Indian Economy

INDIAN ECONOMY

BY,

SHRI SAPTARSHI NAG, WBCS (EXE)

1

CREDIT AVAILABILITY FOR AGRICULTURE IN INDIA Availability of credit has been the main hindrance in development of agriculture in India. The banking system is still hesitant on various grounds to purvey credit to the small and marginal farmers. Less availability of credits makes it difficult to adopt modern techniques which in turn render agriculture unremunerative and land unprofitable. Despite government policy of financial inclusion, most of the farmers in India are still deprived of adequate and timely availability of credit. Though there has been instruction to the domestic banks to reserve 40% of the Net Bank Credit for the priority sector lending and 18% out of that amount for agriculture by RBI, banks over the years have failed in achieving the target. The Rural Infrastructure Development Fund was set up in 1996 to solve the credit availability crisis. The Commercial Banks make contributions to the fund for failing to achieve their target for Priority Sector Lending. The Kisan Credit Card scheme launched in 1998-99 however was a laudable effort by the government to make credit available at farmers' doorstep. The scheme facilitated short term loan availability for seasonal agricultural operations and other agricultural inputs. In addition to that Personal Accident Insurance of Rs 50,000/ against annual premium of just Rs 15/ is being offered along with the cards. So far the performance of Cooperative banks has been commendable in issuing credit cards whereas commercial banks lag behind their targets. The performance of the Regional Rural Banks has been below par. Update of land records and sensitization of bank staff through training programmes are needed to add to the spread of the scheme. However there were crying needs for loans for investment and working capital requirements for the farmers. To take care of the need Swarojgar Credit Card Scheme was launched in 2003.It must be noted that Non-Institutional credits which accounted for more than 90% after the independence have decreased considerably in the past 50 years and presently accounts for little more than 30% of the total agricultural credits. Moreover, till the liberalization of economy started, cooperative banks were leading in credit delivery. But past one and a half decades has seen drastic change of the scenario with the commercial banks now leading in credit delivery by handsome margin. Another aspect of credit delivery in India is the dominance of short term credit over long term ones. Present short term credits account for more than 65% of the total credits. The accessibility to institutional credits is much higher in Southern India than rest parts of India and Tamil Nadu leads the way. CONVERTIBILITY OF INDIAN RUPEE Convertibility refers to the freedom to convert one currency to any other internationally accepted currencies. It is of two types-Current Account Convertibility and Capital

2

Account Convertibility. Capital Account Convertibility refers to the freedom in converting financial assets of one country to the financial assets of another and vice versa in the market determined rates. In other words it refers to the flexibility in converting currencies of one country to another one for acquisition of capital assets abroad and vice versa. On the other hand current account convertibility refers to the flexibility in exchanging currencies of one nation to another for other purposes like trade, interest payment, amortization, family expenses etc. After the economic liberalization process started in India in 1991, a Liberalized Exchange Rate Mechanism was introduced in 1992.This allowed partial convertibility of Indian rupee, thus introducing dual exchange rate. After that full convertibility on trade account started from 1993.It was followed by Full convertibility on current account from 1994.However after the Mexico crisis in early 1990s or the mammoth East Asia Crisis where there was sudden flow of capital internationally debilitating the economies of the involved nations, India was reluctant to adopt capital account convertibility. However the Tarapore committee, appointed in 1997, recommended phased implementation of capital account convertibility with certain prerequisites like fiscal deficit to be 3.5% of GDP,CRR to be brought down to 3%, gross NPA of public sector banks to be 5% of the total assets, inflation rate to be around 3.5%.The committee was reappointed almost a decade later and submitted almost the same recommendations with some modifications. It must be remembered that the movement towards fuller CAC should be a process and not an event. Macroeconomic stability is a must before achieving full CAC. Any ad hoc arrangement from the fixed regime maintained for a long period of time might disturb the foreign exchange market and disrupt the economic progress. NATIONAL AGRICULTURAL INSURANCE SCHEME Salient features Introduced in:1999-2000 replacing the Comprehensive Crop Insurance Scheme which was in operation since 1985 Implementing Authority: General Insurance Corporation on behalf of Ministry of Agriculture Beneficiaries: All farmers including sharecroppers and tenants Covered crops: All Objective: To insure every farmers against loss of food crops, To help stabilize farm incomes, particularly in disaster years, To encourage the farmers to adopt progressive farming practices, high value in-puts and higher technology in agriculture. Special feature: 50% subsidy on premium for small and marginal farmers. This subsidy is

