Who are the other economic super powers???

China is often paired with India in discussions of global economic superpowers,but there is no comparison between them at all. India’s GDP is less than half that of China’s, and trade accounts for less than half as much of its overall economy.The annual growth in China’s trade exceeds the total level of India’s trade. China attracts more foreign direct investment each year than India has received in the 60 years since its independence. India is now developing dramatically and could start growing faster than China and is the most likely candidate to become the fourth global economic superpower in a decade or so, but China will totally dominate its Asian neighbor on all three of the key criteria for the foreseeable future.Japan is the only other possible contender for global economic superpower sta-
tus. There were indeed periods, in the 1980s and even into the early 1990s, when Japan appeared to be playing such a role. When the yen reached its peak in 1995, at about 80:1 against the dollar, Japan’s total GDP was fully 80 percent that of the United States (despite a population that was less than half as large). The country’s competitive  prowess  led  to  widespread  perceptions  of “Japan  as  Number  One.” But its trade and other economic transactions with the rest of the world remained
relatively limited as a share of its economy, its financial markets never liberalized sufficiently to enable the yen to play an important international role, its economy collapsed for the entire decade of the 1990s, and its population is now declining. Japan has already lost to China its regional dominance and with it any pretensionsto global leadership. Japan missed its moment.So at this juction China is the economic superpower who will dominate the Asian region and will have a dominating influence in its regional partner in the near future. Only the country having strong economic power with a thriving economy can challenge the China but still the road is too long to go .

Pic Source: World Development Indicator( World Bank)

Subsidies ( All You Wanted to Know....)

                                                        SUBSIDIES IN INDIA


                        " SUBSIDIES ARE LIKE STEROIDS AS THEY PROVIDE QUICK RELIEF BUT DON'T PROMISE AN ENDURING CURE"

Providing minimum consumption entitlement to the poor by subsidizing the items consumed by them is extremely important for the welfare of the economy.
However, the benefits can be maximized only when the subsidies are transparent, well targeted, and subsidies designed for effective implementation without any leakages

Subsidies into 3 categories:

1.Public goods (national defence,police,general administration)--> available to all public so it is not priced and hence not included in subidy calculations
2.merit goods( againt diseases,environment protection,primary education,roads,bridges ,flood control etc)> they are beneficial to whole society(subsidy justified)
3.non-merit goods(benefit to individual consumer)

    (3.a) CASH SUBSIDY

                     providing food and fertilizer to consumer at price lower than those at which the govt procure the commodity

    (3.b) INTEREST OR CREDIT SUBSIDIES

                      loan given at lower than market rate( in the form of concessional credit to small scale industries or priority sector loan)


    (3.c) TAX SUBSIDIES

                      tax exemption on medical expenses.postponing collection of tax arrears

   
    (3.d) IN-KIND SUBSIDIES

                      free medical service through govt dispensaries,equipment for physically handicapped people


    (3.e) PROCUREMENT SUBSIDIES

                      example is purchase of food grains at an assured price which is higher than the prevailing market price(MSP)


    (3.f) REGULATORY SUBSIDIES

                       (fixing the price of goods produced by the public sector at less than the cost of production(making steel ,coal and other mineral available to industries,providing electricity to farmers at a rate much lower than cost)

Criticism:

 1.non merit goods are criticised on the ground that they benefit individual while the cost os borne by the society
2.some time the benefit dont reach the intended beneficiary and gets diverted to better -off section of society
electricity provision are appropriated by large farmers and better-off section take the advantage

Major beneficiary of the central subsidies are industries,agriculture and power in the same order
At the state level social service account for the 39% total subsidies and economic service 61%
Since education ,health and water supply and sanitation are primarily the responsibility of state ,the level of subsidy is much higher in the social sector. In economic service irrigation is the major component .

The economic cause of subsidising merit goods is the strongest.

Some of the known subsidies like food and fertilizer  and education beyond elementary level are not counted in group of merit services.

Elemeny of ' externality'>> beneficial to the society as a whole( in food and fertilizer subsidy the element of externality is limited and in such cases the subsidy may have to be on ground other than strong externality viz..social and equity objectives.

Education beyond the elementary level also falls outside the ambit of merit category

The share of social service which include education ,health,family welfare ,water supply and sanitation and labour and employment is only 21.2% in totl subsidy while the share of economic services ,agriculture,rural development,energy,industry minerals,irrigation and flood control, S&T,and environment is 78.8%

There is how ever the scope of reducing subsidy in economic services. For example in agriculture and rural development activities and even in coal and lignite.In all these services the recovery rate is very low.Another big area is industries and minerals.

What needs to be done???????
Overall recovery rate needs to be increased and attetion needs to be given for reucing the subsidy in agriculture and rural development,coal,lignite,industries and minerals industry.But the farm lobbies and industrial lobbies and coal mafias woult put up resistance.So decision needs to be taken at political level.

