Friday, June 29, 2012

Economics: The Basics

Economics
When wants exceed the resources available to satisfy them, there is scarcity. Faced with scarcity, people must make choices. Economics is the study of the choices people make to cope with scarcity. Choosing more of one thing means having less of something else. The opportunity cost of any action is the best alternative forgone.

Microeconomics - The study of the decisions of people and businesses and the interaction of those decisions in markets. The goal of microeconomics is to explain the prices and quantities of individual goods and services.
Macroeconomics - The study of the national economy and the global economy and the way that economic aggregates grow and fluctuate.  The goal of macroeconomics is to explain average prices and the total employment, income, and production.

Positive statements - Statements about what is.
Normative statements - Statements about what ought to be.
Ceteris paribus - Other things being equal” or “if all other relevant things remain the same.


The fallacy of composition - What is true of the parts may not be true of the whole. What is true of the whole may not be true of the parts.
The post hoc fallacy - The error of reasoning from timing to cause and effect.
Economic efficiency - Production costs are as low as possible and consumers are as satisfied as possible with the combination of goods and services that is being produced.
Economic growth - The increase in incomes and production per person. It results from the ongoing advance of technology, the accumulation of ever larger quantities of productive equipment and ever rising standards of education.
Economic stability - The absence of wide fluctuations in the economic growth rate, the level of employment, and average prices.

The Modern economy
Economy - A mechanism that allocates scarce resources among alternative uses. This mechanism achieves five things: What, How, When, Where, Who.
Decision makers -  Households, Firms, Governments.
Household - Any group of people living together as a decision-making unit.  Every individual in the economy belongs to a household.

Firm - An organization that uses resources to produce goods and services. All producers are called firms, no matter how big they are or what they produce.  Car makers, farmers, banks, and insurance companies are all firms.
Government - A many-layered organization that sets laws and rules, operates a law-enforcement mechanism, taxes households and firms, and provides public goods and services such as national defense, public health, transportation, and education.
Market - Any arrangement that enables buyers and sellers to get information and to do business with each other.

Role of Government
Not so very long ago, economic planning and public ownership of the means of production were the wave of the future. Planners cannot find out what needs to be done to co-ordinate the production of a modern economy. Even if a technically feasible plan could be drawn up, there is no reason to believe it will be implemented.
How could a central planner know better than the consumers what the individual woman wants? Planners can only provide users with what they believe they should want. Because prices bear no relation to costs, there is no way to calculate what production needs to increase and what production needs to be reduced.

The state has three functions:


  • To provide things - known as public goods - that the market cannot provide for itself; 
  • To internalize externalities or remedy market failures; 
  • To help people who, for a number of reasons, do worse from the market or are more vulnerable to what happens within it than society finds tolerable. 

In addition to providing public goods, governments directly finance or provide certain merit goods. Such goods are consumed individually. But society insists on a certain level or type of provision.
The role of the state in a modern market economy is, in short, pervasive. The difference between poor countries and richer ones is not that the latter do less, but that what they do is better directed (on the whole) and more competently executed (again, on the whole).
The first requirement of effective policy is a range of qualities credibility, predictability, transparency and consistency.
The more the government focuses on its essential tasks and the less it is engaged in economic activity and regulation, the better it is likely to work and the better the economy itself is likely to run.
If one needs a large number of bureaucratic permissions to do something in business, the officials have an opportunity to demand bribes.
Once it is known that a government is prepared to create such exceptional opportunities, there will be lobbying to create them.
Then there is not just the corruption of the government, but the waste of resources in such 'rent-seeking' or 'directly unproductive profit-seeking activities'.
Governments are natural monopolies over a given territory. One of the strongest arguments for an open economy is that it puts a degree of competitive pressure on government.


Factors of Production
Factors of production - The economy’s productive resources; Labor, Land, Capital, Entrepreneurial ability.
Land - Natural resources used to produce goods and services. The return to land is rent.
Labor - Time and effort that people devote to producing goods and services.  The  return to labour is wages.
Capital - All the equipment, buildings, tools and other manufactured goods used to produce other goods and services. The return to capital is interest.
Entrepreneurial ability - A special type of human resource that organizes the other three factors of production, makes business decisions, innovates, and bears business risk. Return to entrepreneurship is profit.