3

shared equally by Central and state/UT governments. The scheme has an area based approach. For loanee farmers it is compulsory while for non-loanee farmers it will be optional Premium rates: 2.5-3.5% during kharif and 1.5-2% during ravi seasons MEGA FOOD PARK SCHEME The Mega Food Park Scheme, initiated by the Centre, aims to encourage public-private partnership in creating rural infrastructure in food processing sector. The scheme, approved by the Cabinet Committee on Economic Affairs in September 2008, envisages setting up 10 mega foods parks in India i.e. Chittoor (Andhra Pradesh), Dharmapuri (Tamil Nadu), Mandya (Karnataka), Pune-Satara region (Maharashtra), Jangipur (West Bengal), Guwahati (northeast), Rae Bareilly (Uttar Pradesh), Ranchi (Jharkhand), Hardwar (Uttarakhand) and Ludhiana-Jalandhar region (Punjab).The scheme is under the Ministry of Food Processing Industries. The government will divide the stipulated Rs 500 Cr among the ten food parks. For instance, Unity Infraprojects Ltd, Mumbai, is developing the mega food park near Jalandhar at a cost of around Rs 360 crore. The facility will be established on around 100 acres and will consist of 30-35 food processing units. Western Agri Food Park established in Satara is Western India's first food park and based on 75 acres of land. Such food parks will help in Reducing post harvest losses Maintenance of the supply chain in sustainable manner Value Addition Additional income generation for the farmers Shifting the farmers to more market driven and profitable farming activities. PRIORITIES OF INDIAN ECONOMY AMIDST GLOBAL CRISIS Crisis is a window of opportunities. India proved that with sheer brilliance after the Gulf Crisis in 1990 and started economic reforms which for the next decade or so put Indian economy into a commanding position. The present global financial crisis is of no difference. It has provided us two alternatives-to shine or to perish. It is how well we handle the crisis, will set the fortune of our economy for the coming years or so and will provide the world an answer to the doubt whether or not India truly has the potentials to become a global superpower in future. The present task ahead of India is to undertake economic reforms considering twin

4

objectives of our economy from the present shock and avoiding further financial turmoil. The means to do so may be summed up as below Moving to Inflation targeted monetary policy so that external influences on inflation can be minimized Ensuring timely and adequate availability of credit for the priority sectors so as to ensure square growth of the economy. Moving to a full capital account convertibility to bring back the sense of competition in the financial sector Establishing a strong regulatory architecture so as to protect the irregularities in the financial market. Restructuring the banking industry to make it competitive in the global scenario We must understand inaction is no solution to the problem. We must not be jubilant as the impacts of the recession to our economy have not been as hard as to the developed nations' economies. Rather we must seek opportunities in danger and work harder for financial sector reforms and come up with flying colors while the developing nations continue do some firefighting to save themselves from th wrath of global recession. GLOBALIZATION ON HIGHER EDUCATION IN INDIA The ramifications of globalization in India have been uneven. Education, as a service industry, is a part of the globalization process under the umbrella of General Agreement on Trade in Services (GATS).Thus it is of now wonder that like in any other sector; globalization has bred inequality and dependence in the education system of the nation, especially higher education. Thus while a section of the population has benefited from globalization in their academic pursuits, the under privileged section has struggled to receive proper higher education due to excessive corporatization of education ,increasing fees and unavailability of opportunities in the lower strata of the society. That globalization has opened newer vistas of higher education, can not be denied. It has given the Indians opportunities to get higher education in foreign countries, though unfortunately till now India has not been an attractive hub of education for the foreign students despite having much potential to be so. Today India on an average spends $ 5 billion annually to send students abroad to get higher education. Sadly enough, most of them hardly come back to their motherland and instead opt for serving in an alien nation. Globalization has created a market based educational system in India. Thus there has been incredible growth of the number of technical colleges and universities providing technical education especially in fields like IT, Computer Science, electronics, architecture. As the job market in these sectors is flourishing, students after getting mere Bachelors degree hardly opt for higher education. Thus India over the years has produced some brilliant technicians but hardly any excellent educationist or a genius teacher. Moreover, as the cost of receiving such technical education is sky high, poor students have been out of the competition to receive higher education. Moreover, the declining value of the civil society is evidence in itself that higher education has imparted technical

5

skills but failed to impregnate values among the students. Moreover, lack of higher educational opportunities in the rural areas confirms that the interest of the corporate world is limited only in the shining cities, not in the rural India where ironically more than 70 % of the population lives. As a result rural-urban divide has been more prominent, there has been migration of students from rural to urban areas in search of educational opportunities, creating more socio-economic imbalance. In the end , it must be said that while globalization has been of tremendous benefit for the upper strata of the society in their academic pursuits, the benefits have not percolated down the social strata to educate each layer of the society. While corporatization of education should not be discouraged, the government should have more control in the sphere of education, so that the people irrespective of their social class can reap the benefits of higher education and can be a part of making India a better nation to live in.

