Thursday, January 12, 2012

Holy cow! The rupee is 60% undercooked against the dollar?

The expansive food court at Chennai's Express Avenue mall had quite a variety of foods--from dosais and aappams to chicken tikkas to KFC and the likes. 

The prices were quite high for local conditions. 

A typical single-serving meal at most outlets was in about 150 to 175 rupees, and more.  At current exchange rates, about three US dollars. Soda or water is an additional payment.

Yet, customers were in plenty everywhere.

I typically don't think in terms of the crude exchange rates in these contexts.  I employ an exchange of fifteen-to-one, instead of the about 50-to-1, for the Purchasing Power Parity comparisons.(Note, for instance, the nominal versus PPP figures for India's per capita GDP in this Wikipedia entry.)

One can now see why I write that the prices were expensive.  If I used a 15-to-1 exchange rate, then on my PPP scale, the food court items were typically in the ten dollar range!

Prices at the food court were merely one of many experiences--now and over the years--that have always made me think that India is an expensive place for a tourist. 

Going to Ecuador, for instance, was incredibly inexpensive.  The hotel room I had in Quito--in its historic downtown area--was about $35, including breakfast.  There is no way I would be able to get that kind of a place in India's major cities at locations that attract tourists.

While there are a number of reasons, the one that appeals to me as the most significant one is also quite simple: there are two Indias, one of which is developed and the other is practically the Third World.  Express Avenue is one of the many that caters to the developed India.  The rates here are high.

And then there is the other India.

Even as I work with this understanding, The Economist complicates my life even more:
The cheapest burger is found in India, costing just $1.62. Though because Big Macs are not sold in India, we take the price of a Maharaja Mac, which is made with chicken instead of beef. Nonetheless, our index suggests the rupee is 60% undercooked.
If the rupee were to appreciate further, then it will be that much more expensive for the bargain-hunting tourists like me who face sticker shock in India.

Imagine the sticker shock for the Third World India, even now!

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