This is one for the economists to wonder about. And such insights can only be found here at monkeyshine nutworks. Read On!
The surely unintended consequences by the Govt. of India in raising Diesel prices is not yet caught on by the mainstream media or even by any bloggers till now.
When diesel prices are increased in India, (an unheard increase of Rs. 5/- per litre was announced last week) everyone, including me, was worried about the inflationary impact of that decision.
Ordinarily the impact would be felt immediately on the consumers in the cities. The first and most immediate effect would be the increase in the price of vegetables.
A city like Chennai, is totally dependent totally upon the ‘import’ of essential commodities. As such, we would expect the vegetable prices to shoot up by the same amount - from Rs. 5/- to Rs. 10/- per kilogram, or more, when diesel price goes up.
But something strange happened over the last few days. The prices of vegetables actually fell - by a whopping 50% or more.
The price of every vegetable was hovering around Rs. 25/- at the minimum for potatoes and tomatoes. The vegetables like french beans, flat beans, ladies finger, brinjal and others were between Rs. 40/- to Rs. 60/- (or more) per kilogram. The price of the lowly cabbage was at Rs. 20/- or more per kilogram. But that was before the diesel price increase.
The price in retail market as of today, (and for last 4-5 days) has been astonishing. Vegetables are selling at Rs. 10/- to Rs. 15/- per kilogram. Cabbage is available at Rs. 5/- per kilogram.
Now, why did that happen?
It did happen because of the fear of FDI and a self-realisation (within the trader community) that speculative, artificial boost in prices, is going to eff the existing traders in the long run.
The Prime Minister was not fazed with the threatened strike by truckers and lorry owners after the diesel price hike. He followed it up by declaring that FDI in retail as a done deal and cutting subsidies to LPG cylinders for domestic consumption.
Now, think of the consequences. As I’ve written before (for last 2 years), the food pricing in India has been speculative. If you have never believed me before, the proof is here today.
The middlemen are actually running scared. Just think about it - if they’re selling vegetables at Rs. 40/- per kilogram, how can they protest when Walmart or Kmart comes in and starts selling vegetables at same price or even less?
So, they have fallen back to what they should have been doing all along for last 2-3 years. Mark up a reasonable profit on their trades and stop artificially setting prices, on-a-whim. All along they’ve been jacking up prices, to see how much the consumers are actually willing to pay - pure speculative, greedy capitalism.
Make money not by charging a fair price, but by jacking up prices to limit - a price limit at which the consumers stop or reduce their purchase.
To admit a fact, I am not convinced that FDI in retail is good for India - despite this happenstance by way of curbing of greed (of the traders). That broadside on this administrations polices, is yet to be written, but soon.
Again that post when written will be one in which views that hasn’t been explored or even thought of in the mainstream media or even by any other blogger will be written about.
To end - The moral of the story. Good, strong (political) leadership solves half the problems of a nation.
Now that is not an original idea - it is just paraphrasing what Thomas Friedman wrote in his recent post [http://www.nytimes.com/2012/09/23/opinion/sunday/friedman-hard-lines-red-lines-and-green-lines.html] on what leadership and power is all about. The fear of losing power (in this case their economic, marketing power by the traders) is what is driving downturn in vegetable prices.
LOL.
The surely unintended consequences by the Govt. of India in raising Diesel prices is not yet caught on by the mainstream media or even by any bloggers till now.
When diesel prices are increased in India, (an unheard increase of Rs. 5/- per litre was announced last week) everyone, including me, was worried about the inflationary impact of that decision.
Ordinarily the impact would be felt immediately on the consumers in the cities. The first and most immediate effect would be the increase in the price of vegetables.
A city like Chennai, is totally dependent totally upon the ‘import’ of essential commodities. As such, we would expect the vegetable prices to shoot up by the same amount - from Rs. 5/- to Rs. 10/- per kilogram, or more, when diesel price goes up.
But something strange happened over the last few days. The prices of vegetables actually fell - by a whopping 50% or more.
The price of every vegetable was hovering around Rs. 25/- at the minimum for potatoes and tomatoes. The vegetables like french beans, flat beans, ladies finger, brinjal and others were between Rs. 40/- to Rs. 60/- (or more) per kilogram. The price of the lowly cabbage was at Rs. 20/- or more per kilogram. But that was before the diesel price increase.
The price in retail market as of today, (and for last 4-5 days) has been astonishing. Vegetables are selling at Rs. 10/- to Rs. 15/- per kilogram. Cabbage is available at Rs. 5/- per kilogram.
Now, why did that happen?
It did happen because of the fear of FDI and a self-realisation (within the trader community) that speculative, artificial boost in prices, is going to eff the existing traders in the long run.
The Prime Minister was not fazed with the threatened strike by truckers and lorry owners after the diesel price hike. He followed it up by declaring that FDI in retail as a done deal and cutting subsidies to LPG cylinders for domestic consumption.
Now, think of the consequences. As I’ve written before (for last 2 years), the food pricing in India has been speculative. If you have never believed me before, the proof is here today.
The middlemen are actually running scared. Just think about it - if they’re selling vegetables at Rs. 40/- per kilogram, how can they protest when Walmart or Kmart comes in and starts selling vegetables at same price or even less?
So, they have fallen back to what they should have been doing all along for last 2-3 years. Mark up a reasonable profit on their trades and stop artificially setting prices, on-a-whim. All along they’ve been jacking up prices, to see how much the consumers are actually willing to pay - pure speculative, greedy capitalism.
Make money not by charging a fair price, but by jacking up prices to limit - a price limit at which the consumers stop or reduce their purchase.
To admit a fact, I am not convinced that FDI in retail is good for India - despite this happenstance by way of curbing of greed (of the traders). That broadside on this administrations polices, is yet to be written, but soon.
Again that post when written will be one in which views that hasn’t been explored or even thought of in the mainstream media or even by any other blogger will be written about.
To end - The moral of the story. Good, strong (political) leadership solves half the problems of a nation.
Now that is not an original idea - it is just paraphrasing what Thomas Friedman wrote in his recent post [http://www.nytimes.com/2012/09/23/opinion/sunday/friedman-hard-lines-red-lines-and-green-lines.html] on what leadership and power is all about. The fear of losing power (in this case their economic, marketing power by the traders) is what is driving downturn in vegetable prices.
LOL.
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