GLOBALIZATION AND GROWING INEQUALITY SANDESH G.NAYAK World is going through its gravest economic downturn since the great economic downturn of 1930's. The ILO report says that the root of this crisis lies in 1990's economic reforms. Through these reforms, the world economic order took a turn and headed for different direction and is the main reason for contemporary economic inequality, social security concerns and labor relations. Recent report of ILO clearly highlights the growing inequality among different section of workers and decrease in the unemployment after the globalization. - Main reason is due to the extinction of many domestic industries which are affected by the global factors. Although the 1990s economic reforms were accompanied by “substantial economic development across most regions" there were variation in labor market performance between and within the countries. Moreover, increase in employment also occurred, alongside a redistribution of income “away from labor". Statistics indicated the share of wages in National Income declined over the past 2 decades. This means that workers gained very less from the economic growth. The rich poor gap also widened. Nearly two thirds of the countries experienced an increase in income inequalities. Yet another finding is that this rich poor gap is doing so at increased pace. Financial Globalization has not lived up to its promises. Another problem that it has eroded the Bargaining power of employees and contributed to decline in wage share over and above any effect resulting from trade integration or sectoral change. The continuing economic slowdown coupled with rising food prices will accentuate the income inequality and affect the employment opportunities of low income group.. Although in line with the economic thinking since the advent of globalization, the report argues that income inequalities could be a good thing as it rewards work quality, talent, and innovation. It strikes a serious note of caution that “there are instances where income

6

inequality reaches excessive levels, in that it represents a danger to social stability while also going against economic efficiency considerations.” JOBLESS GROWTH IN INDIA- SOLUTIONS ARE PLENTY By Anubhav Srivastava Though India has maintained a GDP growth of more than 8 per cent for past few years, a vast section of its populace, particularly in the rural areas, still remains jobless. There is thus an urgent need to evolve a model of development that ensures employment growth along with GDP growth. If we look at the Indian scenario, we find that nearly 60 per cent of the workforce is engaged in agriculture and about 12 per cent in manufacturing. Hence government must find ways and means to stimulate growth in these two sectors in order to meet the growing demand of jobs. To promote agriculture, the government should put irrigation and watershed development high in the list of priorities. Irrigation is vital to the growth of agriculture. It has a cascading effect on all the other activities related to agriculture. Developed irrigation facilities makes farmers less dependent on monsoon and at the same time helps them in increasing the per hectare agricultural production. Efficient irrigation facilities encourage the farmers to opt for high yielding varieties (HVY) and also increases fertilizer consumption. Dams built on rivers help in bringing more and more wasteland under agriculture. This increase in agricultural land, apart from increasing production of food crops, simultaneously increases the production of fodder. This in turn encourages people in the villages to purchase more livestock. Similarly government must encourage setting up of secondary and tertiary sector industries related to agriculture in the rural areas itself so that migration of people to bigger cities in search of jobs can be checked. On the manufacturing front, the government must promote small-scale industries (SSI). This can be done by imparting vocational training to the people in the rural Areas and providing them micro-credits. To make these small industries competitive vis-à-vis the bigger companies, people in the villages should be promoted to form cooperative bodies. Previously, the government had dereserved some of the small scale sector products and the small industries manufacturing those products failed to compete with the bigger, highly mechanized industries. Many of the people, who had been involved in manufacturing those products and hence had skill-set pertaining to only that particular economic activity, for example cloth weaving, were forced to work as manual laborers. The skills they had acquired were hence rendered useless. Government can even think of once again reserving the manufacturing of certain products to the small scale sector in order to boost employment. Apart from the above two measures, expansion of social service network can also be taken up by the government in its efforts to boost job creation. There are several areas where there is tremendous scope for expansion and improvement like education and public sector. There is an ever increasing need of primary and secondary schools and also hospitals and dispensaries. Besides a boost to the rural sector infrastructure too helps in 7

generating more jobs. For example, if roads are constructed in any area, it not only increases the value of the nearby land but also promotes economic activities like Dhabas (eating joints) and vehicle repair shops along it. Emergence of a ''green economy'' is now clearly visible and efforts to tackle climate change could result in millions of ''green jobs'' in India and other countries, says a UN sponsored report. India could generate 900,000 jobs by 2025 in biomass gasification of which 300,000 would be in the manufacturing of stoves and 600,000 in the fuel supply chain and other areas. GLOBALIZATION AND CLIMATE CHANGE By definition, climate change is a global issue. The composition of the atmosphere which surrounds the planet is altering as a result of the emissions of tonnes of polluting gases (called greenhouse gases - GHGs) from industry, transportation, agriculture and consumer practices. With this thickening blanket of gases, the atmosphere is gradually warming. The entire planet will be affected by the climatic changes and impacts which are predicted e.g. increased droughts and floods, rising sea-levels, more extreme temperatures, etc. The willingness of countries around the world to cooperate in the negotiation of treaties to address this global problem is a positive example of globalization - or perhaps this is better referred to as internationalism. Intensive discussions over an 18-month period before the 1992 Rio Earth Summit led to the adoption of the UN Framework Convention on Climate Change. Negotiations have continued subsequently to develop another agreement for more specific emission reduction targets for industrialized countries. There are many environmental impacts of economic globalization: transnational corporations moving operations to developing countries to avoid the stricter environmental regulations of their home country; free trade agreements which restrict the capacity of national governments to adopt environmental legislation; destruction of southern rain forests to provide exotic timber for northern consumers and to create pasture land for beef for northern hamburgers, oil spills in the seas and oceans destroying oceanic environment because of increasing number of business treaties and increasing shipping are to name a few. The climate change issue illustrates how inter-related the world is both in terms of the causes of the problem and the options for addressing it.

