Dr. Raghuram Rajan's Dosa Economics Test for NDA & UPA

Dr. Raghuram Rajan gave his famous 'Dosa Economics' theory while delivering the C.D. Deshmukh lecture at NCAER, New Delhi on Jan 29, 2016. The gist of the theory is that lower interest rate with lower inflation rate is better than the high interest rate with high inflation rate. For layman it means low inflation regime is better. To understand more go through this answer posted on Quora, 'What is Raghuram Rajan's dosa economics?'

Now let us put the performance of UPA led by Dr. Manmohan Singh and NDA led by Narendra Modi against 'Dosa Economics' theory. The period chosen is from 2008 to 2017 in which UPA was in power till April, 2014 and NDA from May 2014. Let us assume that cost of 1 dosa at the start of year 2008 was Rs 20. Also, I had Rs 1,00,000 (1 lakh) at the start of year 2008. It means I could buy 5000 dosas.

For making calculations simpler and for a better comparison below assumptions have been made

a) For UPA tenure, maximum value of FD interest rate for a year has been taken.

b) For NDA tenure, minimum value of FD interest rate for a year has been taken.

c) Values in colour red is average value of each UPA's and NDA's tenure.

Below chart shows the application of dosa economics theory. At the end of every year, how much dosas one can buy is calculated given the FD interest rate and inflation.

	UPA						NDA
Year	Inflation (%)	FD Int. Rate (%)	Cost of 1 Dosa	Amount (Rs)	Total Dosa		Inflation (%)	FD Int. Rate (%)	Cost of 1 Dosa	Amount (Rs)	Total Dosa
			20.00	100000.00	5000				20.00	100000.00	5000
2008	9.7	9.5	21.94	109500.00	4991		5	7.5	21.00	107500.00	5119
2009	14.97	8.25	25.22	118533.75	4699		5	7.5	22.05	115562.50	5241
2010	9.47	7.75	27.61	127720.12	4625		5	7.5	23.15	124229.69	5366
2011	6.49	9.25	29.41	139534.23	4745		5	7.5	24.31	133546.91	5493
2012	11.17	9	32.69	152092.31	4653		5	7.5	25.53	143562.93	5624
2013	9.13	9	35.67	165780.61	4647		5	7.5	26.80	154330.15	5758
2014	10.15	8.8	39.30	180369.31	4590		5.86	8.5	28.37	167448.22	5902
2015	10.15	8.8	43.28	196241.81	4534		6.32	8.5	30.17	181681.31	6023
2016	10.15	8.8	47.68	213511.09	4478		2.23	7.25	30.84	194853.21	6319
2017	10.15	8.8	52.52	232300.06	4423		4	6.75	32.07	208005.80	6486

Data Source: 

a) Inflation: http://www.inflation.eu/inflation-rates/india/historic-inflation/cpi-inflation-india.aspx

b) FD Interest Rate: https://www.sbi.co.in/portal/web/interest-rates/old-interest-rates-last-10-years

Plotting the same in graph

Explanation:

If UPA was allowed to run the govt. from 2008 to 2017; at the end of 2017 Rs 1 lakh would have become Rs 2,32,300.06 i.e. Rs Two lakh Thirty Two Thousand Three Hundred and Six paise. With this amount only 4,423 dosas can be bought instead of 5,000 initially. Hence, one becomes poor by (5000 - 4423) 577 dosas or by Rs 30, 282 [577 x 52.52 (Price of 1 dosa at the end of 2017)].

If NDA was allowed to run the govt. from 2008 to 2017; at the end of 2017 Rs 1 lakh would have become Rs 2,08,005.80 i.e. Rs Two Lakh Eight Thousand Five and Eighty paise. With this amount 6,486 dosas can be bought against 5,000 initially. Hence, one becomes richer by  (6486 - 5000) 1,486 dosas or by Rs 47, 646 [1486 x 32.07 (Price of 1 dosa at the end of 2017)].

So, even though Rs 1 lakh becomes lower after 10 years in NDA's tenure in absolute number i.e. Rs 2,08,005.80 against Rs 2,32,300.06 in UPA's tenure due to lower interest rate of FD; the purchasing power is more due to lower inflation. The same is reflected by the amount of dosas one can buy. This is the crux of dosa economics.

Now, it is upto to people to decide which govt. is better for them. I as an individual can be ideologically inclined or influenced but Mathematics can't be. Hence, I leave this upto the better judgement of the people.