Food ,fertilizer and petroleum subsidies are the major component account for 91 % central government subsidy. On the other hand subsidy on railways ,interest subsidy account barely 9%


FOOD SUBSIDY

3 component:
   a.subsidy to farmer through support price
   b.subsidy to consumer through PDS
   c.subsidy to FCI in purchase of food grain and maintaining the buffer stock

Issue: since FCI keeps on purchasing foodgrain without limit so this has resulted into creation of buffer stock in FCI gowdown in excess of prescribed norms
Some time the fod stock was so huge that the stock was reduced not by increasing the PDS offtake away but by exporting it at nearly close to BPL prices.
The cost and handling and carrying cost of foodgrain by FCI over and above minimum norms is met by the subsidy to FCI

FCI operation is concerned only in 5 states:
Punjab,Western UP,Haryana,Andhra Pradesh, Chattisgarh ,so the entire subsidy to farmer is available to the farmeres of these states only.MSP is much higher in 2 crops namely Rice and wheat ,which distorts the cropping pattern in favour of these 2 crops

Some policy reform suggested:
1. Before sowing food procurement target should be fixed with an error margin of 10% and suspend the purchase of operation once target is achieved .
2. A system of price insurance,similar to Farm Income Insurance Program be developed.
3.Fci should include greater number of states in their price support operation
4. In order to increase the efficiency ,The reimbursement to FCI should be on normative(relating with norms) units and actual involved quantity.
4. To inprove PDS penetration and reduce leakages, govt can introduce the scheme of food coupons to poor.A uniform PDS price will be fixed for APL and BPL facilities,but the poor can buy food grain partly with coupon and partly with cash.Since poor can not afford the monthly procurement of food grain in one go,the PDS purchases should be allowed on only on weekly basis. Restricting montly bulk purchase t PDS will discourage the not so needy from PDS outlet. This will help self targeting .

All these measure are good intensioned but major problem is in implementing these recommendations.For all thse years state have been succumbing to farm lobby pressure ,thereby responding with increases MSP PRICES AND unlimited procurement. Since the PDS operation is limeted to only 5 state it create huge buffer stock which needs to be exported as BPL PRICE.
BUt it will not be a good option to fix the procurement amount before sowing,so what can be done is govt should resist further increase in MSP  and at the same time surplus food grain should be used to guarantee employment to all unemployed by extending the provision of employment guarantee act. Wages can be partly in cash and partly in kind (-food grain)
This wil be more practical way of converting food subsidy into employment. The government will earn the good will of farmers as well as un employed- landless labour,marginal farmers and other semi-literate in rural areas.


FERTILIZER SUBSIDY

FS is the difference between the retention price of fertilizer and the price at which it is made available to to consumers.The difference is paid to industry as subsidy
The scheme intended to provide fertilisers at a cheaper rate to the farmers and provide a 'reasonable' return on investment for the fertiliser producers, which would boost investment in the industry
Average share of fertilizer subsidy to farmer is 62 % and for industry it is 38 %.

any acheme to rationalize the fertilizer industry wil depend on 2 factors:
    1. efficience of domestic domestic fertilizer industry  and the domestic cost of production.
    2. The international price of urea

In the event of opening of fertilizer sector import,the gas based plant will survive whereas other paticularly naphtha based plant would not. This is due to the fact that naptha or fuel oil or low sulphur feedstock is more costly as a raw material than natural gas.

what the right path now?????

1.There is a need to reduce subsidy to farmer as well as industry. In the short term the subsidy can continue but in the long term the option of setting up ferrtilizer plant in such countries where natural gas is available  in plenty may be considered

2.There is need o increase the farm gate price of urea at regular interval.The report is in the opinion that application of fertilizer is more dependent on technological and non-price factorsthan on price of agro-economic variables.These factors include:irrigation facility,cropping pattern,spread of HYV seeds,effective fertilizer distribution and availability of credit. It is recommended public investment as an effective instrument to promote the use of fertilizer. Moreover rationalization of urea price would have a salutary impact on balanced application of NPK.


PETROLEUM SUBSIDY

2 MAJOR COMPONENT:

     a. subsidy fof kerosene for domestic use
     b. LPG subsidy due to the difference between International price and the price at which it is supplied o consumer
if internationa oil price rises there is increase in the subsidy burden of govermnent. LPG subsidy mainly benefits the higher expenditure group in the urban areas and may be regressive.Urban area recieve large kerosene subsidy .The limited availability of kerosene in rural area is biases towas lighting rather than cooking.
Keroscene subsidy is prone to misutlization as half of the subsidized kerosene dosent reaches to the intended group.To improve this ,coupon must be issued to poor ration card holder  with entitlement to purchase kerosene from retailer at subsidized price.

but do the coupon  will work???
is administrative machinery pro-poor?
The best we can do is to provide coupon to the people whose cildren are stdying in primary school. or who avail the facility of PHCs.A system of identification of poor must be placed or else even the coupon method would lead to heavy misutilization


FUTURE POLICY ON SUBSIDY

1.Implicit subsidy are growing both at centre and state level
Eg: large number of tax exemption are given to SEZ. They imply a big loss of tax revenue.Another instance of role of state govt in acquiring land for SEZ and passing on o industrial house.
take the example of singur plan of TATA NANO ,where gove has given large tax consession to company

Critics: are we following a policy of inclusive growth by taking away the livelihood of farmers,sharecroppers,and other associated persons
dependent on land????? and at the same time we are providing various type of tax consession to industries like tax holiday,power,electricity,cheap credit,financial support,exemption and waiver.