GOODS AND SERVICES TAX-CONSTRAINTS AND SOLUTIONS Goods & Services tax is proposed to phase out Central Sales Tax by April 2010 and Indian states and political parties have reached fair amount of consensus on the issues related to the new tax regime. However careful analysis reveals that the route to the new tax regime may not be an easy one. Firstly, all the states understand that they will gain from the new tax structures and there

8

remain not much ideological problems with its implementation. But the problem is, none of the states will continue to be that much enthusiastic if they suffer revenue losses while phasing out the CST. The empowered committee of the state finance ministers has suggested that the states should be compensated for five years for the revenue losses incurred. However, they are apprehensive about the possibility of full scale compensation because of their claimed bitter experience in this regard earlier. Therefore it is essential to prepare a comprehensive policy for the compensation of the states for the revenue losses, taking into account past experiences. Moreover, the states are also apprehensive about encroachment upon their fiscal autonomy, i.e, their power to levy taxes. However, the apprehension can be assuaged with the fact that the states will now have the power to levy service taxes hitherto a monopoly of the Central Government. Under-preparedness of the administrative machinery and the juvenile IT structure might pose a threat to the successful implementation of the new tax structure. The state tax collecting officials who have so far collected only tax on goods will now be given the responsibility to collect taxes on services as well and for that they need thorough training which may take some time. This problem can be sorted out if the Center continues to collect taxes on behalf of the states and give the revenue to the states for the initial 2-3 years till the time the state officials are thoroughly trained. The Tax information exchange system has to scaled up with better IT facilities and educated IT professionals thoroughly educated on the tax structure of the country. The format of the challans for tax payment need to be redesigned and the government may need to allot new unique number under the GST system for better administration of the tax. Problems are plenty and time is limited. The time frame given for the implementation of the GST is nearing the deadline. It is therefore suggested to delay the process a bit so that both the center and the states have enough time to get accustomed to the new tax structures. A little delay is always better than a premature roll out. DECOUPLING THEORY-REALITY CHECK Decoupling theory, as the name suggests, decouples emerging world markets from US markets. The followers of this theory believe that “because of the strong GDP growth of many developing countries, especially of China and India, their markets will chug along even at the time of US After the first symptoms of recession of US stock and other financial markets, many investing firms and funds changed their focus to emerging markets of Europe and Asia. Decoupling theory is postulated in this context for assisting the firms to reap from these emerging markets, but the validity of this theory is arguable. The theory was pretty right till the end of last year, but things have changed considerably in this year. recession.” Now with the US slowdown spreading across the globe coupled with a declining dollar, advocates of the decoupling theory are debunking their claims. Most Asian markets are now on big recession after the crash of Dow John’s. Indian, Chinese and Hong Kong markets fell considerably in the recent past. In the globalized world no country can remain isolated and hence developments

9

taking place in one part of the world have their repercussions on the other part of the world and capital markets are no exception. The Indian capital market is also showing bearish trends with banking stocks moving down in recent times. After the first symptoms of recession of US stock and other financial markets, many investing firms and funds changed their focus to emerging markets of Europe and Asia. Decoupling theory is postulated in this context for assisting the firms to reap from these emerging markets, but the validity of this theory is arguable. The major drawback of Decoupling theory is that it does not consider the multiple economic relationships and globalization trends. Although the trades among Asian countries grown tremendously, the major trading partner for all major Asian countries is still United States and any recession in its economy will lead to recession in all these countries, although the effect may vary. The coupling thus still exists and the same can be said about the near future as well. Courtesy:1>Dr Salma Rizvi,MBA,PhD,Lecturer(Finance)Amity Business School 2>Amarendra Chowdhury,MBA,Phd,Consultant,Citi-India

