Huffington Post India

Economic Survey: There Is A Very Compelling Case For India To Move To Cash Transfer Of Subsidies

narendra_modi

Price subsidies have been a very important part of the Indian government’s plan of trying to bring down poverty in the country. This entails selling commodities like rice, wheat and kerosene, at a price significantly lower than the market price through the public distribution system.

But the question is, do these subsidies work? The Economic Survey for 2014-2015 had said that: “Prima facie, price subsidies do not appear to have had a transformative effect on the living standards of the poor, though they have helped poor households weather inflation and price volatility.”

What are the basic problems with these subsidies? Subsidies are regressive. This basically means that the rich households tend to benefit more from them than the poor for whom the subsidies are meant.

Take the case of cooking gas which the oil marketing companies sell at a loss and are in turn compensated by the government. It turns out that the poorest 50% of the households consume only 25% of the cooking gas.

Further, subsidies don’t reach those who they are meant for. Around 46% of kerosene which has to be distributed through the public distribution system(PDS) is lost as a leakage. This basically means that the kerosene is siphoned off by those running the shops that constitute the PDS and the government functionaries involved. It is then sold in the open market.

This story plays out across other commodities distributed through the PDS as well. Nearly 54% of the wheat meant to be distributed through PDS is lost as a leakage. Around 48% of the sugar and 15% of rice meant to be distributed through the public distribution system is lost as a leakage.

Fertilisers also face a similar leakage problem. As the Economic Survey of 2015-2016 released a few hours back points out: “The government budgeted Rs 73,000 crore—about 0.5 per cent of GDP—on fertiliser subsidies in 2015-16. Nearly 70 percent of this amount was allocated to urea, the most commonly used fertiliser, making it the largest subsidy after food.”

Subsidised urea has three kinds of leakages. As the Survey points out: “(i) 24 per cent is spent on inefficient urea producers (ii) of the remaining,4 1 per cent is diverted to non-agricultural uses and abroad; (ii) of the remaining, 24 per cent is consumed by larger—presumably richer—farmers.”

These are huge leakages which cost the government a lot of money. So what can be done about this? As the Economic Survey points out: “Cash transfers can directly improve the economic lives of India’s poor, and raise economic efficiency by reducing leakages and market distortions.”

The current model of distribution of subsidies is essentially very leaky. This has led to a situation where only 35% or Rs 17,500 crore of the total urea subsidy of Rs 50,300 crore reaches the small and marginal farmers, the intended beneficiaries.

It is estimated that 75% subsidy on agricultural urea has essentially managed to create a thriving black market in the Bangladesh and Nepal. As the Economic Survey points out: “Comparing urea allocation data with estimates of actual use from the Cost of Cultivation Survey 2012-13, we estimate that 41 per cent of urea is diverted to industry or smuggled across borders.”

Further, there is a huge black market for urea within India as well. “It is estimated that about 51 per cent of Indian farmers buy urea at above-MRP. In the three eastern states bordering Bangladesh, 100 per cent of farmers had to buy urea at above MRP in the black market. Similarly, in Uttar Pradesh, which borders Nepal, 67 per cent of farmers had to buy urea in the black market at above the stipulated MRP,” the Survey points out.
The simple answer to prevent this leakage would have been better policing. Nevertheless, as World Bank chief economist Kaushik Basu writes in An Economist in the Real World—The Art of Policymaking in India: “Trying to police such a large system by creating another layer of police and bureaucracy will come with its own problems of corruption and bureaucracy.” It also leads to the proverbial question of who will police the police?

The answer lies in coming up with a better design in order to deliver food grains, fertiliser and kerosene to the poor. Essentially, the role of the PDS shop owner needs to be cut down. The Economic Survey for 2014-2015 as well as the Economic Survey for 2015-2016 talk about direct cash transfers to beneficiaries of these subsidised commodities, instead of distributing them through the PDS.

Instead of distributing food grains, fertiliser and kerosene through the PDS shops, the intended beneficiaries need to be given money through cash transfers and be allowed to buy commodities from wherever they want to.

As the Survey for 2014-2015 pointed out: “Recent experimental evidence documents that unconditional cash transfers – if targeted well – can boost household consumption and asset ownership and reduce food security problems for the ultra poor.”

