Rupees, Low Prices, and the Indian economy

Rupees, India's currency. Note that Ghandi is featured on all monetary bills.

I think that Westerners are often excited to head to nations with so-called emerging markets for one particular reason: it's cheap. As an example, while it often costs at least $1500 to fly to Mumbai, in many places you can stay here in style for less than $50/night. On the other hand, a round trip ticket to London from New York could cost less than $500. Once you get there, prices are significantly more expensive. Last year, a columnist known as the "Frugal Traveler" attempted to do a Grand Tour of Europe for about £100/day (he wanted to do $100/day, but that's not enough money for Europe). He succeeded, but it wasn't easy to make that budget work.

However, there are a couple things that it took me a little while to get. Eating here is very cheap. Last night's $25 meal for four was by far the most expensive meal we've had yet--we've had a complete meal with desert for about $12 or so. However, that doesn't mean everything is cheap. Almost any brand-name item is the same price as it is in the United States. So you can't come here hoping for deep discounts on Swiss watches and Gucci prices. If it looks too good to be true, it probably is.

The difference in prices comes at the cost of living level. Land values are still low enough that it doesn't take much to find nice accommodations for a very low price (even in areas like downtown Mumbai or Goa). Likewise, since much of India lives on far less than the average American, all the food is priced accordingly. It's perhaps an interesting dilemma that the reason India is so affordable is the vast poverty in the country.

In current US dollars (for convenience), the average Indian earned a little over $450 a year in 2002; now the average Indian earns closer to $850. That's not much in the United States, but remember, prices are still low. Inflation also grew significantly, but not enough to offset the fact that Indians are on average richer and better off than ever before. As another benchmark, four of the top eight richest people in the world are Indian.

What does that mean? It means prices will go up. With money to spend, the cost of living will go up. We saw this in action a few weeks ago when we visited an Indian mall. It felt like a high-end mall in the United States, which meant, of course, that I couldn't afford anything. This is perhaps a hint at what the future of India may be like: it will no longer be the long-term vacation on a budget. There are many reasons for this increased personal wealth in India, but one of the major ones is a realization that wealth and money can be found right at home, not just in the West. Thus, instead of fleeing the country, the educated elite are staying here and prospering. Welcome to the new India.