What if I were to say that the home prices in the United States impact the value of your investments in India. You will probably turn around and ask me to go take a walk.
But the fact of the matter is that there is actually a link between the two and we have reached a stage where the link perhaps matters more than it ever did. Nonetheless, before we get into understanding this, it’s important to know how we got here in the first place.
In late 2019 and early 2020, rich world central banks led by the Federal Reserve of the United States, the American central bank, started to print a lot of money, first to take care of the economic slowdown and then the economic contraction because of the spread of the covid pandemic.
The idea was to drive down interest rates. At lower interest rates people were expected to borrow and spend money. Interest rates on thirty year home loans in the United States fell to as low as 2.65% in early January 2021, the lowest they had been since 1971, the year from which this data is available.
Naturally, with interest rates at such low levels, more people started borrowing and buying homes than was the case in the past. While the demand for homes went up quickly, their supply couldn’t go up as quickly to meet this extra demand. Hence, home prices went up, at a very past pace.
In April 2022, home prices in the US, as per the S&P Case-Shiller 20-City Composite Home Price Index, went up by 21.2% in comparison to April 2021. Home prices have been rising at more than 17% year on year from May 2021 onwards. This kind of price rise wasn’t even seen during the real estate bubble of the 2000s.
One straight impact of this has been rising home rents. As per Realtor.com, the median rent in the United States in May 2022 was 23.2% higher than in May 2020 and 15.5% higher than in May 2021. This rise in home rents feeds into retail inflation. As The Economist puts it, in May 2022, the “rising housing costs already accounted for 40% of the monthly increase in the consumer-price index [which measures retail inflation].”
In May 2022, the retail inflation in the United States stood at 8.6%, the highest since December 1981, when it was at 8.9%. People are now building in this high inflation into their monetary calculations; in the home-rents they demand and in the salaries and wages they ask for.
In May 2022, the median one-year ahead expected inflation rate in the United States was 6.6%, the highest that it has been in a while. As any economist would put it, once inflation expectations set in the minds of people it becomes very difficult for central banks to control inflation.
So, in this scenario, it has become very important for the Federal Reserve to control the fast pace at which housing prices have been going up, given that it can’t do much about the high energy prices, due to the war in Ukraine.
The Federal Reserve has decided to gradually withdraw some of the money that it had printed and pumped into the financial system. Between June 2021 and May 2022, it expects to suck out close to a trillion dollars, bringing an era of easy money to an end.
This is already pushing up home loan and other long-term interest rates in the United States. As of June 30, the median interest rate on a 30-year fixed interest rate home loan had risen to 5.7%, from a low of 2.65% in early January 2021.
As the Fed keeps sucking out money, the interest rate on home loans will keep going up and this will hopefully drive down the demand for fresh homes and the rate of price rise of homes. As home price inflation cools down, rental inflation will also cool down and in turn bring down retail inflation. That’s the theory.
Other than taking out the money it had printed, the Federal Reserve also plans to raise its key short interest rate, the federal funds rate. This is expected to drive up short term interest rates in the United States.
The end of the era of easy money and rising interest rates in the United States will have an impact on investments in India. In fact, this is already happening. The foreign institutional investors (FIIs) have already sold Indian stocks worth Rs 2.56 trillion between October 2021 and July 1, 2022. This has led to the value of investments in stocks, equity mutual funds and unit linked insurance plans, falling.
Further, as FIIs sell out of India, they convert their rupees into dollars, leading to a surge in the demand for the dollar and drop in the value of the rupee. One dollar is currently worth around Rs 79. It was worth around Rs 74.5 at the beginning of 2022. This makes life expensive for those looking to study abroad or to go for a foreign holiday.
As the Federal Reserve raises interest rates, the Reserve Bank of India will have to do the same. This will push up interest rates on loans as well as deposits in India. Hence, people with loans are likely to end up paying higher EMIs, whereas people with deposits are likely to earn a higher interest than was the case in the past. Again, this is already happening.
Of course, a big impact of the rise in interest rates in the United States has been on crypto prices, which have crashed by close to 80% from their all-time high-levels, leaving many zoomers poorer.
All in all, as the old cliché goes, when America sneezes, the whole world catches cold.
This piece originally appeared in the Deccan Herald on July 3, 2022, with a different headline.
आराम से बैठकर तनख्वाह उठाने में शर्म सी आने लगी थी और किताब को किसी भी तरह से पूरा करके छपवाने का जुनून सिर पर सवार था.
अब ज़िन्दगी कोई कंप्यूटर प्रोग्राम तो है नहीं कि जब तक सारी कोडिंग ठीक से न की गयी हो, तो चलेगी नहीं. इसलिए चल गयी.