In fact, Basu explains this in some detail in his book through the concept of food coupons, which are again nothing but cash transfers. He envisages a system where the poor get food coupons or cash transfers and they then use that money to buy kerosene, fertiliser and food grains from any shop instead of just the PDS shop in their neighbourhood.

As he writes: “Note that since the stores get full price from the poor and, more importantly, the same price from the poor and the rich, they will have little incentive to turn away the poor away. Further, the incentive to adulterate will also be greatly reduced since the poor will have the right to go to any store with their coupons [or cash for that matter].”

This means that the PDS shops are also likely to sell good stuff, instead of trying to adulterate the commodities. Further, the siphoning of the food grains, fertiliser and kerosene will also come down.

The fear here is that the poor will use their coupons or cash for something else. But that risk is anyway there in the current system as well. The poor can sell the grain or the kerosene that they get and do something else with that money.

Also, as Basu puts it: “If they choose not to take the benefit in the form of food and buy something else, it is not nearly so counterproductive as the benefit going to owners of PDS stores as often happens in the current system.” The chances of that money being spent and benefitting the economy are higher.

For this system to work the government needs to be able to link the Aadhaar number to an active bank account, in which it can transfer money. As of January 2016, around 970 million Indians have Aadhaar numbers. In fact, linking Aadhaar numbers to bank accounts has worked very well in case of subsidised cooking gas cylinders where black marketing has come down. “The use of Aadhaar has made black marketing harder, and LPG leakages have reduced by about 24 per cent with limited exclusion of genuine beneficiaries.”

As the Survey points out: “A number of states, like Andhra Pradesh and Gujarat, with high Aadhaar penetration and POS devices in rural areas might be good candidates to start pilots based on this model.” 
Let’s hope this happens on a larger scale than it currently is, sooner rather than later.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Huffington Post India on February 26, 2016

All Things Considered, The Mumbai-Ahmedabad Bullet Train Is Still A Good Idea

Bullet_train
This column is essentially a follow up to the column titled In Defence Of The Mumbai-Ahmedabad Bullet Train which was published a few days back. In this column I will try and answer some questions that were asked by readers in response to the previous column.

One feedback that came through very strongly was that the Modi government has got its priorities all wrong and the bullet train is essentially a show-off project. This was very well summarised in a tweet in which I was asked whether I had ever tried taking a local train at the Parel station (one of the local train stations in Mumbai on the central line) in the evening? The short answer is yes, I have boarded local trains at Parel in the evening and at various other stations in Mumbai. And it’s a pain.

The point that the reader was trying to make was that taking the local train in Mumbai in the evenings (and the mornings) is very difficult. The trains are usually all packed and there is very little space to even stand properly. There are many more people packed into the compartments than these compartments are built to take in.

In fact, today’s edition of the Mumbai Mirror newspaper reports that ventilators on 80% of the trains don’t work. As the newspaper reports: “Over 400 commuters have died of heart attacks and other complications this year, triggered in most cases by suffocation. A majority of these deaths took place during peak hours.”

Long story short—forget standing properly, you can’t even breathe properly while traveling on a Mumbai local. Given this scenario, why are we interested in starting a bullet train between Mumbai and Ahmedabad? Why not use that money to try and improve the condition of the local trains in Mumbai? Has the government got its priorities all wrong?

This is a fair question. Nevertheless, it needs to be understood that we are not in an either-or kind of situation here. Most of the money to build the bullet train system between Mumbai and Ahmedabad is not coming from the current revenues of the Indian government or the Indian Railways for that matter. This means that the money is not being taken away from something else that the government could have done with that money.

This, further means that the money that will be used for the bullet train between Mumbai and Ahmedabad could not have been used to improve the local train system in Mumbai. It could not have been used for increasing the education, health, environment and road and highways budget of the government as well. It was available only for the bullet train.

So where is the money to build the bullet train going to come from? This money is being lent by the Japanese government at a highly concessional interest rate of 0.1% per year to be repaid over a period of 65 years (Yes, you read that right).

Why is the Japanese government lending this money at close to 0% interest? They are lending this money so that the Japanese Shinkansen Technology is adopted for the bullet train project. This is in the interest of the Japanese business which is currently going through a tough time. So the Japanese government is lending money to the Indian government to buy stuff from Japan. This money is not available for anything else.

