Retire in India and live off interest payments?

grikoo

Yes, on my first trip to India many years ago, I was surprised by the fact that while 'poverty' was rampant, that there were far fewer hungry people than I expected. At that time while the majority barely eeked out a subsistence living, they did subsist.

I'm concerned that the worldwide inflation of food prices may undermine that, as India seems so susceptible to it.


On a more positive note, I don't think the high fuel prices are sustainable at this level. One of the main arguements against the development of greener energy sources has been the cost of infrastructure buildout, but with sky-rocketing fossil fuel prices it becomes more and more reasonable every day. Eventually projects will be launched, and OPEC will have to face the fact that their only way to maintain control over the energy market is to increase oil production and lower it's price. Additionally, as prices go up, demand goes down, so it's in the interest of the energy producers to maintain reasonable prices. Otherwise it will become a fossil itself.

Of course that will make us run out of oil faster, and we'll eventually run into the same problems anyway, but I think in the short term (3-8 years) that oil prices will have to receed a bit.

I also think that the current situation has more to do with futures speculation than with the actual 'value' of oil. The fact that the price continues to go up while demand is decreasing is fairly unusual, and if it continues for much longer, it will be a sure sign that something fishy is going on.

kmalik

Captain,

This story you mentioned is really sad. Puts a lot of things in perspective...

Fankly, I am not sure if the interest rate is the best way to deal with the inflation. The logic of interest rate increase is to decrease the current consumption of money, putting a downward pressure on demands and prices. While that is generally still true, this is too broad brush a solution. The current inflationary woes around the world are primarily driven by the energy prices. The ideal answer is to increase the tax on energy way high, driving down the consumption consumption of energy, and support those who can not deal with the secondary effects (e.g., grain prices jumping due to energy costs) using subsidies, etc. as needed.

Unfortunately, the right answers are not popular anywhere around the world, while the wrong ideas such as softening the burden are proven vote getters. In the US - two of the presidential contenders (Clinton, McCain) were pushing for gas tax holidays. (Clinton is, of course, out of the race now.)

India, of course, is subsidizing petrol and diesel, while this board is full of posts wanting to rent cars, driving to Ladakh and what not. [Nothing wrong with that, just people's decisions being affected based upon the policy. It is the policy that should drive the right behavior.]

Not entirely sure the outcome, but I do not share the optimism in Grikoo's post. I guess I support the baby steps Mr. Manmohan Singh has taken - and I wish he can get more backbone and, while we are at it, a political concensus in India (and elsewhere) develops to take more meaningful steps. [Or we can continue to bury our heads in the sand and hope to return to some intrinsic value (which those outside of oil exporting countries believe to be low).

capt_mahajan

Election year in India (well, almost) and the US.

In India, continuing high food prices will make the the government lose the elections. It has, in the past.

So that will be the driving factor, not good economics.

BritAsian

Bear in mind that the inflationary pressure partly comes from the high rate of economic growth.

Long term retirees will gain little benefit from a growth in the economy but will suffer from the effects of inflation.

grikoo

My point was that, like all pricing bubbles, this one is also a self-limiting phenomena, in several ways.

The most obvious reason is the price/demand issue- As prices increase, demand for a commodity decreases. This is not only on the consumer end, but also on the industry side. An example would be the decreased manufacturing output of high gas mileage vehicles in the US. Another example would be power companies modifying existing plants to be more efficient (in order to maintain their profit margins without increasing rates as dramatically). Both of which actually makes it harder for consumers to continue consuming at the same rates regardless of their desire to do so, or not to. Increasing commodity prices further, in response to decreasing sales (i.e., to maintain profits), only reinforces the decreasing demand trend. Eventually, suppliers are forced to lower prices in order to increase sales volume, in order to maintain profits. The only time this tends to not be true, is when a commodity is a verifiably limited resource (i.e. there is an fairly well known amount of a substance). Oil is not quite at this point, but of course will become one, probably within some of our lifetimes. My understanding is that the current 'value' of oil is probably closer to $100 a barrel, maybe even less.

There are other reasons, like those I point out in my other post, but the above tends to be true of most pricing bubbles. And I don't currently see any reason to think this will be any different.

Inflation itself follows basically the same rules- there is a point at which the bubble breaks down and resets itself. There are many examples of countries where inflation got wildly out of control, but most of these countries were run by idiots at the time. For the most part it just cycles back and forth between growth and inflation.