Economic Coordination
Markets - Coordinate individual decisions through price adjustments.
Command mechanism - A method of determining what, how, when, and where goods and services are produced and who consumes them, using a hierarchical organization structure in which people carry out the instructions given to them.
Market economy - An economy that uses a market coordinating mechanism.
Command economy - An economy that relies on a command mechanism.
Mixed economy - An economy that relies on both markets and command mechanism.

Production Possibility Frontier
The quantities of goods and services that can be produced are limited by the available resources and by technology.  That limit is described by the production possibility frontier.
Production Possibility Frontier (PPF) - The boundary between those combinations of goods and services that can be produced and those that cannot.
Production efficiency - When it is not possible to produce more of one good without producing less of some other good.  Production efficiency occurs only at points on the PPF.
Economic growth - Means pushing out the PPF. The two key factors that influence economic growth are technological progress and capital accumulation.
Technological progress - The development of new and better ways of producing goods and services and the development of new goods.
Capital accumulation - The growth of capital resources.
Absolute Advantage - If by using the same quantities of inputs, one person can produce more of both goods than some one else can, that person is said to have an absolute advantage in the production of both goods.
Comparative Advantage - A person has a comparative advantage in an activity if that person can perform the activity at a lower opportunity cost than anyone else.

Law of Demand
Demand curve - Shows the relationship between the quantity demanded of a good and its price, all other influences on consumers’ planned purchases remaining the same.
Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded.

  1. Substitution effect
  2. Income effect.

As the opportunity cost of a good increases, people buy less of that good and more of its substitutes.
Faced with a high price and an unchanged income, the quantities demanded of at least some goods and services must be decreased.
Substitute - A good that can be used in place of another good.
Complement - A good that is used in conjunction with another good.
Normal goods - Goods for which demand increases as income increases.
Inferior goods - Goods for which demand decreases as income increases.
If the price of a good changes but everything else remains the same, there is a movement along the demand curve.
If the price of a good remains constant but some other influence on buyers’ plans changes, there is a change in demand for the good.
A movement along the demand curve shows a change in the quantity demanded and a shift of the demand curve shows a change in demand.

Law of Supply
Law of supply – Other things remaining the same, the higher the price of a good, the greater is the quantity supplied.
Supply of a good depends on:

  1. The price of the good; 
  2. The prices of factors of production; 
  3. The price of other goods produced; Expected future prices; 
  4. The number of suppliers; 
  5. Technology.

Supply curve - Shows the relationship between the quantity supplied and the price of a  good, everything else remaining the same.
If the price of a good changes but everything else influencing suppliers’ planned sales remains constant, there is a movement along the supply curve.
If the price of a good remains the same but another influence on suppliers’ planned sales changes, supply changes and there is a shift of the supply curve.
A movement along the supply curve shows a change in the quantity supplied.  The entire supply curve shows supply.  A shift of the supply curve shows a change in supply.

Equilibrium
Equilibrium: A situation in which opposing forces balance each other.  Equilibrium in a market occurs when the price is such that the opposing forces of the plans of buyers and sellers balance each other.  The equilibrium price is the price at with the quantity demanded equals the quantity supplied. The equilibrium quantity is the quantity bought and sold at the equilibrium price.
When both demand and supply increase, the quantity increases. The price may increase, decrease, or remain constant.
When both demand and supply decrease, the quantity decreases. The price may increase, decrease, or remain constant.
When demand decreases and supply increases, the price falls. The quantity may increase, decrease, or remain constant.
When demand increases and supply decreases, the price rises and the quantity increases, decreases, or remains constant.

Elasticity
The total revenue from the sale of a good equals the price of the good multiplied by the quantity sold. An increase in price increases the revenue on each unit sold.  But an increase in price also leads to a decrease in the quantity sold. Whether the total expenditure increases or decreases after a price hike, depends on the responsiveness of demand to the price.
Price elasticity of demand – A measure of the responsiveness of the quantity demanded of a good to a change in its price, other things remaining the same. It is the percentage change in demand divided by percentage change in price.
Inelastic demand - If the percentage change in the quantity demanded is less than the percentage change in price, then the magnitude of the elasticity of demand is between zero and 1, and demand is said to be inelastic.
If the quantity demanded remains constant when the price changes, then the elasticity of demand is zero and demand is said to be perfectly inelastic.
Elastic demand - If elasticity is greater than 1, it is elastic.
If the quantity demanded is indefinitely responsive to a price change, then the magnitude of the elasticity of demand is infinity, and demand is said to be perfectly elastic.