Further, as the press release announcing the bullet train said: “Japan has offered an assistance of over Rs 79,000 crore for the project. The loan is for a period of 50 years with a moratorium of 15 years, at an interest rate of 0.1 per cent. The project is a 508 kilometer railway line costing a total of Rs. 97,636 crore, to be implemented in a period of seven years.”

So 80% of the money to build the bullet train line is coming from Japan. This loan comes with an interest rate of 0.1%, which more or less means that this is an interest free loan. It is to be repaid effectively over a period of 65 years. The loan comes with a moratorium of 15 years, which means that the repayment does not have to start immediately. It will start in 15 years time and will be repaid over a period of 50 years after that.

Given the long repayment period of the loan, the impact of inflation on the “real” value of the loan needs to be taken into account? As an editorial published in the Business Standard newspaper today (December 16, 2015) points out: “India’s average wholesale price inflation in the four decades between 1970 and 2010 has hovered at 7.6 per cent and consumer price inflation in that period has been estimated at an average of over eight per cent.”

At an inflation of 8% per year, by the time the loan repayment starts fifteen years down the line, the “real” value of the Rs 79,000 crore loan, in today’s money, would be around Rs 24,900 crore. At 5% inflation it would be Rs 38,000 crore. The broader point is that by the time the loan repayment will start the real value of the loan will be considerably lower.

This calculation does not take into account the fact that the loan will most likely be in Japanese yen. It does not take the currency risk into account. Currency risk is important because if the rupee depreciates against the yen, then the Indian government will need more rupees to buy the yen that it will need to repay the loan.

This was another feedback that I got in response to the last column. I was told that I did not take currency risk into account while putting forward my analysis. I did not do that because over a long period of time (65 years in this case), I think it won’t really matter.

In October 1996, one yen was worth 0.4 rupees (or 40 India paisa). Currently one yen is worth 0.55 rupees (or 55 Indian paisa). Since 1996, the worst situation came in August 2013(when rupee was rapidly losing value against the dollar as well) when one yen was worth around 0.69 rupees (or 69 paisa). Over the last twenty years, the general trend has been of the rupee depreciating against the yen except in the late 1990s when the rupee appreciated against the yen.

There have been periods of volatility where the rupee has rapidly depreciated against the yen, but over a two-decade period, the depreciation has happened at a very slow rate. Given this, even if the rupee were to continue to depreciate against the yen, it won’t really matter over a period of 65 years, especially once we take inflation and economic growth into account. The size of the loan by the time the Indian government starts repaying it, will be significantly smaller in comparison to the size of the economy as measured by the gross domestic product.

Another question asked by readers was that why is the train being started between Mumbai and Ahmedabad, which already has good connectivity? Given the nature of the project the train has to be run between Delhi and some place or Mumbai and some place (or Bangalore and Chennai). That is where the initial market of people likely to use the bullet train is, given that these cities have the highest number of air-travellers.

And given that among all India cities, Delhi tends to get the most money when it comes to building physical infrastructure, linking Mumbai with Ahmedabad makes immense sense. In fact, if the government has plans of a second bullet train, it needs to be between Bangalore and Chennai.

As far as the financing of the bullet train project is concerned, I don’t see any problems. The major problems will come in the implementation part. Getting the land required to build the track at a reasonable price and ensuring that the tickets are priced at a level, where the entire thing is viable and doesn’t just become a show-off project. That is where the real challenge is.

(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at [email protected])

The column originally appeared on Huff Post India on December 16, 2015

Why The Rupee Is Falling Despite The Oil Price Collapse

rupee
As I write this one dollar is worth around Rs 67.1. The last time the rupee went so low against the dollar was sometime in late August 2013. Is this a reason to worry?

In August 2013, the oil prices were at a really high level. The price of the Indian basket of crude oil on August 23, 2013, had stood at $109.16 per barrel. As on December 14, 2015, the price of the Indian basket stood at $34.39 per barrel, down by 68.5% since then.

One of the reasons for the fall of the rupee back then was the high oil price. India imports 80% of the oil that it consumes. Oil is bought and sold internationally in dollars. When Indian oil marketing companies buy oil they pay in dollars. This pushes up the demand for dollars and drives down the value of the rupee against the dollar. This happened between May and August 2013, as the price of oil shot up by close to 11%.