दैनिक जागरण से लेकर डेक्कन क्रॉनिकल तक और बैंगलोर मिरर से लेकर बीबीसी तक, सब जगह मेरे लेख छपे. हिंदी में अर्थशास्त्र पर लिखने की आदत भी बनायी. (जी. GST को माल और सेवा कर कहते हैं और फिस्कल डेफिसिट को राजकोषीय घाटा).
इसके अलावा काफी नामचीन प्रबंधन विद्यालयों (business schools) में लेक्चर देने का मौका भी मिला. अहमदाबाद से बेंगलुरु तक, मुंबई से मणिपाल तक और रोहतक से लेकर रांची तक.
लगभग हर दिन लिख कर दुनिया को ये चिल्ला चिल्ला के बताना के भाई पढ़ो, हमने लिखा है, इस का अंत में क्या हश्र होगा?
या फिर सोशल मीडिया के ज़माने में, where you can flood WhatsApp with shit, दो एक लोगों के लिखने या न लिखने से क्या ही फरक पड़ता है?
अब इस बात पर एक शेर याद आ गया. जैसा चचा ग़ालिब कह गए हैं:
हुई मुद्दत कि ‘ग़ालिब’ मर गया पर याद आता है
वो हर इक बात पर कहना कि यूँ होता तो क्या होता .
और अंत मे नास्तिक होते हुए भी ये प्रार्थना करता हूँ कि पाठकों, सम्पादकों और सबसे ज़्यादा प्रबंधकों और मुनीमों की मुझ पर कृपा बनी रहे. कहिये तो Chivas Regal चढ़ा आता हूँ.
हाँ और शिक्षित बेरोज़गारी की दो चीज़ें हमेशा मुझे प्रेरित करती रही रहेंगी, एक तो इसकी आज़ादी और दूसरी केवल अपने प्रति और अपने पाठकों के प्रति जवाबदेह होना.
अब हर दिन तीन से चार बजे तक सोना का मज़ा तो वो ही जानते हैं जो हर दोपहर को सोते हैं. आप भी कभी करके देखिए, मज़ा आएगा. और जब आप सो कर उठेंगे मुझसे मिलिएगा ज़रूर, बुत बनकर बैठेंगे.
मैं शब्द बेचता हूँ. आप ज़रूर खरीदते रहिएगा क्यूंकि अब बेरोज़गारी हमारे खून के ज़र्रे ज़र्रे में बस चुकी है.
Bappi Lahiri, the man who wore a lot of gold, inspired a million memes and was inspired by a hundreds of tunes of popular English songs, died today morning.
Bappi da entertained a whole generation at a time when the word almost did not exist. He was a part of an era when Hindi films were simple, almost simplistic.
There was a hero. There was a heroine. And there was a villain. Of course, there was also a comedy track which had nothing to do with the movie. Or if I were put it in terms of how Hindi film directors talk these days, the comedy track did not take the story forward. In fact, you can cut out these comedy tracks totally from the movie and the movie would still make sense; without being quite as enjoyable.
The villain could be a person, with more junior villains under him and an adda, a den, where the hero would come in at the end and rescue the heroine and the family. He would also beat up the main villain and the junior villains. But not before the heroine had sung an item number because the villain wanted to see some skin.
The villain could also be family. The father of the rich heroine who could not see his pampered Paapa ki Parri kind of daughter find love and do a rain dance with a poor man. He would try to buy the hero by offering an unlimited amount of money. And of course, the hero would refuse. However, a couple of hours later, all would be well, and the hero and the heroine would live and love happily ever after.
Those were simpler days. Cinema tickets were cheap. So was popcorn. The seats weren’t as comfortable. And on most days the AC in the cinema did not work. Or AC stood for air-cooled and not air-conditioned (Please don’t ask me what the difference was).
Bappi Lahiri’s music was a part of this era, when people went to the movies to have a good time and not to figure out where the music director had copied the tune from and crib about it later on Twitter by doing long threads. If the song was a good to the ears, it did not matter where it came from.
If the movie was enjoyable, people went and watched it again. Took their family. Their friends. They did not do long posts on LinkedIn to explain the management lessons they learnt from watching Sholay.
Interestingly, the basic plot of Sholay was based on the Hollywood Western, The Magnificent Seven, which in turn was inspired by The Seven Samurai, a Japanese film made by Akira Kurosawa. Of course, there were a whole lot of other movies from which scenes had been copied, including Madhumati, if I remember correctly. As Salim Khan, one-half of the famous Salim-Javed jodi, which wrote Sholay and many other superhits, once said, “Original kya hota hai? Creativity is about hiding the source.”
