Rupee the most undervalued currency as per BigMac Index..

Though there are quite a few criticisms of Big Mac Index but still serves as an interesting way to compare currencies across the world.

Economist which publishes the index regularly, has put up an interactive feature of the index. They also provide the data in a  time series format across countries.

As per the index, Indian Rupee is the most undervalued currency in the world. Its value in terms of USD should be around Rs 20-21 per USD for it to be called a fair value! Whichever currency you take, INR is most undervalued compared to that currency and needs to appreciate by quite a margin.

The list of countries in this undervalued list are — South Africa.Malaysia, Indonesia, Ukraine etc. The list of countries that are overvalued are – Norway, Switzerland, Venezuela etc.

Well of course the main problem is value of BigMac is too low in India. I doubt whether it costs so low to make a burger in India given the poor infra. Infact if the Mcaloo burger is suppkied all across the world and replaces McBurger the scale of undervaluation will be even higher.

The idea of course is to make Indians consume more of the famous burger. Knowing India has lower incomes, it has priced the product really low. It has lso changed its product profile to suit the tastes of Indian public which is largely vegetarian.

Lately it has been trying Indians to have breakfast and lunch at McD by providing a heavy discount on their combos. And this indeed has become a relief in these high inflationary times. Very interestingly, McD in its initial days in India was seen as a high end food brand. But it has become a food brand for low incomes and college going crowd. It offers you a really cheap meal and excellent ambiance and hygiene.

This of course has other consequences as well  as suggested by this EPW article. We are just bidding time before the junk food mania hits our waistlines and cholesterol levels.

So one can only buy this with a pinch of salt…some might say this BigMac index results are just useless as rupee should be depreciating sharply given our record inflation levels..

One Response to “Rupee the most undervalued currency as per BigMac Index..”

  1. Loknath Says:

    McD runs 1 dollar burger deals all the time in US too. Regular prices for a Mexican Chicken grill is 3 dollars in the expensive state of MA. The size of these items is atleast 50% bigger than the ones available in India. Other US chains like Pizza Hut, Dominos, Star Bucks are priced at par with the prices in US. These firms use 100% local material and people but want royalties in dollar terms, How much does it take to make a cappuccino in India? 200ml milk + 10 gms of coffee + direct labor costs — not more than 15 rupees. Selling price 120 Rupees. Look at the margins. Pizza10” – direct costs – no more than 40 rupees. Selling price 150 and above. McAloo tikki burger-direct costs – no more than 5 rupees, selling cost – 25 rupees. Operating margins are very high in India.. (not profits.. because wastage and expiration is as high as 10% ww + 101 reasons why net profits can be low despite good margins)

    Indian rupee may be undervalued but not as undervalued to the tune of 200%. Something around 35, I would say is fair based on prices of not so fancy international products that sell everywhere. Until then I will blame the white lungiwalas from Harvard.

    US is now reducing dollar supply massively. So highly likely that McD will increase prices of its burger by atleast 50% by the end of 2014.. unless the lungiwalas do something about it.

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