When markets do not work 
Price ceiling -  A regulation that makes it illegal to charge a price higher than a specified level. When a price ceiling is applied to rents in housing markets, it is called a rent ceiling.
Black market - An illegal trading arrangement in which buyers and sellers do business at a price higher than legally imposed price ceiling.
Minimum wage law - A regulation that makes hiring labor below a specified wage illegal.
Externalities – Social costs, but no private costs.

Consumption & Utility
A household’s consumption choices are determined by

  • Budget constraint
  • Preferences

Utility - The benefit or satisfaction that a person gets from the consumption of a good or service.
Total utility - The total benefit or satisfaction that a person gets from the consumption of goods and services.
Marginal utility - The change in total utility resulting from a one-unit increase in the quantity of a good consumed.
Consumer equilibrium - A situation in which a consumer has allocated his or her income in the way that, given the prices of goods and services, maximizes his or her total utility.

Understanding Costs
Short run - Period of time in which the quantity of at least one input is fixed and the quantities of the other inputs can be varied.
Long run - Period of time in which the quantities of all inputs can be varied. Inputs whose quantity can be varied in the short run are called variable inputs. Inputs whose quantity cannot be varied in the short run are called fixed inputs.
Firm’s total cost - The sum of the costs of all the inputs it uses in production.
Fixed cost -The cost of a fixed input.
Variable cost - The cost of a variable input.
Total fixed cost - The total cost of fixed inputs.
Total variable cost - The cost of the variable inputs.
Marginal cost - The increase in total cost for increasing output by one unit.
Average fixed cost (AFC) - Total fixed cost per unit of output.
Average variable cost (AVC) - Total variable cost per unit of output.
Average total cost (ATC) - Total cost per unit of output.
Long-run average cost curve - Traces the relationship between the lowest attainable average total cost and output when both capital and labor inputs can be varied.
Economies of scale - As output increases, long-run average cost decreases.
Diseconomies of scale - As output increases, long run average cost increases.

Perfect Competition
There are many firms, each selling an identical product.
There are many buyers.
There are no restrictions on entry into the industry.
Firms in the industry have no advantage over potential new entrants.
Firms and buyers are completely informed about the prices of the product of each firm in  the industry.
Firms in perfect competition are said to be price takers. A price taker is a firm that cannot influence the price of a good or service.

Imperfect Competition
Monopoly - An industry that produces a good or service for which no close substitute exists and in which there is one supplier that is protected from competition by a barrier preventing the entry of new firms.
Price discrimination - The practice of charging some customers a lower price than others for an identical good or of charging an individual customer a lower price on a large purchase than on a small one, even though the cost of servicing all customers is the same.
Monopolistic competition - A market structure in which a large number of firms compete with each other by making similar but slightly different products.
Oligopoly - A market structure in which a small number of producers compete with each other.

Business Cycles
Economic developments should be judged in the context of trends and cycles.
Trends - The trend is the long-term rate of economic expansion.
Cycles - The cycle reflects short-term fluctuations around the trend. There are always a few months or years when growth is above trend, followed by a period when the economy contracts or grows below trend.
Long-term growth - In the long term the growth in economic output depends on the number of people working and output per worker. Output per worker grows through technical progress and investment in new plant, machinery and equipment. Investment and productivity are therefore the basis for continued and sustained economic expansion.
Recession -  A period during which real GDP decreases – the growth rate of real GDP is negative – for at least two successive quarters.
Consumption expenditure - The amount spent on consumption goods and services. Saving is the amount of income remaining after meeting consumption expenditures.
Savings – What remains out of income after consuming.
Capital - The plant, equipment, buildings, and inventories of raw materials and semi-finished goods that are used to produce other goods and services. The amount of capital in the economy is a crucial factor that influences GDP growth.
Investment - The purchase of new plant, equipment, and buildings and the additions to inventory.  Investment increases the stock of capital.  Depreciation is the decrease in the stock of capital that results from wear and tear and the passage of time.
Government Purchases - Governments buy goods and services, called government purchases, from firms.
Net taxes - Taxes paid to governments minus transfer payments received from governments.
Transfer payments - Cash transfers from governments to households and firms such as social security benefits, unemployment compensation, and subsidies.

Measuring Economic Activity
Total economic activity may be measured in three different but equivalent ways.
Add up the value of all goods and services produced in a given period of time, such as one year. Money values may be imputed for services such as health care which do not change hands for cash. Since the output of one business (for example, steel) can be the input of another (for example, automobiles), double counting is avoided by combining only "value added", which for anyone activity is the total value of production less the cost of inputs such as raw materials and components valued elsewhere.
A second approach is to add up the expenditure which takes place when the output is sold.
Since all spending is received as incomes, a third option is to value producers' incomes.