Bappi Lahiri was a part of this era. It did not matter that koi yahan aahe naache naache was lifted from The Buggles hit, video has killed the radio star. What mattered was the way Kalpana Iyer lip-synced and danced on screen. What mattered were the fantastic beats which made you want to dance in the aisles of the cinema hall you were watching the movie in.
It did not matter that mera dil gaaye ja zubie zubie zubie was lifted from the Modern Talking hit, Brother Louise. What mattered was that the casting of the movie Dance Dance accompanied the song and one knew that a Mithun movie produced and directed by Babbar Subhash (better known as B Subhash), also featuring Amirsh Puri and his lecherous eyes, was bound to be entertaining.
Bappi Lahiri was a child prodigy who went out of work in his early forties, in the early 1990s. In the years that followed he was labelled as the copycat king and made fun for wearing too much gold. This is not to say that Bappi Lahiri did not copy, he did. But so did everyone else from C Ramachandra to Shankar-Jaikishan to Laxmikant-Pyarelal to RD Burman, all famous music directors in their own right.
Let me just give you one example here. The famous Shankar Jaikishan song ajeeb dastan hai ye was inspired by the Jim Reeves song my lips are sealed. Of course, only the music aficionados know this, but everyone and their aunts know that Bappi da copied sochna kya jo bhi hoga dekha jaega from the lambada.
It’s just that the generation which first started using the internet in India was more aware of Lahiri’s work than that of his predecessors. Hence, he was quickly found out. The assessment of Bappi Lahiri’s music started to happen just at the point of time when access to information exploded and the people who became the thekedars of the society on this issue, were more well-versed with his music than the music of the music directors before him. A similar thing happened to Annu Mallik.
The nuanced thing to say here would be that a lot of disco music which Bappi Lahiri made popular in India, was copied from English songs. But that does not mean he did not give good-melodious music. He couldn’t have survived as a top music director for two decades just by copying disco music. Many people are sullying his legacy by calling him the Disco King.
Let’s sample a few extremely melodious non-disco songs of Bappi Lahiri.
1) ye naina ye kajal ye zulfen ye aanchal from Dil Sey Miley Dil.
2) manzilen apni jagah hai from Sharaabi.
3) muskurata hua from Lahu Ke Do Rang.
4) maana ho tum behad haseen from Toote Khilone.
5) mere dil main tu hi tu hai from Bhavna (This rather unknown song was sung by Jagjit and Chitra Singh. While growing up I heard this song umpteenth number of times simply because I had a combination cassette of Masoom and Bhavna).
6) halke halke aaye chalke from Apne Paraye.
7) aashiq deewana hoon pagal parwaana hoon from Afsana Pyar Ka (A rip off of Richie Valens/Los Lobos superhit la bamba. I love the Bappi Lahiri/Amit Kumar version as much as the original one).
8) mujhko ye zindagi lagti hai ajnabi from Sailaab (The pathos in this song sung by Amit Kumar and Asha Bhonsle can make you gloomy on the most cheerful of days).
9) takhon tumar ekush bachhar (This modern bangla song would have made even Salil Choudhary, the king of modern bangla songs, proud).
10) awaaz di hai from Aitbaar. (This lovely ghazal kind of number was sung by Bhupinder Singh and Asha Bhonsle. And Mukul Anand’s Aitbaar was a scene by scene lift of Alfred Hitchcock’s Dial M for Murder.)
Okay, I can go on with this. But there is only so much space. And only so much time. And I know that I am competing with Netflix. So, do listen to the songs of Bappi Lahiri I have shared.
As for me I am going to blast Kasam Paida Karne Waale Ki, sung by the brilliant Vijay Benedict.
And while doing this I will remember of a much simpler time, when one waited for the hero and heroine to lip-sync to songs in a dream sequence shot with hundreds of background dancers, possibly in Ooty or in Kashmir or on a set in a Mumbai suburb.
I will remember of a much simpler time when one waited for the hero to fly in on his motorcycle into the villain’s den with some heavy dhan te nan background music and for everyone to live happily ever after.
I want to go back to the era where I could walk out of a movie for a few minutes and then come back and still follow the story, and not have to ask any one kya hua.
I want to go back to the era when watching a movie was just that, where I wasn’t trying to figure out the behavioural sensibilities of the film’s director or the writer for that matter.
I want to go back to the era when people did not watch a movie to figure out something that might offend them.
I want to go back to the era when what one saw on the screen was all one had to understand to figure out what the director was trying to say. There were no hidden meanings anywhere. What you saw was what you got!
I want to go back to the era when watching a movie wasn’t an intellectual argument waiting to be made on the social media.
And finally, I wonder, when did simple mindless entertainment go out of Hindi cinema?
Thank you for the music, Bappi Lahiri!