Further, those were the days of high inflation. The consumer price inflation in August 2013 had stood at 9.52%. In order to hedge against this high inflation people had been buying gold. India produces very little gold of its own.

In 2013-2014(April 2013 to March 2014) India produced 1411 kgs of gold. In contrast, the country imported 825 tonnes of gold during 2013. Gold, like oil, is bought and sold internationally in dollars. When Indian importers buy gold, like is the case with oil, it pushes up the demand for dollars and in the process drives down the value of the rupee. This phenomenon also played out in 2013.

Hence, the high price of oil and the demand for gold, drove down the value of the rupee against the dollar, between late May 2013 and late August 2013. But these reasons are not valid anymore. The price of the Indian basket of crude oil is less than $35 per barrel. And the demand for gold is subdued at best.

So what exactly is driving down the value of the rupee against the dollar? In order to understand this, we need to go back to the period between May 2013 and August 2013. While gold and oil played a part in driving down the value of the rupee against the dollar, there was a third factor at work as well. And this was the major factor.

In the aftermath of the financial crisis which started in the September 2008, when the investment bank Lehman Brothers went bust, Western central banks led by the Federal Reserve of the United States, cut their interest rates to close to zero percent. Ben Bernanke, the then Chairman of the Federal Reserve of the United States, was instrumental in this.

The idea was that at low interest rates people will borrow and spend more, and economic growth would return in the process. While that happened, what also happened was that financial institutions borrowed money at low interest rates and invested it in financial markets all over the world.

In May 2013 just a few months before his term as the Chairman of the Fed was coming to an end Bernanke hinted that the “easy money” policy being followed by the Federal Reserve could come to an end. This meant that interest rates would go up in the months to come.

If the interest rates went up, the financial institutions would have had to pay a higher rate of interest on their borrowings. This would mean that the trade of borrowing at low interest rates in the United States and investing across the world, wouldn’t be as profitable as it was in the past.

This led  foreign financial institutions to start selling out of financial markets around the world including India. Between June and August 2013, the foreign institutional investors sold stocks and bonds worth Rs 75,291 crore in the Indian stock market as well as debt market.

They were paid in rupees when they sold their investments in stocks as well as bonds. They had to convert these rupees into dollars. In order to do that they had to sell rupees and buy dollars. When they did that, the demand for the dollar went up. In the process the value of the rupee against the dollar crashed. One dollar was worth around Rs 55 in middle of May 2013. By late August it had almost touched Rs 69.

In the end the Federal Reserve did not raise interest rates, the Reserve Bank of India got its act together and the value of the rupee against the dollar stabilised in the range of Rs 58-62 to a dollar.

What did not happen in May 2013 is likely to happen on December 16, 2015 i.e. tomorrow. It is likely that Janet Yellen, the current Chairperson of the Federal Reserve, will raise interest rates. This means that the financial institutions which have borrowed in the United States and have invested across the world, would have to pay a higher rate of interest on their borrowings. This may make their trades unviable.

Also, financial markets do not wait for central banks to make decisions. They try and guess which way the decision will go and make their investment decisions accordingly. It is now widely expected that the Fed will raise interest rates tomorrow. Given that, the foreign financial investors have been selling out of the Indian financial markets since November. Between November and now, the foreign institutional investors have sold stocks and bonds worth Rs 15,035 crore. In the process of converting this money into dollars, the value of the rupee has been driven down against the dollar.

At the beginning of November, one dollar was worth around Rs 65, now it is worth more than Rs 67. Also, as the rupee loses value, the foreign institutional investors lose money. Let’s say an investment is worth Rs 65 crore. If one dollar is worth Rs 65, then this investment is worth $10 million. If one dollar is worth Rs 67, then this investment is worth only $9.7 million. In order to prevent such losses, bonds investors are selling out of Indian stocks and bonds. And this is pushing down the value of the rupee. So after a point, the rupee loses value because the rupee loses value.

The trouble is that Indian politicians have turned the value of the rupee against the dollar into a prestige issue. But what is worth remembering here is that we live in a word where things are connected and given that the value of a currency is bound to fluctuate. Sometimes the fluctuation will be higher than usual. But that doesn’t mean that things are going wrong.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Huffington Post India on December 15, 2015

In Defence Of The Mumbai-Ahmedabad Bullet Train

Bullet_train

 

Over the last few days a lot of analysis has appeared in the digital media which has tried to project that the decision to launch a bullet train between Mumbai and Ahmedabad is a stupid one.