Agree with kmalik about increasing taxes as a legitimate method. Disagree with him about subsidies, as they tend to cause negative effects outside the country for which they're designed.

kmalik

Unlike an ordinary commodity, a large block of this one (oil) is controlled by a cartel. Once the cartel sees that the market will bear certain price and the benefits it offers them, what is the negative in their turning back on the high price.

So, while I am quite aware of the speculative aspect of the current prices, the it demonstrate to the cartel that market will bear these prices. Sure demand will go down, but is it better to sell half the oil at four times the price, is it not? And, don't all members of the cartel benefit from the current situation?

As such, I remain unconvinced that the bubble is about to be punctured. Waiting the bubble to disapper is not something one should do while holding one's breadth. It can be a long time...

grikoo

Yes, I definitely agree it won't be anytime in the next year or two, but it will happen. No economy in the world can maintain stability with oil at $200 a barrel (other than opec nations). It will have to go down.

I understand your question about half the production at 4 times the cost. Yes, that would be nice for them, but is totally unsustainable as the world economy simply won't allow for it. If they attempt that approach, war will be the likely result, and they know that.

What is more likely is that they are simply trying to line their pockets while they can. I'm sure they have no misunderstandings about the reality of their situation.

Nick-H

I don't think any of the economic models can be relied upon. Actually, even my economics textbook back in 1970-something ended with the words, "all this is theory and does not necessarily work in practice".

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edwardseco

Not really germane. I use the example of crossing the street by employing the theory that it is safer to cross at the street corner (warning! not for India). Actually, more than a thousand people die each year in the US alone and perhaps 30,000 get seriously hurt that way. Believe me a fast moving car makes an impact. Its a false alternative to reject the theory and wander mindlessly into the traffic. In LA it has a name "mother-in-law" fatalities.

So many people there have foreign backgrounds, to put it gently, and bring their relations in who have no idea of the prevailing traffic theory and the residents end up burying them.

However, it doesn't mean that one can't wish for better theories. I like to make eye contact so the drivers know who is going to get splatted (dead opposite in India where traffic is a contact sport)..

Nick-H

I mean in the sense that inflation is necessariy self-limiting, and that stuff like supply and demand does actually limit prices.

I'mnot saying the theory wrong; just that an ever-evolving and moving reality doesn't always take any notice of it.

grikoo

Sure, of course. I often forget that this is not an inherent part of everyone's viewpoint. Every statement amounts to theory and half-arbitrary opinion. Hence the disclaimer.

The evidence we have to work with though, suggests that what I'm saying is likely true. If that's not the case, we'd better all be stocking up on food, because the next decade won't at all be pretty.

Nick-H

I'm afraid I tend towards the 'not pretty' scenario.

BritAsian

Not having a background in economics I couldn't comment on trends in oil/food prices.

However, I think of more relevance to retirees is the long-term trend in inflation.

India is expected to grow rapidly in the next 35 years (Goldman-Sachs projects that India will be the second largest economy in the world in less than 35 years) with the average income rising to perhaps 20-30,000 USD or possibly higher.

This would inevitably have more impact on inflation than the simple market availability of oil or food.

Retirees gain no benefit from the increase in wages but will suffer the effects of the resulting inflation.

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Edit:
Of course long term economic growth projections are unreliable but it would surprising if the Indian economy didn't grow rapidly.

The current poverty of India is a historical aberration. Before it became part of the British Empire India had about 1/4 (yes a quarter) of the world's economy (as defined by share of the world's income).

Timeline of Indian economy mentioning share of world's income:
http://en.wikipedia.org/wiki/Timelin...omy_of_Ind ia

edwardseco

Much as I like Maddison I have to point out a weakness of the Wiki. Relying on one or even just a couple of sources is not scholarship but beer talk. Otherwise I am in broad agreement wih the above..

Aishah

Recently I was looking on www.indialiaison.com where it set out rules re banking, investments etc. for NRI's and PIO card holders resident in India. I am not sure if these are up to date or not- I guess they are a repetition of Govt. rules (does anyone have a link to this Indian govt. site?} and two lots of abbreviations are frequently used - FEMA and FERA. It's probably very obvious what they are, but not to me! Can someone clarify these, please?

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