Rent Impact

Written by The Financial Express | Updated: Feb 7 2013, 09:28am hrs
There is much excitement surrounding a recent report naming Mumbai and Delhi as the cheapest cities in the world, but there is also a significant amount of disbelief. A deeper look at the report by the Economist Intelligence Unit shows that the disbelief seems to be a more valid reaction. The Worldwide Cost of Living index found that Mumbai and Karachi are the joint cheapest cities out of a total 131 cities on the basis of the price of a basket of over 160 goods and services, including a typical shopping basket, alcohol, household supplies, tobacco, clothing, domestic help and transport, among others. Delhi comes a close second, with Tokyo deemed as the most expensive. This doesnt seem too unbelievableeven with our food inflation, food in India is still cheaper than the majority of the West, and our labour surplus ensures cheap domestic help. But, reading the fine print reveals that it doesnt apply to the common man at all. The index measures the cost of an expatriate lifestyle (emphasis ours) in over 131 cities using a weighted average of the prices of 160 products and services, says the report. The EIU goes on to say that the surveys purpose is to calculate fair compensation policies for relocating employees. Basically, expatriates used to a relatively luxurious life abroad find it cheapest to replicate that life in Mumbai, Karachi and Delhi. No real surprises there, but it has no bearing on resident Indians.

A larger problem with the index is that it does not take into account house rent. Take that into account, and the whole picture changes. According to a Knight Frank report from last year, a 100-square-metre plot in Mumbai costs about R5.8 crore, 308 times the average annual income of Indians, making it the costliest city to live in, globally. So, yes, Mumbai is cheap. Just not if you live there.