Gross domestic product - GDP is the total of all economic activity in one country, regardless of who owns the productive assets. For example, India’s GDP includes the profits of a foreign firm located in India even if they are remitted to the firm's parent company in another country.
Gross national product - GNP, is the total of incomes earned by residents of a country, regardless of where the assets are located. For example, India’s GNP includes profits from Indian-owned businesses located in other countries.

Omissions in GDP
Deliberate omissions: There are many things which are not in GDP, including the following.

  • Transfer payments - For example, social security and pensions.
  • Gifts. For example, $10 from an aunt on your birthday.
  • Unpaid and domestic activities. If you cut your grass or paint your house the value of this productive activity is not recorded in GDP, but it is if you pay someone to do it for you.
  • Barter transactions. For example, the exchange of a sack of wheat for a can of petrol.
  • Second-hand transactions. For example, the sale of a used car (where the production was recorded in an earlier year). 
  • Intermediate transactions. For example, a lump of metal may be sold several times, perhaps as ore, pig iron, part of a component and, finally, part of a washing machine (the metal is included in GDP once at the net total of the value added between the initial production of the ore and its final sale as a finished item).
  • Leisure. An improved production process which creates the same output but gives more recreational time is recorded in the national accounts at exactly the same value as the old process.
  • Depletion of resources. For example, oil production is recorded at sale price minus  production costs and no allowance is made for the fact that an irreplaceable part of the nation's capital stock of resources has been consumed.
  • Environmental costs. GDP figures do not distinguish between green and polluting industries. 
  • Allowance for non-profit-making and inefficient activities. The civil service and police force are valued according to expenditure on salaries, equipment, and so on (the appropriate price for these services might be judged to be very different if they were provided by private companies).
  • Allowance for changes in quality. You can buy very different electronic goods for the same inflation-adjusted outlay than you could a few years ago, but GDP data do not take account of such technological improvements.


Unrecorded transactions
GDP may under-record economic activity, not least because of the difficulties of keeping track of new small businesses and because of tax avoidance or evasion.
Deliberately concealed transactions form the black, grey, hidden or shadow economy. This is largest at times when taxes are high and bureaucracy is heavy. Estimates of the size of the shadow economy vary enormously. For example, differing studies put America's at 4-33%, Germany's at 3-28% and Britain's at 2-15%. What is agreed, though, is that among the industrial countries the shadow economy is largest in Italy, at perhaps one-third of GDP, followed by Spain, Belgium and Sweden, while the smallest black economies are in Japan and Switzerland at around 4% of GDP.
The only industrial countries that adjust their GDP figures for the shadow economy are Italy and America and they may well underestimate its size.

Expenditure
The expenditure measure of GDP is obtained by adding up all spending:
 consumption (spending on items such as food and clothing)
+ investment (spending on houses, factories, and so on)
= total domestic expenditure
+ exports of goods and services (foreigners' spending)
= total final expenditure
- imports of goods and services (spending abroad)
= GDP

Government consumption - The level of government spending reflects the role of the state. Government consumption is generally 10-20% of GDP, although it is higher in countries such as Denmark and Sweden where the state provides many services. Changes in government spending tend to reflect political decisions rather than market forces.
Private consumption - This is also called personal consumption or consumer expenditure. It is generally the largest individual category of spending. In the industrialised countries, consumption is around 60% of GDP. The ratio is much higher in poor countries which invest less and consume more.
Investment - Investment is perhaps the key structural component of spending since it lays down the basis for future production. It covers spending on factories, machinery, equipment, dwellings and inventories of raw materials and other items. Investment averages about 20% of GDP in the industrialised countries, but is nearer 30% of GDP in East Asian countries.

Income
The income measure of GDP is based on total incomes from production. It is essentially the total of:
wages and salaries of employees;
income from self-employment;
trading profits of companies;
trading surpluses of government corporations and enterprises;
income from rents.
These are known as factor incomes. GDP does not include transfer payments such as interest and dividends, pensions, or other social security benefits. The breakdown of incomes sheds additional light on economic behaviour because it is the counterpart to expenditure in what economists call the circular flow of money. It also provides a useful basis for forecasting inflation.

