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Cost of a War
This book should be a prescribed reading for all Americans, especially before the presidential elections. It explains with chilling facts how people in that country have been hoodwinked – and this despite their constitutional right to information. The authors are clearly anti-war and anti-Bush. But their political ideology apart, they say in the Preface, “Our goal was simple: to determine the true cost of the war. Regardless of whether one supported or opposed US actions in the region, we believed that voters had a right to know the real cost of our policies.” And they are eminently qualified to do so. Joseph E Stiglitz of Columbia University is the winner of the 2001 Nobel Prize in economics and Linda J Bilmes, a professor of public finance at Harvard’s Kennedy School of Government, is a former assistant secretary for management and budget in the US department of commerce.

Apart from its tragic human toll, the Iraq War will prove staggeringly expensive in financial terms. The numbers presented are as mind boggling as they are numbing. If you really want to know what the war will cost, where each of those costs is hidden and what those costs consist of, then this book is well worth the money. This book casts a spotlight on expenditure items that have been hitherto hidden from the US taxpayer, including big-ticket items like replacing military equipment (being used up at six times the peace-time rate) as well as the cost of caring for thousands of wounded veterans for the rest of their lives. With chilling precision, the authors measure what the US taxpayer’s money would have achieved had it been invested in social areas like education or on roads and research. The fact, of course, remains that funds that might have been freed up may not have been spent on such projects – given the political priorities. There have been predictable responses to this book. Those who oppose the war love it and those who support the Iraq War are displeased. One can see these responses in the many reviews that have been posted on the Net.

The problem I have with The Three Trillion Dollar War is not one of content but of emphasis. Only someone with the credentials of Stiglitz could have attempted calculating the cost to our planet. But unfortunately, he does not. He restricts the costs to the American people and the economy. Had he done a wider study, we would have known how the earth’s scarce resources were wasted on a war that perhaps enriched some of USA’s defence manufacturers but impoverished the world for all times to come. – Dr Nita Mukherjee

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Costlier Shelter
There have been five years of property boom in India. Rising income levels, changing demographics, cheap mortgages and a robust economic outlook had been fuelling the demand for housing. However, macro-economic fundamentals have changed in the past few months and the impact of this on the real estate market is increasingly becoming evident as we head towards more economic problems at least in the medium term.

What has changed? Rising interest rates have been one of the prime factors negatively impacting the real estate sector. Sales have reportedly declined up to 70% in several markets and prices up to 20% in places like Gurgaon, Greater Noida, Ghaziabad and Kundli in the national capital region as well as in some Mumbai suburbs. Gagan Banga of Indiabulls, was recently quoted as saying, “Interest rate hike has dampened the sentiment in the real estate market, which will result in further slowdown. We see 5%-15% price correction in the real estate sector in the next few months, depending on the project and its location.” It is not just the real estate developers who are voicing concerns of a price correction. Keki Mistry, vice chairman of HDFC, told the media, he feels that prices across India may drop by as much as 15% in the coming months. Demand for loans, especially for housing, is likely to drop drastically, thanks to the central bank’s decision to hike interest rates in the face of a grim macro-economic situation.

Prices of houses in some parts of Mumbai and New Delhi had more than doubled over the past two years making Mumbai the third most expensive location for rentals in Asia (and sixth worldwide), according to Knight Frank and ECA International’s accommodation survey done in April this year. Interest rates have been rising gradually through the past couple of years and the recent rate hike by the Reserve Bank of India (RBI) in the cash reserve ratio (CRR) as well as the repo rate by a steep 50 basis points to rein in prices and keep inflation under control is likely to discourage new borrowers from going ahead with planned purchases hitting the real estate market even further.

This is as far as new borrowers are concerned. The scene is not all that good for even those with an existing mortgage. Existing borrowers of home loans with floating rates are likely to live with extended tenures or higher instalments. Moreover, the hike in repo rates is likely to suck out almost Rs20,000 crore from the banking system affecting credit supply. This is likely to put a brake on the speed at which banks have been lending to borrowers in these segments. Bankers have reportedly decided on a rate hike ranging from 50–100 basis points. PNB is likely to hike its prime lending rate by 50 basis points while the State Bank of India, the country’s largest bank, had hitherto refrained from raising rates but may not be able to hold them back for a long time. All this is likely to adversely affect the real estate sector which is already reeling under the pressure of price correction. Bankers are unanimous about the negative effect that the recent rate hikes are likely to have on the real estate market.

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