UNORGANISED WORKERS' SOCIAL SECURITY BILL Unorganized workers' Social Security Bill which has recently been passed by the Parliament is an evidence of the government's concern for unorganized workers who constitute a massive 94% of the total work force in the country and contribute to more than 60% of the GDP of India. According to the officials, the scheme will cover 34 crore workers in the next five century including agricultural workers and migrant laborers. This is being seen as one of the most important steps to alleviate the poverty of the workers in India. Under this scheme each worker will be identified and registered and will be given a unique social security number and a social security card. All of them will be offered a number of social security benefits like health, life and disability insurance, old age pension, group accident scheme, maternity benefits etc. Registration of workers will be through the Worker Facilitation center which will work through various worker facilitation agencies. Each worker will pay a nominal sum and will obtain an unique social security card and number. The entire scheme will work through Central Social Security Authority. The Scheme promises to ameliorate the age old pangs of the unorganized workers who even sixty years after independence continue to be oppressed by socio-economic forces. Only time will tell whether it remains a paper tiger or becomes the Savior of the workers. CREDIT RATING

10

Credit rating refers to the Credit worthiness of an Individual, Corporation or even of a Country. It is calculated on the basis of credit history, present assets and liabilities. A poor credit rating indicates higher chances of defaulting. The individual credit rating is important for the banks to estimate the repayment capacity of its borrowers and the individual credit score takes into account the total amount of credit, credit spending pattern, amount of credit used, savings pattern, debt, interest rates etc. Accordingly a three digit credit score is prepared by rating agencies like Fair Isaac Corporation. Corporate Credit rating is important for potential investors in bonds and debt securities. It is also known as bond rating. Agencies like Moody's, Standard's & Poor's, Fitch Ratings are involved in assigning such credit ratings. Corporate credit ratings are indicated by AAA,AA,A,BBB,BB,B and so on. Any rating below BBB indicates poor credit health of the corporation. Sovereign credit rating takes into account the investment environment of a country and it includes the political environment as well. Investment friendly government policies ensure better credit rating of the country. Presently countries like Luxemburg, Norway, Switzerland have very high credit rating. Apart from the already mentioned credit rating agencies Equifax, CallCredit, Experian, TransUnion are some of the credit rating giants. In India Credit Information Bureau of India Ltd is an individual credit rating agency. CRISIL, ICRA, Credit Registration Office etc engage in corporate credit ratings. India's credit rating is presently facing growing pressure because of the widening fiscal deficit and the country's increasing dependence on foreign capital inflow. The newly elected government, which won a second five-year term last in May, is planning to borrow a record Rs.363,000 crore ($76 billion) this fiscal. This move is expected to widen the budget deficit to 5.5 percent of the gross domestic products. However due to India's positive credit history the pressure may just last for a temporary period. SLUMS IN INDIA-AN OVERVIEW

A slum, as defined by the United Nations agency UN-HABITAT, is a run-down area of a city characterized by substandard housing and squalor and lacking in tenure security. According to the United Nations, one billion people worldwide live in slums and will likely grow to 2 billion by 2030.The characteristics associated with slums vary from place to place. Slums are usually characterized by urban decay, high rates of poverty, and 11

unemployment. They are commonly seen as "breeding grounds" for social problems such as crime, drug addiction, alcoholism, high rates of mental illness, and suicide. In many poor countries they exhibit high rates of disease due to unsanitary conditions, malnutrition, and lack of basic health care. For the first time in 2001 Census data was collected for slums. Slum data was collected for cities/towns having 50,000 population or more based on 1991 census. It is unfortunate that the number of people living in slums in India, Asia's fourth largest economy, has more than doubled in the past two decades, the government said on Thursday. According to this population of slums all over India is 40,297,341 (40 million) from the 607 cities/towns reporting slums. This comes to ~4% of total Indian population (assuming Indian population of 1000 million). More interestingly it comes to ~22% of the total population of these cities (178,393,941).This means that almost quarter of Indian cities live in slums. And sadly 5,531,062 (5 million) of this population are young children (0-6 age group). The numbers for the richest state in India, Maharashtra are even worse. Almost 32% of the state's population live in slums. And > 5 million (5,823,510 to be precise) are in the financial capital of India, Mumbai. About 49% of Mumbai's population live in slums. It is vicious cycle of population growth, opportunities in the cities (leading to migration to the cities), poverty with low incomes, tendency to be closer to work hence occupying any land in the vicinity etc. The key reason out of all is the slow economic progress. After independence in 1947, commercial and industrial activity needed cheap labor in the cities. Plentiful was available in the rural area. They were encouraged to come to cities and work. People, who migrated to the cities and found work, brought their cousins and rest of the families to the cities. Unable to find housing and afford it, they decided to build their shelter closer to work. First, one shelter was built, then two and then two thousand and then ten thousand and on and on. Poverty, slums and urban squat are not going to go away in next 20 to 25 years. Reversal of this phenomenon will begin after sufficient economic progress had been made. Eight percent GDP growths is a good sign. With quadrupled GDP in 25 years, there is a good chance that the new and upcoming generation may stay away from slum dwelling. It may take another 25 years before the slums are vacated.