Shaktikanta Das, the governor of the Reserve Bank of India (RBI), projected optimism in the latest monetary policy by reminding us of the great Lata Mangeshkar song “aaj phir jeene ki tamanna hai (Now, again, I desire to live),” from the movie Guide.
The eternal message of optimism needed to be projected in order to defend the monetary policy committee’s decision to not raise the repo rate or the interest rate at which the RBI lends to banks. The repo rate has some impact on the interest rates at which banks carry out their lending. When a central bank raises the repo rate it’s essentially signalling that it is getting worried about inflation or the rate of price rise.
The RBI under Das started cutting the repo rate in February 2019, when it was at 6.5%. By May 2020, it was cut to 4%, which is where it has stayed since. So, the monetary policy has been in what economists like to call accommodative for close to two years. Along with cutting the repo rate, RBI also printed money and flooded it into the financial system by buying bonds.
The idea, in the aftermath of the covid pandemic, understandably, was to drive down interest rates, with the hope that people would borrow and spend more, and industries would borrow and expand, and the government would be able to borrow at low interest rates.
But the times are changing now, with inflation becoming a global phenomenon. As per the February 5th-11th issue of The Economist global inflation now stands at 6%. Retail inflation in the United States in January stood at 7.5%, the highest since February 1982. In December, the retail inflation in the Euro Area was at 5%, the highest it has ever been since data started to be collected in January 1997.
Not surprisingly, central banks all across the world have been raising interest rates. The Bank of England has already raised interest rates twice. The Federal Reserve of the United States will have to soon start raising rates to rein in the four-decade high retail inflation.
Retail inflation in India in December 2021 was at 5.6%, lower than 6% level above which RBI starts to get uncomfortable. Interestingly, the RBI believes that inflation during the next financial year will be at 4.5%. This, given the evidence on offer and the fact that we live in a highly globalized world, seems a tad unlikely.
Oil prices continue to remain high with the price of Brent crude being at $90 per barrel. Also, the supply chain problems, which had cropped all across the world due to the spread of the covid pandemic, haven’t gone away. Then there is the joker in the pack, on which, as always, a lot depends in the Indian case: a normal monsoon. As Dipanwita Mazumdar, an economist at the Bank of Baroda, puts it: “Another upside risk to inflation is the possibility of a below normal monsoon. Statistically, with six successive monsoons, there could be a sub-optimal one this year.”
Further, we have close to 6% retail inflation despite consumer demand at an aggregate level continuing to remain muted. Due to this, companies have been unable to pass on the increase in the cost of their inputs to the end consumers. This can be gauged from the fact that from April to December 2021, the wholesale inflation was at 12.5%, whereas retail inflation was at 5.2%. As Das put it in his statement: “The transmission of input cost pressures to selling prices remains muted in view of the continuing slack in demand”.
The lack of consumer demand has held retail inflation down. Nonetheless, companies have started raising prices as consumer demand has started to pick up. As the RBI’s monetary policy statement put it: “The pick-up in… bank credit, supportive monetary and liquidity conditions, sustained buoyancy in merchandise exports… and stable business outlook augur well for aggregate demand.”
This, in an environment of continued high oil prices, supply chain constraints and more expensive imports, implies higher retail inflation in the months to come, which means the RBI should have started raising the repo rate by now. But it hasn’t.
So, why has the RBI maintained a status quo? It’s the debt manager of the government. The government’s gross borrowing stood at Rs 12.6 lakh crore in 2020-21. It will end up borrowing Rs 10.5 lakh crore in 2021-22, with plans of borrowing Rs 15 lakh crore in 2022-23. Given this, the RBI has to help the government to borrow at low interest rates.
To cut a long story short, the RBI is not bothered about retail inflation, controlling which is its primary mandate. It’s more interested in ensuring that the government is able to borrow at low interest rates.
Finally, Das just quoted one line from the beautiful Lata song written by Shailendra and composed by SD Burman. The next line of the song goes like this: “aaj phir marne ka iraada hai ((Now, again, I desire to die)).” The translation doesn’t do justice to Shailendra’s writing which metaphorically captures the tormented state of mind of a married woman who has suddenly found love in another man, at once feeling both exhilaration and guilt and dejection.
The binaries in economics are never as strong as life and death, nonetheless, they do exist. It’s just that RBI under Das likes to be an optimistic cheerleader rather than an institution which should realistically assess the state of the Indian economy.
Hence, as far as projecting eternal optimism goes, Das should have been quoting the Gabbar Singh dialogue from Sholay written by Salim-Javed: “Jo darr gaya samjho mar gaya (the one who is afraid is dead),” and not Shailendra, SD Burman and Lata’s song.
(A slightly different version of this column appeared in the Deccan Herald on February 13, 2022.)