And this is how some of this analysis goes. India will spend Rs 98,000 crore on building thie bullet train between Mumbai and Ahemdabad. This is something it cannot afford. Now compare this to the amount of money that we spend on education, health, roads, etc., during the course of the year.

For the current financial year, 2015-2016, the allocation towards school education and literacy is at Rs 39,038.50 crore. The allocation towards higher education is Rs 15,855.26 crore. When it comes to health, the government has allocated Rs 24,549 crore to be spent during the course of the year. The allocation to the National Highways Authority of India which builds roads connecting the country is Rs 22,920.09 crore. The total allocation to the ministry of road transport and highways is at Rs 42,912.65 crore.

Further, during the course of the year, the Railways plans to spend just Rs 6,581 crore on 970 overbridges and under-bridges and other safety related measures, in order to eliminate 3438 level crossings. And if all this wasn’t enough the total allocation to the ministry of environment, forests & climate change is just Rs 1,446.60 crore.

Given the amounts that we are spending on such very important things how can we be spending Rs 98,000 crore on a bullet train. Can we really afford this?

As a recent analysis on Scroll.in points out: “The Mumbai-Ahmedabad bullet train budget is also 2.3X the entire spend of the Centre on schools. The corresponding figure for health and highways is 3.3 and 2.3, respectively.” [My numbers lead to slightly different ratios, but the broader point the Scroll article is trying to make doesn’t really change, so we will leave it at that].

If we look at the entire issue on the basis of the information that I have provided in the article up until now, spending money on a bullet train, when there isn’t enough money going around for health, education, roads and railway safety, seems out rightly stupid.

Nevertheless, all such analysis that has appeared in the media is essentially simplistic in nature. Allow me to elaborate. As the press release on the bullet train announcement points out: “India and Japan have signed an MoU [memorandum of understanding] on 12th December, 2015 on cooperation and assistance in the Mumbai – Ahmedabad High Speed Rail Project (referred by many as Bullet Train project). Japan has offered an assistance of over Rs 79,000 crore for the project. The loan is for a period of 50 years with a moratorium of 15 years, at an interest rate of 0.1 per cent. The project is a 508 kilometer railway line costing a total of Rs. 97,636 crore, to be implemented in a period of seven years.”

The bullet train between Mumbai and Ahmedabad will cost Rs 97,636 crore and will be built over seven years. Hence, the entire Rs 98,000 crore(approximately) will not be spent in one year. Given this, the comparisons with the health budget, the education budget, the road and highways budget, that have appeared in the media, are incorrect. A spending to be carried out over a period of seven years is being compared with spending carried out every year. A comparison of both over a seven-year period would have been the right way to go about it. But then things don’t look as bad as they do now.

It has been implied that the government is spending this money in one year, which it clearly isn’t. Second, the analysts forget to mention, perhaps unknowingly, that almost 80% of the project is being financed on a very soft loan from Japan.

Japan has offered a loan more than Rs 79,000 crore to be repaid over 50 years at an interest rate of 0.1% per year [Yes you read that right!]. Further, the loan comes with a 15-year moratorium. What this means is that India does not need to start repaying the loan immediately. It will have to do so fifteen years down the line.

Now what would repaying the loan entail? A loan at an interest 0.1% to be repaid over 50 years essentially means almost no interest is being charged. Once India starts repaying the loan, it would have to pay an EMI of Rs 135 crore per month. In fact, the interest is so low that the total repayment over 50 years will amount to just Rs 81,000 crore. This means an interest component of Rs 2000 crore over fifty years. The government of India can clearly afford this.

Also, this repayment doesn’t start for 15 years and has to be repaid over a period of 50 years. Hence, once we take inflation into account, the Rs 135 crore that will have to repaid 15 years down the line and over a period of 50 years, will be worth much less than it currently is. By then, the project will also start generating some revenue.

The question is why is Japan doing this? It “has been agreed that Shinkansen Technology will be adopted for the project.” In effect, the Japanese government is giving a loan to the Indian government at almost 0% interest, in order to be able to buy technology from Japanese companies.