Same time state gove provide highly subsidized electricity to farmers which mainly benefits rich farmers.
Fiscal deficit is always large due to subsidy burden.

International fertilizer prices are 4-5 times higher and even food subsidy ,due to shortage of food at home ,it needs to be imported so that it can be given to poor at subsidised rate

Even issuing bond to public sector of petroleu company is of no use the country shall only postponing burden to future

Total subsidy can go upto 4-5 % GDP.

What are the policy option????

The govt has no option but to continue with the petroleum subsidy, if domestic oil price increased it will only partially help. The option of reducing petroleum imports is not available to government in view of expanding demand of petroleum due to sharp increase in growing demand and production for automobile

Can not even increase food and fertilizer price.
Got has to take decision on large scale exemption given to industries so as to enhance its revenue

Thus some measures for effective utilization of subsidies can be:

1. The focus should be on physical achievements and not on financial disbursements.
2. The effects of subsidies should be monitorable and measurable in terms of quality or quantity.
3. Subsidies should be given as a one- time help or for a short period. Subsidies on continuing basis should be avoided.
4. The parameters fixed on subsidy should be transparent.
5. Subsidies should be cost- effective. Most of the assistance should reach the intended beneficiary and very small amount should be spent on administrative arrangements.
6. Subsidies should be properly targeted, i.e. benefit should go to the really deserving.
7. Timing of subsidies should be made proper. For example, free seed distribution should be just before sowing.

The major question in front of the policy- makers and economists these days is that that do we really need subsidies? For this, one needs to look into the negative effects of subsidies which are far more than the positive effects. Once received, people become dependent on the subsidies. Subsidies make the beneficiaries lethargic. Hence, subsidies are sometimes termed as sweet poison. Misuse of subsidies for political purpose is known worldwide. Subsidies support one industry at the expense of the other. When a person is given subsidy benefit, it imposes burden on some other person in the country. Malpractices have often been noticed in the administration of subsidies.
 The whole issue of subsidies is an economic as well as a political issue(vote bank politics)
Increases in subsidies will only result in keeping the political constituents happy and lead to a bulging fiscal deficit – without benefiting the intended beneficiaries.
One who advocates subsidies should also keep in mind one thing that the subsidies in India never reach their intended target i.e. the poor
The fact is, in India, most subsidies are not for the poor but for the rich. Despite of the continuously rising food subsidies, hunger and malnutrition prevails in the entire county.
Due to faulty government practices, people who are in the real need of subsidies- even for their sheer survival are being forced out of the system.
Fertilizer subsidy places another heavy burden on the central government. It is a very well known fact that the subsidy benefits majorly goes to the fertilizer industry and not the farmers. Only 60 per cent of fertiliser subsidy goes to farmers. If we take a look at the fertilizer subsidy and its origin, then we will come to know that the original purpose of the fertilizer subsidy was to encourage spread of green revolution technology to new areas and farmers but this reason and motive has lost its credibility in the recent years.

Here regarding the fertilizer subsidy, one should also keep in mind that the availability of subsidised fertiliser should be restricted to farmers who grow staple food and cereals as they need it the most and those farmers, who produce cash crops, do extensive horticulture or produce farm goods for direct exports should be kept outside the purview of subsidy regime.
Subsidies provided in India suffer from both inclusion error (wrong kind of people benefiting) and exclusion error (deserving people left out of subsidies). Efficient subsidies must be transparent, targeted and-in many cases-temporary. These three Ts are missing from most subsidies in India.
The issue is not about removing subsidies but about how to make them effective so that they reach the target consumers and people are benefited from it. The policy- makers should try out new- mechanisms to reach the target consumers more effectively. Sometimes government subsidises some things but those things might not be affordable by the target audience, so there is need for restructuring of subsidies.

Now the time has come when the Planning Commission, the Central Government, and the National Development Council will have to work on building a political and national consensus on the subsidy issue. It is important that we restructure subsidies so that only the really needy and the poor benefit from them and all leakages are plugged. All subsidies should be targeted sharply at the poor and the truly needy like small and marginal farmers, farm labour and urban poor.