EFFECTS OF LIBERALIZATION ON PRODUCTION AND EMPLOYMENT

Liberalization of Indian economy has yielded many positive results. But considering the overall socio economic impact of liberalization in Indian context the scenario is still not something to cheer about. It was widely believed that a liberal economy will eventually lead to better production and more employment generation, the two most important features of any successful economy. Although India has not fared badly in the first category, employment generation fore the targeted section is still not satisfactory. Considering production of goods, today Indian markets are full of white goods, i.e, goods

12

required and used by the upper strata of the society and produced by multinational companies, refrigerators, washing machines, inverters, air conditioning machines are to name a few. This has resulted in the growth of consumer culture with international companies dominating the market because of their high brand value, large expenditure on product development and marketing strategies. The domestic companies in the face of tough competition are losing the battle and are on the verge of extinction. Thus, though India boasts of having high mobile density, producing the cheapest car in the world, farmers still commit suicide in the countryside, more than 20% of the population still live below the poverty level. It would be, therefore, not wrong to say that the benefits of liberalization have not percolated down the social strata to enrich the poorer section of the country. Considering employment generation, liberalization has created more white collared jobs ignoring the needs of the poor, rural people. More and more call centers are being opened, state of the art, sophisticated IT offices are being built. But beneficiaries? The privileged, educated sections of the society. But the miserable plight of the unskilled workers, poor farmers, daily wage earners is still the same. It seems the growth rate of Indian economy has not done justice to the weaker section of the society. Therefore care has to be taken to ensure a balanced development so that domestic companies can also flourish along with their multinational counterparts, economic development results in social growth and the young Indians are free from the menace of unemployment. NOTE: THIS ARTICLE CAN BE USED FOR ANSWERING QUESTIONS LIKE "GLOBALISATION ON POVERTY ALLEVIATION IN INDIA".

ROLE OF EXTERNAL ASSISTANCE IN INDIAN ECONOMY The Indian economy today is no longer reliant on external assistance for the financing of its plan outlays or for gross capital formation. The change is evident from the changing pattern of external assistance. The reliance on food aid has been done away with and the economy has matured sufficiently to move away from the compulsions of accepting tied aid. External assistance today plays more of a supportive role in financing major infrastructure projects, social sector projects and in building up the institutional capacity. Accordingly, the policy on external assistance has been recast to affirm this changing role of external assistance and to emphasize the reform orientation in India’s economic policy. One of the major challenges before the policymakers has been the rising burden of debt service charges. This has been largely attributable to the comparatively harder terms of external aid, both in terms of interest rates and maturity periods. Efforts to tackle this problem were made through measures like a) reducing dependence on external assistance gradually, and b) shifting the focus towards obtaining loans and credits of longer maturities and with lower interest charges. The structure of external assistance in India appears to be skewed in favor of a few states. Central sector/multi state sector projects and seven or eight prosperous states account for nearly 90% of the disbursements. On the other hand, disbursements to states like Bihar

13

and the north eastern and special category states are negligible. States like Andhra Pradesh, West Bengal and Gujarat continue to remain the major absorbers of external assistance. These issues need attention. External assistance is composed of loans and grants. However, most of the assistance in the initial periods of planning was in the form of interest-bearing loans, while only a fraction was in the form of outright grants. Loans accounted for 90% of the aid receipts during the first ten Five Year Plans, while only the remaining 10% were grants. Government of India now does not accept aid in areas where it has substantial control. Bilateral aid is accepted only from the G-8 countries, the Russian Federation and the EC. State Governments cannot access external aid directly either through bilateral or multilateral sources. This remains the mandate of the central government. External assistance made available by various multilateral and bilateral agencies to India comprises of loans and grants. The World Bank extends assistance through its concessional lending window, the IDA, and market based lending through the IBRD. The assistance from the Asian Development Bank (ADB) is also market based. These form the principal sources of multilateral external assistance to India. The significant bilateral sources offering external assistance include Japan, Russia, Germany and United Kingdom. Japan is the largest bilateral donor to India. At present UK is the largest external bilateral development partner in terms of grants. The sector-wise disbursement figures indicate that right up to the mid 1990s, infrastructure remained the focus of external assistance. With the turn of the century, priorities have shifted towards the social sectors like health and education. This shift is largely in consonance with the commitments to fulfill the MDGs that commit nations to raise the poor out of poverty and hunger, get every child into school, empower women, reduce child mortality, improve maternal health, combat HIV/AIDS, malaria, and other diseases, and ensure environmental sustainability.

