What is Dosanomics by Raghuram Rajan? – Dosa Economics Explained!
Consider Raghuram Rajan's Dosanomics: As the title suggests, Dosa has little to do with this blog. Dosanomics is a concept introduced by former RBI governor Raghuram Rajan in 2016 to explain how inflation is a silent killer.
As a guest lecturer at NCAER, then-governor Raghuram Rajan explained the relationship between fixed deposit rates and inflation using a simple commodity - Dosas!
Dosanomics Explained Raghuram Rajan
Raghuram Rajan stated that he used to receive letters from retired people, mostly pensioners, regarding their FD rates. FD rates in India fell from double digits to 8% during Rajan's tenure as governor, at a time when inflation was also in double digits. Conservative investors were outraged by this move.
"A typical letter I get says, 'I used to get 10% on a one-year fixed deposit, now I barely get 8%, please tell banks to pay me more or I won't be able to make ends meet.'"
Raghuram Rajan's Dosanomics explained how a retired person today gets more bang for his buck. What Role Does Dosa Play in Dosanomics?
Raghuram Rajan uses dosa to explain the relationship between interest rates and inflation.
"Say a pensioner wants to buy dosas, and at the start of the period, they cost 50 per dosa," he explained. Assume he has $100,000 in savings. He could buy 2,000 dosas with the money he has right now, but he wants to get more by investing."
At 10% interest, he will receive $10,000 in addition to his principal after one year. With the price of dosas increasing by 10% to 55, he can buy 182 dosas for around $10,000.
The retiree is only considering the nominal interest rate offered by the bank, not the silent killer known as inflation. The underlying inflation rate had fallen from 10% to 5.5%. Read more on: https://blog.joinfingrad.com/what-is-dosanomics-by-raghuram-rajan/