ECONOMY BASICS

DEVELOPMENT

People have different perspectives on development

DEVELOPMENT

WHAT DEVELOPMENT PROMISES — DIFFERENT PEOPLE, DIFFERENT GOALS

Each one of them seeks different things

They seek things that are most important for them, i.e., that which can fulfil their aspirations or desires

at times, two persons or groups of persons may seek things

which are conflicting

two things are quite clear

different persons can have different developmental goals

two, what may be development for one may not be development for the other. It may even be destructive for the other

Similarly, to get more electricity, industrialists may want more dams. But this may submerge the land and disrupt the lives of people who are displaced – such as tribals

INCOME AND OTHER GOALS

Besides seeking more income, one way or the other, people also seek things like equal treatment, freedom, security, and respect of others

Money, or material things that one can buy with it, is one factor on which our life depends. But the quality of our life also depends on non-material things mentioned above

Similarly, for development, people look at a mix of goals

NATIONAL DEVELOPMENT

It is very important to keep in mind that

different persons could have different as well as conflicting notions of a country’s development

HOW TO COMPARE DIFFERENT COUNTRIES OR STATES?

Usually we take one or more important characteristics of persons and compare them based on these characteristics

This is true of development too

For comparing countries, their income is considered to be one of the most important attributes

Total income is not such a useful measure

We compare the average income which is the total income of the country divided by its total population. The average income is also called per capita income

World Development Report 2006, brought out by the World Bank,

INCOME AND OTHER CRITERIA

Infant Mortality Rate (or IMR) indicates the number of children that die before the age of one year as a proportion of 1000 live children born n in that particular year.

Literacy Rate measures the proportion of literate population in the 7 and above age group

Net Attendance Ratio is the total number of children of age group 6-10 attending school as a percentage of total number of children in the same age group

PUBLIC FACILITIES

Money in your pocket cannot buy all the goods and services that you may need to live well

So, income by itself is not a completely adequate indicator of material goods and services that citizens are able to use.

For example, normally, your money cannot buy you a pollution-free environment or ensure that you get un adulterated medicines, unless you can afford to shift to a community that already has all these things.

Kerala has a low Infant Mortality Rate because it has adequate provision of basic health and educational facilities

Similarly, in some states, the Public Distribution System (PDS) functions well.

HUMAN DEVELOPMENT REPORT

Human Development Report published by UNDP compares countries based on the educational levels of the people, their health status and per capita income

SUSTAINABILITY OF DEVELOPMENT

Consequences of environmental degradation do not respect national or state boundaries; this issue is no longer region or nation specific

SECTORS OF THE INDIAN ECONOMY

SECTORS OF ECONOMIC ACTIVITIES

When we produce a good by exploiting natural resources, it is an activity of the primary sector

Since most of the natural products we get are from agriculture, dairy, fishing, forestry, this sector is also called agriculture and related sector

The secondary sector covers activities in which natural products are changed into other forms through ways of manufacturing that we associate with industrial activity

Since this sector gradually became associated with the different kinds of industries that came up, it is also called as industrial sector

tertiary sector and is different from the above two. These are activities that help in the development of the primary and secondary sectors

These activities, by themselves, do not produce a good but they are an aid or a support for the production process

Since these activities generate services rather than goods, the tertiary sector is also called the service sector

Service sector also includes some essential services that may not directly help in the production of goods

COMPARING THE THREE SECTORS

 Similarly, the value of goods and services in the three sectors are calculated, and then added up

Remember, there is one precaution one has to take. Not every good (or service) that is produced and sold needs to be counted. It makes sense only to include the final goods and services

 i.e., goods that reach the consumers

Why are only ‘final goods and services’ counted?

goods are used up in producing final goods and services. The value of final goods already includesthe value of all the intermediate goods that are used in making the final good

The value of final goods and services produced in each sector during a particular yearprovides the total production of the sector for that year

And the sum of production in the three sectors gives what is called the Gross Domestic Product (GDP) of a country

It is the value of all final goods and services produced within a countryduring a particular year. GDP shows how big the economy is.

PRIMARY, SECONDARY AND TERTIARY SECTORS IN INDIA

Rising Importance of the Tertiary Sector in Production

the tertiary sector has emerged as the largest producing sector in India replacing the primary sector.

Why is the tertiary sector becoming so important in India? There could be several reasons

First, in any country several services such as hospitals, educational institutions, post and telegraph services, police stations, courts, village administrative offices, municipal corporations, defence, transport, banks, insurance companies, etc. are required. These can be considered as basic services

In a developing country the government has to take responsibility for the provision of these services

Second, the development of agriculture and industry leads to the development of services such as

transport, trade, storage and the like, as we have already seen.

Greater the development of the primary and secondary sectors, more would be the demand for such services

Third, as income levels rise, certain sections of people start demanding many more services like eating out, tourism, shopping, private hospitals, private schools, professional training etc. You can see this change quite sharply in cities, especially in big cities

Fourth, over the past decade or so, certain new services such as those based on information and communication technology have become important and essential. The production of these services has been rising rapidl

Service sector in India employs many different kinds of people. At one end there are a limited number of services that employ highly skilled and educated workers

At the other end, there are a very large number of workers engaged in services such as small shopkeepers

repair persons, transport persons, etc.

These people barely manage to earn a living and yet they perform these services because no alternative opportunities for work are available to them

Hence, only a part of this sector is growing in importance

Where are most of the people employed?

The primary sector continues to be the largest employer even in the year 2000

Why didn’t a similar shift out of primary sector happen in case of employment?