Impact of globalization on state system and its institutions Globalization removes boundaries among the states for economic and socio-cultural unification of the world. In the wake of globalization a new concept of global governance is replacing the age old closed and confined single state governance. The state system has gone through significant changes in the globalized economy. States are opening their economies. To get benefits of barrier less trade cooperative governments, trade groups, economic blocs are being developed. Bilateral and multilateral agreements, free trade agreements are taking place among several nations. Today the state system is broadly being dictated by the norms of organizations like WTO and IMF. Even states have to limit their sovereign decisions due to pressure from such international forums. The states are giving up administered price mechanism to make

14

way for market determined prices. Even the state institutions have to change their structure and organization to get themselves acquainted with the process. Insurance, banks, education, finance, agriculture, PSUs, FDI policy all are being modified to accustomed to the changing world to become more competitive and more qualitative. Thus in today's world the state system and its institutions are largely being dictated by market forces and shedding off the age old sovereign prejudices to get the most of the new trends. For reference you can visit http://www.allacademic.com//meta/p_mla_apa_research_citation/0/7/2/2/5/pages72251/p 72251-1.php http://unpan1.un.org/intradoc/groups/public/documents/nispacee/unpan005068.pdf

DUMPING AND INDIA (30 MARKS, 250 WORDS) Dumping is the process of selling goods to foreign market at very low prices. When production exceeds the demand and there is a chance of falling prices even lower than the stipulated levels, the country opts for selling the product to other countries at thrown away price. This saves losses of the producers but causes losses in the country where the products are being exported. To restrict such dumping, countries tend to put quantitative restrictions upon dumping. But due to WTO norms such restrictions are prohibited. Thereby countries look for new devices to restrict dumping. India has adopted various preventive measures allowed under WTO rules to restrict dumping.Giving subsidy to the farmers to reduce their production cost and improve quality of goods, imposing countervailing duties and additional charges are some of the measures taken by India in this regard. The Ministry of Commerce has established "Directorate of Anti Dumping" to tackle issues of dumping. Main threats of dumping in India is in the spheres of agricultural produces and manufactures that are allotted to the small scale industries. However, measures taken against dumping renders the domestic economy more competitive due to technological upgradation,better value addition and cheaper products. SHORT NOTES PART 1 1>Merit goods: The concept of a merit goods was introduced by Richard Musgrave (1957, 1959) and it denotes a commodity which is judged that an individual or society should have on the basis of some concept of need, rather than ability and willingness to pay. Examples include the provision of food stamps to support nutrition, the delivery of health services to improve quality of life and reduce morbidity, subsidized housing and arguably education. A merit good can be defined as a good which would be underconsumed (and under-produced) in the free market economy 2>Cheap Money: The money which is available at lower interest rates, softer terms and

15

easy conditions. Cheap money causes inflation in an economy. 3>Countervailing Duty: It is the duty against dumping and aimed at increasing the prices of the products being dumped so as to protect the interest of the domestic industries and farmers. 4>Hot Money:The money which is highly volatile and flees from one country to another swiftly to take advantage of better short term interest rates. 5>Trickle Down Theory: The basis of the theory emphasizes on heavy industries and it is assumed that the benefits of such industries will trickle downwards and will eventually benefit the consumer goods industries 6>Engel's law: This suggests that the lower income group spends larger part of their income on food and other similar items and with increase in income proportion of expenditure over such items decreases. 7>Stagflation: It is a state of the economy where economic activity continues to slow down but wages and prices continue to rise. The term is a blend of stagflation and inflation. 8>Ad Valorem Tax: A tax that is specified as a percentage of value. Sales, income, and property taxes are three of the more popular ad valorem taxes devised by government. The total ad valorem tax paid increases with the value of what's being taxed. 9>Administered price:It is the price fixed by the government to keep control over rise or fall of prices of particular commodities so that the vulnerable groups do not suffer. 10>Cash Reserve Ratio: Every scheduled bank has to keep a percentage of total assets and deposits as deposits with the RBI.Presently it is 5% in India. SHORT NOTES PART 2 •

Measurement of HDI for life expectancy:

HDI (le)= Real age - Minimum age -----------------------------Maximum age- Minimum age Max age=85, Minimum age=25 •

Medical Tourism: By providing modern and skilled solutions and facilities at cheap rate and higher care for health problems India is trying to attract patients for better treatment.This is known as medical tourism.

•

Copy left:It is a group of licenses. Applied to software, art or other copyright works. Enables person to use, modify or redistribute any copy of works.

•

RCI: Rehabilitation Council of India. It arranges for the rehabilitation of the people displaced after various development projects. It was et up as a registered society in 1986.

