructure and Quality
Are you wondering what is the connection between Inflation, Infrastructure and Quality?
There is a huge connection. Let me explain.
I once had a German shoe which I used for almost 7 years – lot of tough use. Lots of walking, travelling by public transport like train – where it would get abused. It was a leather shoe which I used through 3-4 Mumbai monsoons – I wanted to get rid of it.
However the shoe lived through all that abuse. After so much of use, I got rid of it, BECAUSE I was bored using it.
Now stop wondering why would an Indian have a LEATHER shoe made in Germany? No, the story is about quality.
I was once given a FREE umbrella by Standard Chartered Bank (this must have been n 1991) – and it IS a really superior quality umbrella. I STILL HAVE IT, AND USED IT TODAY. Imagine an umbrella lasting you about 23 years. A shoe for 7 years.
Now take the prices of food stuff in India. You may find it difficult to believe that tomatoes for which you can pay as high a price as Rs. 100 a kilo in retail can fetch as less as Rs. 5 for the farmer. Most of the money in between go to the rent seekers.
If the government provided excellent infra (at a fee perhaps) like cold storage, regional collection centers, regional processing centers, good roads, and make sure that the number of intermediaries are dramatically reduced, ….at what price would you get tomatoes?
I am sure you are able to see the connect between quality and inflation (if a shoe lasts 8 years and EVEN if it were to cost Rs. 4000 for a pair, it means about Rs. 500 a month for a perod of 8 years!). In case of clothes we have reached that stage – most of us throw out out dresses because we are tired of them, not because they are torn. We change phones and other electronic stuff because some new features have been added in new phones. We change cars because insurance and maintenance costs keep rising for an old car. WE HAVE A CHOICE.
India has significant amount of unused land, a huge unemployed population, significant amount of water going waste – Imagine if all this were to be nicely used to grow vegetables, fruits, etc – Infra provided by the government….imagine what this can do to availability fruits, vegetables, milk, and consequently to prices!
Clear??
LuckyOye
Subra,
Unfortunately this article has several inaccuracies as well as thought fallacies. I’m not speaking for the ‘rent seekers’ as such, since I’m simply an employed professional.
But here’s the fallacy regarding high cost of tomatoes: People in urban cities ARE NOT PLUCKING THE TOMATOES FROM the plant or even live walkable distance of a tomato field. Consequently, the tomato sitting on that plant in the tomato field is NOT AVAILABLE to them, very much like an ungrown tomato is unavailable for consumption. And, there is a COST associated with getting that tomato on the plant to the actual consumer in the concrete jungle that are our cities. And the fallacy is to assume that those who bear THIS cost, don’t want A RETURN on their invested capital. True, having better storage, transportation, removing unnecessary middlemen can reduce the cost, but in no way will the cost go to zero, and hence the price for the consumer will never equal the price paid to the farmer.
Second, government is already having granaries for grains, and that’s not reducing the prices of grains in any way. If anything, MSPs for grains keep rising every year, grains rot in those granaries, and starvation is a horrible fact. So, having an equivalent system for vegetables will not reduce the prices at all.
Third, government can’t willy-nilly start employing unemployed people. That will only result in loss-making social schemes like NREGA. This aspect is a long-term committment, possibly spanning decades, of improving education, giving incentives to small businesses, encouraging people to setup their own businesses and not simply seek the safety and security net of a cozy govt. job.
Not trying to offend you or the readers, but just adding my perspective on the situation.
Thanks
gunda
One of the dimensions of Inflation is time. The longer the wait, the more variance (compounding effect). Not sure the perishable goods like vegetables can be compared with non perishable ones like shoe/cloth etc.
Pravin
Luckyoye makes very insightful remarks ,again.as usual.
Middlemen ,Brokers,dalals are all hated in our Self righteous Society.but if one examines economic activities,everyone is a middleman for some transaction or the other.a sw engineer could wish to sell his apps directly but he needs an apple or google who help him sell while taking a cut.down to the index fund manager who doesn’t “do much”.
Ofcourse transaction costs can be eliminated.but they don’t go away by the govt decreeing ( except where the govt is the cause of the trouble) . Profit seeking entrepreneurs disintermediate ( flip kart vs brick bookstore) and make things cheaper for all of us.
Inefficiencies in the supply chain are an opportunity for profit.to confuse that with inflation is not quite correct. Inflation is always and everywhere caused by too much money supply chasing few goods or assets
Pravin
The phenomenon of use and throw can be explained by the fact our purchasing power has gone up in real terms thanks to productivity gains. A rs 250 shirt from 1994 when my dad had a salary of 7000 would much different from a person who earns say 70000 per month at a similar stage ( comparing govt sector salaries of today) doesn’t find a 1000 rs shirt that expensive. My dad would have to work 6.5 hours to earn that shirt. Even after adjusting for inflation, a 70k salary implies 2.5 hours to buy that 1000 k shirt. Ofcourse retired ppl with fixed incomes don’t see increase in purchasing power and they don’t see use and throw as acceptable to them.
So,different financial situations make you respond differently.
Kumar
In agriculture middle man will work on very very thin margins in some areas.
If we believe a Walmart or Reliance can directly procure from farmers., but their employee costs in this procurement process will be more then on the margins a middle man works.
& if we take the above Tomato example, the cost of transporting tomatoes will be 2X & the cost of storage will be 3X the cost of growing. And we had to subtract the rotten/wastage in this process from produce bought from farmers.
Yogi
On a lighter note:
(if a shoe lasts 8 years and EVEN if it were to cost Rs. 4000 for a pair, it means about Rs. 500 a month for a perod of 8 years!)
That’s 48k over a period of 8yrs. Humm…maybe you bought it through a credit card with 31.5% interest rate and paid it with monthly min balance amount…Haha
-Yogi