It is because not enough jobs were created in the secondary and tertiary sectors.

more than half of the workers in the country are working in the primary sector, mainly in agriculture, producing only a quarter of the GDP

 In contrast to this, the secondary and tertiary sectors produce three-fourth of the produce whereas they employ less than half the people.

What it means is that there are more people in agriculture than is necessary.

So, even if you move a few people out, production will not be affected. In other words, workers in agricultural sector ar e underemployed.

labour effort gets divided

Each one is doing some work but no one is fully employed

This is the situation of underemployment

This kind of

underemployment is hidden in contrast to someone who does not have a job and is clearly visible as unemployed. Hence, it is also called disguised unemployment

that even if we remove a lot of people from agricultural sector and provide them with proper work elsewhere, agricultural production will not suffer. The incomes of the people who take up other work would increase the total family income.

we see other people of the service sector on the street pushing a cart or selling something where they may spend the whole day but earn very little.

How to Create More Employment?

case of Laxmi with her two-hectare plot of un-irrigated land. The government can spend some money or banks can provide a loan, to construct a well for her family to irrigate the land

Laxmi will then be able to irrigate her land and take a second crop, wheat, during the rabi season

 Now suppose a new dam is constructed and canals are dug to irrigate many such farms. This could lead to a lot of employment generation within the agricultural sector itself reducing the problem of underemployment

So she will have to borrow money from moneylenders and pay a high

rate of interest

 If the local bank gives her credit at a reasonable rate of interest, she will be able to buy all these in time and cultivate her land

need to provide cheap agricultural credit to the farmers for farming to improve

Another way by which we can tackle this problem is to identify, promote and locate industries and services in semi-rural areas where a large number of people may be employed

A study conducted by the Planning Commission estimates that nearly 20 lakh jobs can be created in the education sector alone

 the same study by the Planning Commission says that if tourism as a sector is improved, every year we can give additional employment to more than 35 lakh people

 the central government in India recently made a law implementing theRight

to Work in 200 districts of India. It is calledNational Rural Employment Guarantee Act 2005 (NREGA 2005)

Organised sector covers those enterprises or places of work where the terms of employment are regular and therefore, people have assured work.

They are registered by the government and have to follow its rules and regulations which are given in various laws such as the Factories Act, Minimum Wages Act, Payment of Gratuity Act, Shops and Establishments Act etc

Workers in the organised sector enjoy security of employment

expected to work only a fixed number of hours. If they work more, they have to be paid overtime by the employer.

The unorganised sectoris characterised by small and scattered units which are largely outside the control of the government

There are rules and regulations but these are not followed

Jobs here arelow-paid and often not regular

Employment is not secure.

A lot also depends on the whims of the employer.

How to Protect Workers in the Unorganised Sector?

employment opportunities in the organised sector have been expanding very slowly

They adopt such strategies to evade taxes and refuse to follow laws that protect labourers. As a result, a large number of workers are forced to enter the unorganised sector jobs, which pay a very low salary.

Hence, besides the need for more work, there is also a need for protection and support of the workers in the unorganised sector.

Who are these vulnerable people who need protection?

landless agricultural labourers, small and marginal farmers, sharecroppers and artisans (such as weavers, blacksmiths, carpenters and goldsmiths)

In the urban areas, unorganised sector comprises mainly of workers in small-scale industry, casual workers in construction, trade and transport etc

street vendors, head load workers, garment makers, rag pickers etc

SECTORS IN TERMS OF OWNERSHIP: PUBLIC AND PRIVATE SECTORS

publicsector, the government owns most of the assets and provides all the services

In the privatesector, ownership of assets and delivery of services is in the hands of private individuals or companies

Activities in the private sector are guided by the motive to earn profits

There are several things needed by the society as a whole but which the private sector will not provide at a reasonable cost.

There are some activities, which the government has to support

The private sector may not continue their production or business unless government encourages it

There are a large number of activities which are the primary responsibility of the government. The government must spend on these

Providing health and education facilities for all is one example

Running proper schools and providing quality education, particularly elementary education, is the duty of the government. India’s size of illiterate population is one of the largest in the world.

MONEY AND CREDIT

MONEY AS A MEDIUM OF EXCHANGE

both parties have to agree to sell and buy each others commodities. This is known as double coincidence of wants

Since money acts as an intermediate in the exchange process, it is called a medium of exchange