16

•

•

•

•

•

•

•

•

Contagion is the cross-border spread of financial shocks. Such international spillover means that economic or financial troubles that originate in one nation can affect others. Absolute advantage refers to the ability of an economic unit (a country, for example) to produce more of any given goods at a lower cost of production than another economic unit. It is a relative term and is calculated through comparisons with other economic units. Absolute advantage is used to compare the productive efficiencies between different countries. Amortization can be referred as a process of paying off of certain amount of debt in regular installments over a certain period of time. Amortization in business is referred to a process of decreasing capital expenses over a definite period of time. This type of deduction is usually accounted over the property life. To be more specific, this method of accounting is used to compute expenditure of the value of intangible assets, like a patent or a copyright. Kleptocracy is when a government increases wealth and political power of bureaucrats and ruling class at common people's cost. Kleptocracy can also be named as cleptocracy or kleptarchy. Kleptocracy arises in such cases where a government is inefficient and not working properly for welfare of people. Kleptocracy can be also referred as a kind of despotism or some other form of domineering and favoritism that prevails in any government rule. Crony literally means a longtime friend. Crony capitalism refers to a capitalist market structure, where business men and ruling government share a close relationship. Businessmen form lobbies to extract favoritism from ruling party. Favoritism accrues in form of government grants, tax breaks and various financial incentives. It is argued that political parties and business enterprises form a kind a symbiotic relationship to stay in power via creation of networks. Both parties reap positive gains from cooperation. A duopoly is a market condition in which two companies producing a similar type of product have control over the market. This is similar to monopolies in which only one company controls the market and oligopolies in which multiple companies are allowed to trade in the market. The most popular example of duopoly is between Visa and Mastercard who exercise a major control over the electronic payment processing market in the world. Pepsi and Coca-cola are the two major shareholders in the soft drinks market. Airbus and Boeing are duopolies in the commercial jet aircraft market. Future value, often expressed as FV is a financial term, which describes how much a given amount of money will be worth after interest has accrued. Future value is referred to as the expected value of present sum of money in future. Future value is a measurement that tells the amount of money that can be received for any present investment in future. Future value of any investment depends mainly on two things the number of compounding periods and interest rates. D-Mark or Deutsche Mark (DM) was Germany's official currency until euro became currency of choice in 1999.D-Mark was replaced by euro in circulation from that year. However, Deutsche Mark was accepted as legal payment of purchases made inside Germany until February 28, 2002.

17

•

•

• •

•

BANANA is an acronym for Build Absolutely Nothing Anywhere Near Anything (or Anyone). The term is most often used to criticize the ongoing opposition of certain interest groups to land development. The term is commonly used within the context of planning in the United Kingdom. Stealth Tax is a term used for a tax levied in such a way that is largely unnoticed, or not recognized as a tax. Ex: Use of National Lottery by the British Government. Inflation is regarded as a form of stealth tax. Politburo, from German Politbüro, short for Political Bureau, is the executive committee for a number of communist political parties. Pigskin politics is a political epithet used to describe or dismiss a person's pavlovian attachment to a political persuasion or party, given that party's/persuasion's past influence within the person's region. The term is usually used within the context of a person's attachment to a region or state whereby the person holds a specific set of beliefs and ideas as a result of having lived there. Putty Putty Capital: The capital which can be transformed into durable goods and then can be brought back to flexible capital again. Amortization: The running down or payment of a loan by installments. An example is a repayment mortgage on a house, which is amortized by making monthly payments that over a pre-agreed period of time Autarky: The idea that a country should be self-sufficient and not take part in international trade. The experience of countries that have pursued this Utopian ideal by substituting domestic production for imports is an unhappy one. Backwardation: When a commodity is valued more highly in a spot market (that is, when it is for delivery today) than in a futures market (for delivery at some point in the future). Economic Cannibalism:Firms are reluctant to produce new articles in place of an already existing one which is doing good in market as that would cannibalize business or eat one's own business. Catch Up Effect: In any period, the economies of countries that start off poor generally grow faster than the economies of countries that start off rich. As a result, the NATIONAL INCOME of poor countries usually catches up with the national income of rich countries. New technology may even allow DEVELOPING COUNTRIES to leap-frog over industrialized countries with older technology. This, at least, is the traditional economic theory. In recent years, there has been considerable debate about the extent and speed of convergence in reality. Complimentary goods: Goods without which some other goods can not function. Example-a computer can not run without software. Crony Capitalism: Economic nepotism. Form of corruption. Giving financial

18

benefits to near and dear ones. CAPM: Capital Asset Pricing Model. Valuing assets to calculate capital. Needed for safe investment. Gearing: A company's debt expressed as a percentage of its equity. Also known as leverage. Gini Coefficient: An inequality indicator. The Gini coefficient measures the inequality of income distribution within a country. It varies from zero, which indicates perfect equality, with every household earning exactly the same, to one, which implies absolute inequality, with a single household earning a country's entire income. Latin America is the world's most unequal region, with a Gini coefficient of around 0.5; in rich countries the figure is closer to 0.3.

19