Showing posts with label economics. Show all posts
Showing posts with label economics. Show all posts

Indian economy on eve of independence notes

Britishers changed structure of Indian economy — India end up being net supplier of raw materials and consumer of finished industrial products from UK. India was feeder of UK's Industrial base.

Meanwhile, here's how to stay updated with govt job news

Agriculture: Mainly Agrarian economy. 85% of population lived in villages & derived livelihood directly or indirectly from agri. Stagnant growth, bad land/ revenue settlement system - zamindari system.

Industrial sector: declining handicraft industries in India resulted in high unemployment, and demand was meet by cheap UK goods. From 1850s cotton & jute textile mills come up in Maharashtra, Gujrat. Jute mills in Bengal. 1900s- Iron/steel, TISCO(Tata Iron & Steel Co 1907) were set up.

However no Capital goods industry. {Capital goods industry means industries which can produce machine tools which are, in turn, used for producing articles for current consumption.}

Another drawback of colonial rule was Public sector was confining its activities only to the railways, power generation, communications, ports and some other departmental undertakings.

Foreign Trade: more than 50% of foreign trade was with UK. India was basically exporting raw goods (raw silk, cotton, wool, sugar, indigo, jute etc.) and importing finished consumers goods (cotton, silk and woollen clothes and capital goods like light machinery).

Most Importantly throughout the colonial period there was a generation of a large export surplus. This means that several essential commodities - food grains, clothes, kerosene etc were scarcely available here. The surplus was used to pay off British Government's war efforts.

Demographic condition: 1st modern census of 1881. Before 1921, India was in the first stage of demographic transition. The second stage of transition began after 1921.

{Demographic Transition : It is a concept developed by demographer Frank Notestein in 1945 to describe the typical pattern of falling death and birth rates in response to better living conditions associated with economic development. Notestein identified three phases of demographic transition, pre-industrial, developing and modern industrialised societies. Later another phase, post-industrial was also included.}


Social Development indicators was not good. Overall literacy level - 16%, for women: 7%. Life expectancy just 32yrs.

Occupational Structure:


Infrastructure: Real motive behind development of infra was to sub-serve colonial interest. Social benefits of railways outweighed huge economic losses.

Read MCQs to complete your understanding of this part.

Financial Inclusion in India

Why Financial Inclusion?

Financial inclusion (FI) means delivery of banking services at an affordable cost. Banking services = public good. So availability of banking and payment services to the entire population needs to be given without discrimination. It includes getting cheaper loans, Insurance (life, med, non-life, crop etc), Investment (Equity, MF, Pension plans etc).

Why?

Inculcate habit of saving in poor. Capital formation will get a boost.

Adequate, transparent & cheaper credits/ loans - will raise entrepreneurial spirit in poor people & result in prosperity.

Plug gaps & leaks in public subsidies & welfare progs. A study by McKinsey estimated that Rs. 1 lac crore could be saved each year in terms of manpower/time/ paperwork/ leaks if all govt subsidy/ benefit payments are done via e-payments.

Inequality falls more rapidly in areas that have more developed financial intermediaries = Empowerment.

Economic well being = social harmony. Bring Govt closer to poor people. It'll help inclusive growth efforts, and reduce poverty. No brainwashing by extremist/ Maoist/ Sucessionist elements.


What is being done by RBI/ Govt.

Access to banking network

1. Post office has vast network. They open Savings, RD, FD accounts. Also  Insurance, investments in Mutual funds, Payment & remittance services is being provided.

2. RRBs, cooperative banks, primary agricultural societies established for delivers.

3. Lead bank schemes (1969): RBI assigns a district to a bank which is responsible for promoting banking services and financial literacy there.

4. Business Correspondents (BC) system: Banks extend their services to villagers with help of agents, where opening brick-mortar branch is not profitable.

5. Bhartiya mahila bank setup for women empowerment.

6. White label ATMs: 2/3rd of these ATMs to be opened in semi urban and rural areas.

7. Banks to open at least 25% of their new branches in unbanked rural centres.

8. No Frills accounts for poor people. Later renamed to Basic Savings Bank Deposit Account (BSBDA): with relaxed KYC norms.

Giving Access to Credit (Loans)

Priority sector lending targets to banks.
Microfinance, various schemes for Self-help groups by NABARD
Interest Subvention scheme for farmers.
General Purpose Credit Card (GCC) and Kisan Credit Card (KCC) to help people get loans easily.

Giving More Access to Investment

National Savings certificates
Public Provident Funds
New Pension Scheme (NPS), Swavalamban (for people in unorganised sector).
Rajiv Gandhi equity savings scheme (Investing in equity Market: for First timers, upto 50K).
Inflation indexed bonds

Giving Access to Insurance
1. By Post office: tie-up with LIC & its own - offering various schemes.
2. Rashtriya Swasthya Bima Yojana (for BPL families, biometric smart-card based - cashless insurance for hospitalisation in public as well private hospitals, avail inpatient medical care of up to Rs 30K).

3. Rajiv Gandhi Shilpi Swasthya Bima Yojana: by Union Ministry of Textiles, in association with ICICI Lombard (for Craft persons, total medical cover of Rs.15K, death and permanent/partial disability by accident Rs.1.00 lakh).

4. Aam Aadmi Bima Yojana: for landless agricultural families, those involved in 46 other trades including beedi workers, carpenters, cobblers, fishermen etc. Life cover of Rs. 30K for natural death, Rs. 75K for death due to accidents. Scholarship of Rs 100/- per month for 2 children.