MODERN FORMS OF MONEY

money is something that can act as a medium of exchange in transactions

Currency Currency Modern forms of money include currency — paper notes and coins. Unlike the things that were used as money earlier, modern currency is not made of precious metal such as gold, silver and copper. And unlike grain and cattle, they are neither of everyday use. The modern currency is without any use of its own. Then, why is it accepted as a medium of exchange? It is accepted as a medium of exchange because the currency is authorised by the government of the country. In India, the Reserve Bank of India issues currency notes on behalf of the central government. As per Indian law, no other individual or organisation is allowed to issue currency. Moreover, the law legalises the use of rupee as a medium of payment that cannot be refused in settling transactions in India. No individual in India can legally refuse a payment made in rupees. Hence, the rupee is widely accepted as a medium of exchange. Deposits with Banks The other form in which people hold money is as deposits with banks. At a point of time, people need only some currency for their day-to-day needs. For instance, workers who receive their salaries at the end of each month have extra cash at the beginning of the month. What do people do with this extra cash? They deposit it with the banks by opening a bank account in their name. Banks accept the deposits and also pay an amount as interest on the deposits. In this way people’s money is safe with the banks and it earns an  amount as interest. People also have the provision to withdraw the money as and when they require. Since the deposits in the bank accounts can be withdrawn on demand, these deposits are called demand deposits. 1. How does the use of money make it easier to exchange things? 2. Can you think of some examples of goods / services being exchanged or wages being paid through barter? LET’S WORK THESE OUT MODERN FORMS OF MONEY Early punchmarked coins (may be 2500 years old) Gupta coins Gold Mohar from Akbar’s reign wheat. All he has to do is find a buyer for his shoes. Once he has exchanged his shoes for money, he can purchase wheat or any other commodity in the market. Since money acts as an intermediate in the exchange process, it is called a medium of exchange. Tughlaq coin Modern coin ©

Modern forms of money include currency — paper notes and coins

It is accepted as a medium of exchange because the currency is authorised by the government of the country

In India, the Reserve Bank of India issues currency notes on behalf of the central government.

 the law legalises the use of rupee as a medium of payment that cannot be refused in settling transactions in India

No individual in India can legally refuse a payment made in rupees

Deposits with Banks

The other form in which people hold money is as deposits with banks

Since the deposits in the bank accounts can be withdrawn on demand, these deposits are called demand deposits

Demand deposits offer another interesting facility. It is this facility which lends it the essential characteristics of money

payments being made by cheques instead of cash

LOAN ACTIVITIES OF BANKS

Banks keep only a small proportion of their deposits as cash with themselves

Banks use the major portion of the deposits to extend loans

huge demand for loans for various economic activities.

banks mediate between those who have surplus funds (the depositors) and those who are in need of these funds (the borrowers)

 Banks charge a higher interest rate on loans than what they offer on deposits. The difference between what is charged from borrowers and what is paid to depositors is their main source of income.

TWO DIFFERENT CREDIT SITUATIONS

A large number of transactions in our day-to-day activities involve credit in some form or the other. Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment

 Credit therefore plays a vital and positive role in this situation.

Credit in this case pushes the borrower into a situation from which recovery is very painful

In Swapna’s case, the failure of the crop made loan repayment impossible. She had to sell part of the land to repay the loan. Credit, instead of helping Swapna improve her earnings, left her worse off.

In Swapna’s case, the failure of the crop made loan repayment impossible. She had to sell part of the land to repay the loan. Credit, instead of helping Swapna improve her earnings, left her worse off.

This is an example of what is commonly called debt-trap

TERMS OF CREDIT

lenders may demand collateral (security) against loan

Collateral is an asset that the borrower owns (such as land, building, vehicle, livestocks, deposits with banks) anduses this as a guarantee to a lender until the loan is repaid

Interest rate, collateral and documentation requirement, and the mode of repayment together comprise what is called the terms of credit.

FORMAL SECTOR CREDIT IN INDIA

The various types of loans can be conveniently grouped as

formal

sector loans

and informal sector loans

former are loans from banks and cooperatives

The informal lenders include moneylenders, traders, employers, relatives and friends,

The Reserve Bank of India supervises the functioning of formal sources of loans

For instance, we have seen that the banks maintain a minimum cash balance out of the deposits they receive. TheRBI monitors the banks in actually maintaining cash balance

the RBI sees that the banks give loans not just to profit-making businesses and traders but also to small cultivators, small scale industries, to small borrowers

Periodically, banks have to submit information to the RBI on how much they are lending, to whom, at what interest rate

Compared to the formal lenders, most of the informal lenders charge a much higher interest on loans

. Cheap and affordable credit is crucial for the country’s development

Formal and Informal Credit: Who gets what?

Thus, it is necessary that banks and cooperatives increase their lending particularly in the rural areas, so that the dependence on informal sources of credit reduces

Secondly, while formal sector loans need to expand, it is also necessary that everyone receives these loans

SELF-HELP GROUPS FOR THE POOR

Banks are not present everywhere in rural India

Even when they are present, getting a loan from a bank is much more difficult than taking a loan from informal sources

As we saw for Megha, bank loans require proper documents and collateral

Absence of collateral is one of the major reasons which prevents the poor from getting bank loans.

 Informal lenders such as moneylenders, on the other hand, know the borrowers personally and hence are often willing to give a loan without collateral

 The borrowers can, if necessary, approach the moneylenders even without repaying

their earlier loans

However, the moneylenders charge very high rates of interest, keep no records of the transactio

The idea is to organise rural poor, in particular women, into small Self Help Groups (SHGs) and pool (collect) their savings

A typical SHG has 15-20 members, usually belonging to one neighbourhood

Members can take small loans from the group itself to meet their needs

The group charges interest on these loans but this is still less than what the moneylender charges

After a year or two, if the group is regular in savings, it becomes eligible for availing loan from the bank

Loan is sanctioned in the name of the group and is meant to create selfemployment opportunities for the members.

