Video: How simply Raghuram Rajan explains why dosa prices only rise

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Bengaluru, May 18: Subramanian Swamy might say anything against the man, but Reserve Bank of India (RBI) Governor Raghuram Rajan remains a brilliant economist and financial analyst and to add to it, an excellent orator.

Rajan gave evidence of his qualities at the 14th KP Hormis Commemorative Lecture in Aluva in Cochin a few months ago where he explained to a student's query the reason why prices of dosa never go down.

 

raghuram rajan

And Rajan did it in a simple way, impressing everybody who was present on the occasion.

A young engineering student asked Rajan why the prices of the popular South Indian food doesn't fall even when the inflation rate is low. Though they spiral when the inflation rate goes high.

 

Balassa-Samuelson Effect

Replying to the student, Rajan said she had hit the 'Balassa-Samuelsen Effect' theory in economics by raising the issue of dosa prices.

He said the technology for preparing dosa hasn't changed, adding "wages you are paying that gentlemen, especially in a high wage sort of state like Kerala, are going up all the time because that worker can be used in much more productive areas where productivity has gone up such as factory works, banking where today the same bank clerk can service many more people because of technology."

"So what happens is---in an economy which is growing with sectors which are increasing technologically and other sectors which are not improving their technology, the prices of the goods that are manufactured by the sectors that are not improving technologically, will go up faster. That is Balassa-Samuelsen Effect and you think it in dosa prices."

Simple yet excellent, isn't it?

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