A recent committee by RBI named "Nachiket Mor committee" had outlined an ambitious plan of achieving total Financial inclusion by 1/1/2016. It recommended NBFCs to play major role in FI. But its report are being put on back burner as RBI & Finance ministry are not comfortable with the idea of NBFCs getting status of banks (via Payment banks- to open SB a/c & Wholesale banks - to give loans) without obligation of CRR, SLR.



4 important concepts of Elasticity made simple

4 Elasticity Concepts in 5 Minutes


Elasticity is a very basic economics concept. It's used in many economics studies. When you complete this page, you'll be able to grasp it & use it in your answers in such a way that professors, interviewers would love to listen:


Elasticity is how flexible demand/supply is in response
to a change in price (or other variable).


1) Price Elasticity of Demand (PED): 


What does it means? It simply means if you change price of a product how'll demand for it will behave.

Suppose you are CEO of a company you would try to figure out how much change in price of your product will increase its demand or sales!

If you're CEO of some luxury stuffs co. then probably reducing price won't help you much. Because if it's not pricey then its not luxury. Isn't it?


Price In-elastic Demand: Apple iPhone 5C 


PED, price elasticity demand, economics, rbi grade b, sbi po, ibps,
iPhone 5C pic by flickr janitor

Apple launched both iPhone 5S (high end) & 5C (ridiculed as C for cheap) According to some reports iPhone 5C sales were not impressive. And some intellectuals are criticizing Apple for venturing into low-cost mobiles as their price & cult-culture is what separates it from others. May be that's why the legendary Steve Jobs never actually gave any thought of making "cheaper mobiles".

So we would say demand of iPhone 5C is price inelastic! Demand is not responding to change in pricing. Another way to see it: if price were reduced by 40%, demand increased by may be 2-3% - that's what we call price in-elasticity.


Price elastic Demand: Burgers


Take another case: What if you are CEO of McDonald? Reduce price or not. Well, here is some piece of news, reduce price & increase sales. So when you reduce prices by say 25% & demand increase by say 40% then we say Burger sales (demand) are price elastic!


Now lets see another easy concept.

2) Income Elasticity of Demand (YED):

(letter 'I' is for Investment, so Y for income).

What does it means? It simply means if you change real Income levels how'll Demand behave.

Normal Goods & Inferior Goods

With increase in real income demand for 'normal goods' increase. More money with people they'll spend it.

However there are some goods whose demand will decrease with increasing income for e.g. bus tickets because people will take taxis, cars etc. such goods are called 'Inferior goods'.


Luxury goods are more income elastic than necessities. Because people will buy luxuries with rise in income!


Consider this: When your income goes up, what would you do? Buy Apple iPhone - 5S of course, eat out with friends in expensive restaurants, go for holidays... and so on. You are creating more demand by spending more, because now your income is more.


What if your income goes down? Probably you'll eat at home, prefer low-cost types of mobiles, take public transport instead of taxis etc.


Here's a study to understand these concepts better - don't go into too much details just read Executive summary only. But before that read this Elasticity part 2. Here's excerpt:

"An average income elasticity of 1.65 is estimated for inbound tourism. A 1% increase in GDP (Income)... would lead to an increase in tourism expenditure in the UK of 1.65%."


That's roughly to say that if you raise income by 1%, Britishers tourism expenditure increase by 1.65%. So hotel-room demands are income elastic!

YED, income elasticity demand, economics, rbi grade b, sbi po, ibps,
Jumeriah Hotel by flickr adteasdale


3) Cross Elasticity of Demand (XED):

 is a measure which shows how much demand of a good will change in response to change in price of another good.


Coke & Pepsi are 2 subtitute goods. If coke reduce it's price, Pepsi sales will be affected.

Tea & Chai-Masala are 2 pretty strong compliments ;). Tea & Sugar can be said as good compliments.




4) Price Elasticity of Supply (PES):

What does it means? It simply means if you change prices of a good how'll (& how quickly) supply behave.


Now suppose you are an Onion supplier!

Should I tell you more? I don't think so if you are in India. When prices increase, you would rush to book max profit. You'll increase supply & sell more & more...


PES tells us how quickly suppliers are able to react to the price change. If suppliers are able to react quickly we say the supply is price elastic.


So Onion supply is price elastic.

Supply is said to be price inelastic when suppliers are not able to increase supply when price is high. Similarly they are not able to restrict supply when price goes down.


Suppose you're Onion farmer, what would you do when prices shoots up. Actually you can't do anything because onion corps are ready in 5 months. By the time your fields are ready prices would come down.

A very important concept in it is: Commodities like Agricultural produce, Mining are price inelastic.

But if seen over a longer period of time then even commodities are elastic. If Basmati rice fetch good price for farmers, then over a longer period of time, farmers will produce more of it!





Height of global inequality: rich-poor gap widening

Height of Global Inequality!

A very shocking report is published by Oxfam which reports that: a tiny group of 85 richest people own as much as 3.5 billion poor! wtf.


Some points of the study can be used in essays, answers regarding global inequality, poverty or to point out failure of democracy, taxation policies.

Important Points for essays


a) Wealthy groups have co-opted political power, thus undermining democracy in a country including India. This group then create rules which is in favor of those having high income.


b) Since the late 1970s tax rates for rich have fallen. In last 25 yrs wealth have concentrated even more in the hands of few families. Around 1% of rich families own around 50% of wealth.

c) In India since last decade no. of billionaires have increased tenfold thanks to 'highly regressive tax structure' & 'political connections'.

All this bends the rules of economic game in favor of fittest group. In the end rich are getting richer & poor are becoming even more poor. Govt spending on poor is low.


Some of the policies in favor of rich are: Tax havens & secrecy, financial deregulation, anti-competitive business practices & cuts in public spending.