Friday, August 11, 2006

Mumbai, Delhi Inexpensive, but for whom !

You've come across the surveys which keep getting published about our cities being the 'cheapest' in the world. From your own experience, you know they aren't really true...

A UBS study published yesterday moved me to write this guest blog for Business Standard.


  1. I agree to your analysis of cheap but in a different sense. I have made a qualitative attempt vs your quantitative one.
    Though not as articulate as your blogs I would liek your comments on my "attempt'...;-)

  2. Very well done indeed Rashmi. Only Mumbaites know the cost, financial and human , of living in this godforsaken city.

  3. This comment has been removed by a blog administrator.

  4. Good article Rashmi.I also liked sammy's article -- he also had a good take on that.

  5. I agree with you. Indian cities are not cheap for Indians.

  6. This article is great. Hey I like your blog very much. You are very to the point :-)

  7. That's the sad part of staying in a metro. IT is prohibitively expensive but that cannot be helped. Historically too even non-metros, the perentage of income devoted to necessities is much more than in the develped countries. In fact, this is one of the parameters of being a developed nation- the percentage that the citizens spend on neccessities or luxaries.

    There is a connection between this and the previous post. The divorce rates in metros is much higher and even higher among International Indians because the tolerence level is inversly proportional to income. Just saw the movie Kabhi alvida na kehna. In case interested, click to read the review.

  8. I was surprised too, but wasn't convinced by your article. Either I did not understand you well, or your analysis was flawed.

    Your argument assumes, that GDP (PPP) for Mumbai is the same as GDP (PPP) for India! How could that be? Mumbai perhaps contributes disproportionally to India's GDP.

    How could you use absolute cost (for Mac Burgers), to compare with relative income (adjusted for purchasing power)?

    Did I miss something completely fundamental?

    Kind regards,

  9. I agree. For the masses in our cities, the cost of living is very high, given the meagre amount of money most people make and the large families they support.

  10. It was a global comparison Rashmi, not meant to compare whether it is cheap for Indians... am not sure where the point of comparing it for local Indians came from.. given USD 100, what is the basket that you can buy across the world(of comparable products). That is the question. And McD's pricing structure across countries is no indicator of the general basket of goods in that country.. of perhaps, I am also missing something here..

  11. Rashmi, nice relevant post - Mumbai a cheap city to live in is a very startling headline.

    Amit: Yes the GDP per capita (PPP)of Mumbai will surely be higher than that of India (just as Tokyo's is likely to be higher than Japan's) - but that surely can't bridge the huge gap between a 28% and a 63%. So the point that has been made still looks solid.

    Regarding your 2nd point, I don't think absolute price of Mac burgers has been used anywhere in the analysis: what has been compared across countries is the amount of work a person has to put in to buy a Big Mac (in their local currency). Nothing wrong with that, except for the intrinsic assumption that hamburgers cost (relative to other essential goods in an economy) roughly the same in each of the 120 countries for which the index is used - simplistic, but still definitely workable. Even if a Chinese loaf is quarter of the cost of a loaf in America, it uses the same amount of flour (Charles Dumas, well-said).

    'How do we know': "am not sure where the point of comparing it for local Indians came from" - well, when you say a city is among the least expensive, is it very normal to assume that statement is only in the context of tourists and globe-trotters! Absolutely not. Thats the point which has been clarified in the 1st line of the post - cheap, but for whom?

    Oh, and yes McD's pricing structure across countries is still among the best indicators of the general basket of goods in that country.
    Which is why, the humble burger still remains a part of every economists's diet :)

  12. well point made.

    being cheap also has to be in connection with spending and earning power. there are always lots of facts and figures which can be used to get the deired and wanted conclusion.
    so the magazine uses one fact(burger and all and basket of certain items and all that), but the other figures provided by you are more applicable in this case.

    Since what is the use if a US guys says it is very cheap to buy stuff in Mumbai, but the mumbai guy cannot buy the same stuff in Mumbai.

    Using same currency all over the world to judge how much does a standard thing costs is equivalent to saying which is the cheapest city for the home country of that currency.

  13. A quick point that when calculating the 'consuming power' you need to devide the price of the basket of goods by the NOMINAL GDP per capita (around 700 usd for India in this case) rather than using the ppp adjusted figure of 3300. Remember that price differential is already taken into account in the cost of the basket .. so if it costs $174 in mumbai ... you need to devide it by the $ equivalant (straight conversion) of what a person earns in rupees.

    This would not change the outcome (in fact make it more stronger) but thought i'll point out.

  14. I totally agree with you on this and the funny fact is that the government promotes this...One of the major reasons for mumbai being more expensive is the tax levied on the people... I was astounded to hear that petrol is cheaper in delhi than in mumbai given that most of it is extracted off bombay high...

  15. and rashmi another thing...i read in your profile that you want people who can write for your magazine...I would be really interested in that...Please check out my blog and tell me if am good enough...I just started writing blogs but would be happy to send you my writing samples

  16. I am Kiran, I am having experience of 10 years in Indian Stock Market. R U intrested in investing in Indian companies? if yes, now I have started blogging @

  17. Any city will be expensive to live for more than 50% of its population.. Its just that they know ways to deal with expenses, which makes them stay in any particular city.


  18. There are lies, there are white lies and there are statistics !!
    Good one...
    have been reading ur blogs..i am doing MBA in ISB Hyderabad..most of the time i am not studying (:))and doing the editing of an e-magazine that goes out to all B-schools.. will like to know more about ur magazine..

  19. UBS surrvey has a target audience, Global Executives and MNC that pay them to be based in these cities and provides a guide to base remmuneration.

  20. I am amused to see so much discussion on this topic.

    Though i have not read the UBS i am sure it is meant for the global audience and not for us. We (read residents of Mumbai , delhi) are not the relevant set for them, at least not for now. The study probably aims to look at absolute costs in various countries / cities.

    The fact that it is published in a business paper shows that it is meant to be read in the right perspective by an audience that understands its relevance.

    Mumbai and Delhi are just as expensive or cheap as Tokyo and Oslo are for its respective residents. Of course there will be some things that will have the same or similiar cost in absolute terams and will therefore be cheaper for economies that have a higher GDP. For eg, a mobile phone that costs Rs 10k will probably cost 250 USD in the US.

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