The talk over the past several weeks has been about inflation in India and how it affects the common man. The reality is the common man always gets the short end of the stick in India, however in recent elections the ruling party lost key seats because of inflation. Because of that, all the political figures are getting involved and trying to cut inflation in flash, which never happens. The first thing they did was look at the commoditiy markets and banned several commodities (rice and wheat to name a couple) from trading – they blamed the speculators in the market. Poor planning on the governments part? Probably, but it’s easier to blame the traders.
It’s the equivalent of blaming real estate brokers for the rise in real estate. Which brings me to the next big government move. Housing prices are also rising, so the government wants to curb those prices by banning exports on cement.Â Which will lead to an artificial supply in India and hopefully prices will fall in cement and make houses cheaper to build…oh wait, the cement companies could just adjust their output and keep prices inline.
All these so called inflation buster moves have done one thing and that is make foreign investors re-think their India strategy. Take a look at the wild price-action movements in the equity markets over the past week. The proposed cement ban is a throwback to the “license raj” era and very much against the free market perception the government has been trying to build ever since 1991.