Being a huge fan of **Dr. Raghuram Rajan**, former Governor of RBI, I had thought to simplify his famous “DOSANOMICS” which he had explained in his book “I do what I do”.

WHY IS THIS IMPORTANT NOW?

With RBI hiking interest rates by 50 basis points to 5.90% (as mentioned in earlier post), in a situation of mounting inflation, I think this post could generate awareness on how an economy works with these factors.

When Dr. Raghuram Rajan was the Governor of RBI, he got a letter from a retiree that** interest rates for his savings were reduced to 8% which was earlier 10%. **Therefore, he gets low interest comparatively.

__Dr.Rajan was battling for low inflation than higher interest rates__ (which was nominal interest rate i.e., includes inflation). So, he came up with the concept of **DOSA ECONOMICS **to **explain the link between High Interest rates and Inflation. **

**Consider an example, **

- CASE 1 : A pensioner has Rs.1,00,000 as his savings and if 1 dosa = Rs.50 then he can buy
**2000 dosas**at that particular time**.** - CASE 2 : If the pensioner plans to invest, at
__10% interest rate with 10% inflation__, then it would be**Rs.55/dosa**, finally accounting for**182 dosas with the interest amount.** - CASE 3 : If he invests at
__8% interest rate at 5.5% inflation__, then it would be**Rs.52.75/dosa**, which accounts for**152 dosas with the interest amount.**

The ** comparison of 182 dosas VS 152 dosas is the known fact to common people** and so people demand hike in interest rates for their savings!!!

There is a hidden factor i.e., **THE PRINCIPAL!!!**

- The principal of Rs.1,00,000 at 10% interest rate and 10% inflation gives 1818 + 182 ( interest) =
**2000 dosas after 1 year.** - Same as the number of dosas brought without investing!
- The principal of Rs.1,00,000 at 8% interest rate and 5.5% inflation gives 1896 + 152 (interest) =
**2048 dosas after 1 year.**

**A NET GAIN OF 48 DOSAS!!!**

“If you can’t explain something simple, you don’t understand it well enough” – Albert Einstein.

Howdy readers!!! With strong belief in the power of words, I look forward to help you choose the correct lens to perceive world issues and embrace positivity about the future!

Well written 👍

Thank you😊

Keep posting saumi!!…..Great wrkngg😁

Sure.. Thank you!!