Purchasing Price Parity
Several years ago, I read an excellent article that said that the best way to compare costs of living in different countries was to compare the price of a soft drink, like Coke. At that time, the article said that the price of Coke in the US was five times the cost in India. Therefore, in order for a person in India to have a similar sort of lifestyle/social standing as a person in the US, he/she would only have to earn 20% of the US person.
In other words, if the average software engineer started his career at a salary of $60,000 in the US, an Indian engineer would enjoy the same comforts (relatively) with $12,000 (about 5 lakhs).
I wonder what the ratio is nowadays. After a month living in Chennai, I have started thinking that Chennai might be more expensive than Raleigh ! This comparison is not strictly fair, because Chennai is a city, while Raleigh is a small town. Chennai is definitely cheaper than, say, Los Angeles.
However, I am struck by how much money I spend every week in Chennai. I think I know why I feel this drastic difference.
1. Before I went to the US (pre-2002), my lifestyle was extremely simple - I was strictly a starving college student. Now, after a few years in the US, I have come to expect a certain standard of life that is probably slightly above what an average 25-year old in India expects - I think thats the problem !
In Chennai, and indeed in the whole of India, at the bottom rung of needs (very basic clothing, housing and food), things are very cheap (say 5% of the US cost) ... This is because of the huge volume (Millions of poor).
However, as you move up the value chain, things get closer to the US prices and at the very top, costs are higher than the US (cars, air conditioning, flat screens, computers etc..). A case in point, the Toyota Corolla costs 12 lakhs here (30,000$) as against $15,000 in the US.
Another example is gyms ! I pay 20 bucks a month for a basic gym in the US (weights, cardio etc). I went to a gym called O2 today and I was shocked ! 70$/month for a gym that has just 4 treadmills !!
This, I believe is because of the low volume of demand for these items, leading to a lack of economies of scale. So, if you want a truly high-end life in India, its probably going to cost you more (even in real dollar terms) than in the US ... Until more people become filthy rich (and willing to spend) in India !
In other words, if the average software engineer started his career at a salary of $60,000 in the US, an Indian engineer would enjoy the same comforts (relatively) with $12,000 (about 5 lakhs).
I wonder what the ratio is nowadays. After a month living in Chennai, I have started thinking that Chennai might be more expensive than Raleigh ! This comparison is not strictly fair, because Chennai is a city, while Raleigh is a small town. Chennai is definitely cheaper than, say, Los Angeles.
However, I am struck by how much money I spend every week in Chennai. I think I know why I feel this drastic difference.
1. Before I went to the US (pre-2002), my lifestyle was extremely simple - I was strictly a starving college student. Now, after a few years in the US, I have come to expect a certain standard of life that is probably slightly above what an average 25-year old in India expects - I think thats the problem !
In Chennai, and indeed in the whole of India, at the bottom rung of needs (very basic clothing, housing and food), things are very cheap (say 5% of the US cost) ... This is because of the huge volume (Millions of poor).
However, as you move up the value chain, things get closer to the US prices and at the very top, costs are higher than the US (cars, air conditioning, flat screens, computers etc..). A case in point, the Toyota Corolla costs 12 lakhs here (30,000$) as against $15,000 in the US.
Another example is gyms ! I pay 20 bucks a month for a basic gym in the US (weights, cardio etc). I went to a gym called O2 today and I was shocked ! 70$/month for a gym that has just 4 treadmills !!
This, I believe is because of the low volume of demand for these items, leading to a lack of economies of scale. So, if you want a truly high-end life in India, its probably going to cost you more (even in real dollar terms) than in the US ... Until more people become filthy rich (and willing to spend) in India !
Comments
US cannot impose such kind of import tariffs as their economy is driven by imported cars and machinery, unlike in India where the market for imported cars is until now fairly negligible, or small, if you will.
am impressed with your blog and the analyis you make.
am learning a lot from your blog.
thanks guru