The Maanga

There are two Indias. The first is a relatively affluent India, the size of a small European country, say 30 million people, with a per capita income of say $15.000 or so, which is growing rapidly, experiencing wage growth of 15% or more. The IT boom, housing boom, stock market boom, wage boom, all apply to this one.  If a consumption basket were created for this specific group, we might find inflation is running at 15% or so. The affluent NRI crowd of some 10 million or so, fights for scarce housing and investment assets with this group, leading to further asset price inflation.  

The other India is the 1 billion or so invisible people who serve this tiny, affluent India. Servants, cooks, farmers, agricultural laborers, factory workers etc. Per capita income of this group is $550 or so, as in a large sub-saharan African country.  

Now, the RBI sets interest rates as per the inflation in the consumption basket of the second group, which is running at 5% or so. This provides the first group with negative real interest rates, leading to further borrowing, further housing and stock market booms and so on. The second group never had any access to bank lending anyway.  

So far, all this is not very different from the roman empire. Except that in this one, the billion slaves get to choose the government. I am sure all this will end in some typically Indian way. Maybe in caste-based interest rates?  100% reservations of all jobs in the private sector? Reservations in stock market investment? In housing loans?