Also, it is the group which is responsible for the repayment of the loan. Any case of nonrepayment of loan by any one member is followed up seriously by other members in the group. Because of this feature, banks are willing to lend to the poor women when organised in SHGs, even though they have no collateral as such

Thus, the SHGs help borrowers overcome the problem of lack of collateral..

 They can get timely loans for a variety of purposes and at a reasonable interest rate

Moreover, SHGs are the building blocks of organisation of the rural poor

GLOBALISATION AND THE INDIAN ECONOMY

In a matter of years, our markets have been transformed!

PRODUCTION ACROSS COUNTRIES

production was largely organised within countries. What crossed the boundaries of these countries were raw materials, food stuff and finished products

before large companies called Spreading of Production by an MNC A large MNC, producing industrial equipment, designs its products in research centres in the United States, and then has the components manufactured in China. These are then shipped to Mexico and Eastern Europe where the products are assembled and the finished products are sold all over the world. Meanwhile, the company’s customer care is carried out through call centres located in India. PRODUCTION ACROSS COUNTRIES multinational corporations(MNCs) emerged on the scene. A MNC is a company that owns or controls production in more than one nation. MNCs set up offices and factories for production in regions where they can get cheap labour and other resources.

the goods and services are produced globally. As a result, production is organised in increasingly complex ways.

INTERLINKING PRODUCTION ACROSS COUNTRIES

In general, MNCs set up production where it is close to the markets; where there is skilled and unskilled labour available at low costs; and where the availability of other factors of production is assured

 The money that is spent to buy assets such as land, building, machines and other equipment is called investment. Investment made by MNCs is called foreign investment. Any investment is made with the hope that these assets will earn profits

At times, MNCs set up production jointly with some of the local companies of these countries. The benefit to the local company of such joint production is two-fold

First, MNCs can provide money for additional investments, like buying new machines for faster production. Second, MNCs might bring with them the latest technology for production

production in these widely dispersed locations is getting interlinked.

FOREIGN TRADE AND INTEGRATION OF MARKETS

Also, you would remember that it was trading interests which attracted various trading companies such as the East India Company to India

To put it simply, foreign trade creates an opportunity for the producers to reach beyond the domestic markets, i.e., markets of their own countries

Foreign trade thus results in connecting the markets or integration of markets in different countries

WHAT IS GLOBALISATION?

MNCs have been looking for locations around the world which would be cheap for their production

Foreign investment by MNCs in these countries has been rising

Globalisation is this process of rapid integration or interconnection between countries

More and more goods and services, investments and technology are moving between countries

FACTORS THAT HAVE ENABLED GLOBALISATION

Technology

Rapid improvement in technology has been one major factor that has stimulated the globalisation process

Even more remarkable have been the developments in information and communication technology.

recent times, technology in the areas of telecommunications, computers, Internet has been changing rapidly

Information and communication technology (or IT in short) has played a major role in spreading out production of servi

Liberalisation of foreign trade and foreign investment policy

Let us return to the example of imports of Chinese toys in India. Suppose the Indian government puts a tax on import of toys. What would happen? Those who wish to import these toys would have to pay tax on this. Because of the tax, buyers will have to pay a higher price on imported toys. Chinese toys will no longer be as cheap in the Indian markets and imports from China will automatically reduce. Indian toy-makers will prosper.

Tax on imports is an example of trade barrier

The Indian government, after Independence, had put barriers to foreign trade and foreign investment

This was considered necessary to protect the producers within the country from foreign competition

Starting around 1991, some farreaching changes in policy were made in India. The government decided that the time had come for Indian producers to compete with producers around the globe

Thus, barriers on foreign trade and foreign investment were removed to a large extent. This meant that goods could be imported and exported easily and also foreign companies could set up factories and offices here.

Removing barriers or restrictions set by the government is what is known as liberalisation

WORLD TRADE ORGANISATION

World Trade Organisation (WTO) is one such organisation whose aim is to liberalise international trade

WTO establishes

rules regarding international trade, and sees that these rules are obeyed. Nearly 150 countries of the world are currently members of the WTO (2006)

Though WTO is supposed to allow free trade for all, in practice, it is seen that the developed countries have unfairly retained trade barriers. On the other hand, WTO rules have forced the developing countries to remove trade barriers.

IMPACT OF GLOBALISATION IN INDIA

Globalisation and greater competition among producers - both local and foreign producers - has been of advantage to consumers, particularly the well-off sections in the urban areas.