Also, there is another reason for the Japanese largesse. As Bharat Karnad writes in Why India is Not a Great Power (Yet): “With an eye firmly on China as the main adversary and security challenge, India can synergize its engagement and role with the military, political, and economic capabilities of countries feeling threatened by Beijing to keep China at bay.”

Once these factors are taken into account the bullet train project between Mumbai and Ahmedabad will not be a drain on the government finances. Having said that the government will have to ensure that it does not become a “white elephant” as and when it starts. In order to ensure that the ticket prices of the bullet train will have to be lower than that charged by airlines.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)
The column appeared on Huffington Post India on December 14, 2015

 

Delhi’s real estate obsession defies logic

Qutub_-_Minar,_Delhi_(6994969674)
I was recently in Delhi to attend a few family functions. And as often happens in Delhi, when you want to make a conversation with someone you don’t know that well or you meet only once in a few years, you end up talking about real estate.

During the course of these discussions over plates of oily Kashmiri food, which I have stopped liking many years back, or cups of tea and coffee, I came to realise that the Delhi middle class is still obsessed with the idea of owning real estate. Of course, I am drawing this conclusion from a small sample, but that is the drift I get every time I go to Delhi.

This love for owning real estate continues, despite the fact that the real estate sector in Delhi and the National Capital Region (NCR) surrounding it, continues to be in a mess. Lakhs of people are still stuck with homes which are under-construction and have been under-construction for a while now. Despite this, still others are ready to buy under-construction homes so that when the price goes up, they can cash-in.

The arguments offered in favour of owning real estate all centre around a very basic point that the American writer Mark Twain made: “Buy land, they‘re not making it anymore.” The thing is that everything that sounds sensible isn’t necessarily sensible.

The real estate scene in Delhi and NCR has been rather dull over the last few years. Prices in many areas have fallen by close to 20%. In areas where prices have not fallen they have been stagnant. In fact, investors in real estate would have made more money with a greater peace of mind, by investing their money in bank fixed deposits. In fact, even if they had let their money sit idle in savings bank accounts paying 4-6% per year, they would have made more money.

Nevertheless, those who own more than one home, continue owning their second or third home, in the hope that the trend will reverse and they will make money someday. This during an era when the rental yields in Delhi are around 1.5-2%. Rental yield is essentially the annual rent that can be earned from a home divided by its market price.

Owners of real estate miss out on this return as well primarily because there is a great fear that once a home is let out, the kirayedar for the lack of a better word (tenant just doesn’t sound the same) will not vacate when the contract runs out.

In fact, I know of people who have bought a second home on a home loan, as an investment. In some cases, the home is still under-construction. This means that the interest on the home loan needs to be paid, without the possession in sight. In cases where fully-constructed homes have been delivered, they are paying an interest of 10-11% on their home loan, while getting a rental yield of 2%. Some tax benefits are also there.

But the basic question is why would you borrow at 10-11% and earn a return of 1.5-2% on it? Beats me. For those who have put in their savings, it still doesn’t make any sense to be earning 1.5-2% per year, when the rate of inflation is 5%.

This proposition only makes sense if the money being deployed is black money (i.e. no tax has been paid on the income earned) and cannot be invested through the conventional modes of investment. The irony is that it takes more paperwork in India to open a bank account than to invest in real estate. Also, real estate comes with own share of hassles. There are maintenance charges and property taxes to be paid every year and these eat into the savings of real estate owners.

Nevertheless, these people are still confident that real estate prices will rise someday. And they are not ready to sell in at the current market price. Why is that?

They are ‘anchored’ to a certain price. As John Allen Paulos writes in A Mathematician Plays the Stock Market: “Most of us suffer from a common psychological failing. We credit and become attached to any number we hear. This tendency is called the “anchoring effect” and it’s been demonstrated to hold in a wide variety of situations.”

How does this apply in case of the real estate scenario in Delhi and NCR? The current crop of investors in real estate has heard numerous success stories and the huge amount of money and returns made by the investors in the past. They are anchored to these returns and are waiting for higher prices. This means they won’t sell at current prices.

There hope of higher prices won’t materialise anytime soon given that a huge amount of homes are still under-construction. In many cases the construction has stopped. At the same time new home launches continue.

What people also don’t realise is that even in a situation when prices are not falling, they are losing money once they start taking inflation into account. This is referred to as a time correction. And that is clearly on in Delhi and other parts of the country.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Huffington Post India on December 9, 2015