Avoid misplaced sympathy

Nov 10 2008, 16:02 IST
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SummaryIn the US bailout for households that are unable to pay their mortgages is under consideration. A similar bailout in India would be misplaced

In the US bailout for households that are unable to pay their mortgages is under consideration. A similar bailout in India would be misplaced
Among the measures being discussed in the US for dealing with the crisis in the housing markets is a bailout package for families that are unable to pay their mortgage loans. In an economy that is dependent on consumption, measures to bolster household confidence are badly needed. After the bailout of institutions, it is now the turn of households.

Before crying for a parallel bailout here in India, we need to consider the differences. In India private property developers are the ones in trouble from over-leveraging. And booming home loans were in the premium segments, and not in low-cost housing for sub-prime borrowers. So those that bought and those that built were mostly in the premium segment, paying black money as well to close the deals, and need no bailouts. They need to take their losses, reduce prices, and focus on the larger demand from the next rung that is still saving to own a home. What has ended in India is the large-scale expansion of glass, granite and opulence in the name of housing infrastructure. Also ended are the obscene margins from pandering to the fancies of the rich. There is little need for misplaced sympathies.

Avoid cut in petro prices
In an election year, it is tough to not announce populist policies. Cut in petro-product prices tops that list. Now that international crude prices have corrected and come at par with the administered price in India, the clamour for a price cut will only get louder. There are at least two reasons why prices should not be cut in a hurry. First, all through the run up, the oil marketing companies made huge losses, and government subsidies dented the fiscal deficit, apart from seriously weakening the balance sheets of oil marketing companies. If they did not get to charge market prices when crude prices shot up from $67 to $143 dollars, they should be allowed to reclaim some of the losses when prices have fallen. Second, the policy of ‘protecting’ consumers from international crude prices has led to a complete inelasticity in demand for oil in India. While the rest of the world sought efficiency, cut back consumption, and reduced purchases, we were happily consuming more as we did not pay market prices. Our import bill

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