Firstly, MNCs have increased their investments in India over the past 15 years

Steps to Attract Foreign Investment

 Industrial zones, called Special Economic Zones (SEZs), are being set up. SEZs are to have world class facilities:electricity, water, roads, transport, storage, recreational and educational facilities. Companies who set up production units in the SEZs do not have to pay taxes for an initial period of five years

Government has also allowed flexibilityin the labour laws to attract foreign investment

Secondly, several of the top Indian companieshave been able to benefit from the increased competition

Moreover, globalisation has enabled some large Indian companies to emerge as multinationals themselves! Tata Motors (automobiles), Infosys (IT), Ranbaxy (medicines), Asian Paints (paints), Sundaram Fasteners (nuts and bolts)

Globalisation has also created new opportunities for companies providing services, particularly those involving IT.

Besides, a host of services such as data entry, accounting, administrative tasks, engineering are now being done cheaply in countries such as India and are exported to the developed countries

THE STRUGGLE FOR A FAIR GLOBALISATION

not everyone has benefited from globalisation.

 People with education, skill and wealth have made the best use of the new opportunities. On the other hand, there are many people who have not shared the benefits

Since globalisation is now a reality, the question is how to make globalisation more ‘fair’?

Fair globalisation would create opportunities for all, and also ensure that the benefits of globalisation are shared better.

The government can play a major role in making this possible

 Its policies must protect the interests, not only of the rich and the powerful, but all the people in the country

For instance, the government can ensure

that labour laws are properly implemented and the workers get their rights.

 If necessary, the government can use trade and investment barriers. It can negotiate at the WTO for ‘fairer rules’. It can also align with other developing countries with similar interests to fight against the domination of developed countries in the WTO

CONSUMER RIGHTS

THE CONSUMER IN THE MARKETPLACE

The consumer movement arose out of dissatisfaction of the consumers as many unfair practices were being indulged in by the sellers

In India, the consumer movement as a ‘social force’ originated with the necessity of protecting and promoting the interests of consumers against unethical and unfair trade practices

Consumers International

In 1985 United Nations adopted the UN Guidelines for Consumer Protection.

A major step taken in 1986 by the Indian government was the enactment of the Consumer Protection Act 1986, popularly known as COPRA. You will learn more about COPRA

CONSUMER RIGHTS

SAFETY IS EVERYONE’S RIGHT

Information about goods and services

When you buy any commodity, you will find certain details given on the packing. These details are about ingredients used, price, batch number, date of manufacture, expiry date and the address of the manufactur er

Why is it that rules have been made so that the manufacturer displays this information? It is because consumers have the right to be informedabout the particulars of goods and services that they purchase

Consumers can then complain and ask for compensation or replacement if the product proves to be defective in any manner

if someone sells a good at more than the printed price on the packet. This is indicated by ‘MRP’ — maximum retail price. In fact consumers can bargain with the seller to sell at less than the MR

In recent times, the right to information has been expanded to cover various services provided by the Government. In October 2005, the Government of India enacted a law, popularly known as RTI (Right to Information) Act

Any consumer who receives a service in whatever capacity, regardless of age, gender and nature of service, has the right to choose whether to continue to receive the service

If you are not interested in buying the brush, your right to choice is denied. Similarly, sometimes gas supply dealers insist that you have to buy the stove from them when you take a new connection. In this way many a times you areforced to buy things that you may not wish to and you are left with no choice

Where should consumers go to get justice?

Consumers have the right to seek redressal against unfair trade practices and exploitation

If any damage is done to a consumer, she has the right to get compensation

depending on the degree of damage. There is a need to provide an easy and effective public system by which this can be done

If you are living in a residential colony, you might have noticed name boards of Resident Welfare Associations. If there is any unfair trade practice meted out to their members they take up the case on their behalf.

Under COPRA, a three-tier quasijudicial machinery at the district, state and national levels was set up for redressal of consumer disputes. The district level court deals with the cases involving claims upto Rs 20 lakhs, the state level courts between Rs 20 lakhs and Rs 1 crore and the national level court deals with cases involving claims exceeding Rs 1 crore

If a case is dismissed in district level court, the consumer can also appeal in state and then in National level courts.

Thus, the Act has enabled us as consumers to have the right to representin the consumer courts. ©NCERT not to be republishe

LEARNING TO BECOME WELL-INFORMED CONSUMERS

When we as consumers become conscious of our rights, while purchasing various goods and services, we will be able to discriminate and make informed choices

 This calls for acquiring the knowledge and skill to become a well-informed consumer

The enactment of COPRA has led to the setting up of separate departments of Consumer Affairs in central and state governments

ISI and Agmark

While buying many commodities, on the cover, you might have seen a logo with the letters ISI, Agmark or Hallmark. These logos and certification help consumers get assured of quality while purchasing the goods and services

Though these organisations develop quality standards for many products, it is not compulsory for all the producers to follow standards

However, for some products that affect the health and safety of consumers or of products of mass consumption like LPG cylinders, food colours and additives, cement, packaged drinking water, it is mandatory on the part of the producers to get certified by these organisations.

TAKING THE CONSUMER MOVEMENT FORWARD

India has been observing 24 December as the National Consumers’ Day

Consumer Protection Act in 1986

After 20 years of the enactment of COPRA, consumer awareness in India is spreading but slowly