How to calculate India’s average inflation rate from an old 20 p coin
When I kept the five rupee coin on the juice shop’s table, something felt different about it. On picking it up and checking it again, I realized it was not a 5 Rupee coin at all. It was a 20p coin from 1971! Some shopkeeper must have given it instead of a 5 rupee coin.
Here are some photos of it next to the current brass colored 5 rupee coin which was minted in 2011.
Both are remarkably similar in color and thickness.
The old 20p coin is slightly smaller in diameter.
But you cannot notice the difference when handling the change in a hurry.
For a couple of seconds I was irritated that I had been duped by someone. But then I realized that maybe it was unintentional on their part as well. It’s not like people have a huge stash of 20p coins from 1971 which they can use to run a scam.
I wanted to blame the RBI next for not paying attention to this detail before printing the 5 Rupee coins. And that line of thought seemed silly as well. When I develop software, I don’t want to support even 2 year old features. To expect RBI to have 40 years of backward compatibility seems ridiculous.
And that line of thought gave an idea. When life gives you old 20 paise coins, you do a macro-economic analysis out of it.
Considering that RBI would factor in the real value of a denomination before deciding what material and thickness to use in a coin, this means that in 2011 it considered a 5 rupee coin as being at the same value of that of a 20p coin in 1971. So a rupee’s real economic value had fallen by 25 times in that 40 year period, which roughly translates to a 8.4% annual inflation rate.
So, is this hypothesis correct? Luckily historical data for consumer price index inflation rates is available online here — http://www.inflation.eu/inflation-rates/india/historic-inflation/cpi-inflation-india.aspx. I downloaded the rates for that 40 year period and calculated the geometric mean, which gave an annual rate of 8.15% !
Close enough I guess. The old coin is slightly smaller. And the real value of the metal might have fallen slightly, which would explain the difference.