Inflation is a martinet but it does teach us some valuable lessons. Financial discipline is the first one. It helps us remember and implement the adage that was popular during the great depression, ‘Use it up, wear it out, make it do or do without.’ Frugality when coupled with financial planning helps us build fortunes. Inflationary times are great opportunities in disguise.
Inflation is a test that separates the fittest from the rest. Inflation helps us control our senses and in a way it can help us out of our enamoredness with material things. There is no better tool than inflation for population control in a country like India. Inflation helps to mold the minds of millions and acts as a catalyst for social and political changes.
It is futile to fight inflation. ‘If you cannot beat them, join them’ might apply to inflation in all the emerging economies and more so in India. The other three members of the famous BRIC group, Brazil, Russia and China seem to have stopped fighting inflation and let it do its work. India is unable to control inflation, as it is the only country in the BRIC group with a deficit in every financial account.
Brazil and Russia are net exporters of food and fuel respectively. China adds value to minerals from Australia and makes things that almost everyone on the planet cannot do without at a price that almost everyone can afford.
Inflation might help reduce the workforce in the most overburdened sector in India, agriculture. A back of the envelope calculation can help enunciate it better. Cultivated land in USA is about three times that of India. Approximately 15 million work in the agricultural sector. Proportionally 5 million would be enough to make agriculture an efficient sector in India, on par with the best companies in manufacturing and services. Presently, the agriculture sector in India employs about 700 million people and inflation is the free market’s method of reducing redundant workforce, just as the management does in any other industry. Inflation is a martinet bereft of emotions, hence it would carry out this task in the long run.
The only way to survive when surrounded by a raging forest/wild/bush fire is to seek refuge in a water body or just lie down low. A period of rapid growth follows raging inflationary times just as flora in a forest springs back with vigor after a major fire. Once the fire dies out it would not be a good idea to continue soaking in water. Gold is a safe refuge but it is just a refuge that preserves one’s purchasing power. Informed investors at Arthayantra (AY) seek gold as the refuge in such inflationary times and come back to equity markets after learning from inflation, our friend, philosopher and guide,
It helps to remember the adage ‘Invest for what you wish to happen and insure for that which you do not wish to see happen.’ Let us best utilize the opportunities that inflation brings us, after teaching us valuable lessons with adversity. Dinakarananda wishes all of you a happy Navratri and Dussehra and profitable investing.