Unemployment
Labour force or workforce - The number of people employed and self-employed plus those unemployed but ready and able to work.
Three factors affect the size of the labour force: population, migration and the proportion participating in economic activity.
Population. Birth rates in most industrial countries fell to replacement levels or lower in the 1980s. This implies an older workforce and higher old-age dependency rates (the number of retired people as a percentage of the population of working age) in the future. 15-20% of the population in industrial economies will be over 65 years of age.
Developing countries have young populations with up to 50% under 15 years. This suggests an expanding working-age population with potential problems for housing and job creation.
Migration. In the industrial countries inflows of foreign workers increased since the late 1980s and a substantial number of illegal immigrants were granted amnesty in America, France, Italy and Spain. Foreign-born persons account for over 5% of the labour force in America, Germany and France; around 20% in Switzerland and Canada; and over 25% in Australia.
Inward migration may be a bonus for some economies. For example, German unification  boosted that country's productive potential. However, large numbers of refugees seeking asylum can have significant adverse effects on income per head.
Wealthier developing countries, especially oil producers, have large proportions of foreigners in their labour forces. Workers frequently make a substantial contribution to the balance of payments in their home countries by remitting savings from their salaries.
Participation. Participation rates (the labour force as a percentage of the total population) generally increased in the 1980s and 1990s with earlier retirement for men, especially in France, Finland and the Netherlands, generally offset by more married women entering the labour force, especially in America, Australia, Britain, New Zealand and Scandinavia.
Women account for a smaller proportion of the workforce in Muslim countries (20%) and a greater proportion in Africa (up to 50%) where they traditionally work on the land.
The unemployment rate. Usually defined as unemployment as a percentage of the labour force (the employed plus the unemployed). National variations are rife: Germany excludes the self-employed from the labour force; Belgium produces two unemployment rates expressing unemployment as a percentage of both the total and the insured labour force. By changing the definition, which governments are inclined to do, the unemployment rate can be moved up or, more usually, down by several percentage points.

The Balance Of Payments
Accounting conventions- Balance of payments accounts record financial flows in a specific period such as one year. Financial inflows are treated as credits or positive entries. Outflows are debits or negative entries. When a foreigner invests in the country, there is a capital inflow which is a credit entry. Conversely, the acquisition of a claim on another country is a negative or debit entry.
Debits = credits. The accounts are double entry, that is, every transaction is entered twice. For example, the export of goods involves the receipt of cash (the credit) which represents a claim on another country (the debit). By definition, the balance of payments must balance. Debits must equal credits.
Current = capital. One side of each transaction is treated as a current flow (such as a receipt of payment for an export). The other is a capital flow (such as the acquisition of a claim on another country). Arithmetically current flows must exactly equal capital flows.
Balances
The accounts build up in layers. Balances may be struck at each stage. What follows reflects the IMF'S methodology in the fifth edition of the


Balance of Payments Manual
Net exports of goods (exports of goods less imports of goods)
= the visible trade or merchandise trade balance
+ net exports of services (such as shipping and insurance)
= the balance of trade in goods and services
+ net income (compensation of employees and investment income)
+ net current transfers (such as payments of international aid and workers' remittances)
= the current-account balance (all the following entries form the capital and financial account)
+ net direct investment (such as building a factory overseas)
+ other net investment (such as portfolio investments in foreign equity markets)
+ net financial derivatives
+ other investment (including trade credit, loans, currency and deposits)
+ reserve assets (changes in official reserves), sometimes known as the bottom line
= overall balance
+ net errors and omissions
= zero

Thus the current account covers trade in goods and services, income and transfers. Non-merchandise items are known as invisibles. All other flows are recorded in the capital and financial account. The capital part of the account includes capital transfers, such as debt forgiveness, and the acquisition and/or disposal of non-produced, non-financial assets such as patents. The financial part includes direct, portfolio and other investment.
The balance of payments must balance. When we talk about a balance of payments deficit or surplus, we mean a deficit or surplus on one part of the accounts.


Fiscal Indicators
Fiscal indicators are concerned with government revenue and expenditure.
Level of government - Various problems of definition arise because of different treatment of financial transactions by central government, local authorities, publicly owned enterprises, and so on.
In an attempt to standardise, international organisations such as the OECD focus on general government, which covers central and local authorities, separate social security funds where applicable, and province or state authorities in federations such as in North America, Australia, Germany, Spain and Switzerland.
There is scope for manipulation, Spending can be shifted to publicly owned enterprises which are generally classified as being outside general government. Net lending to such enterprises is part of government spending, but it is not always included in headline expenditure figures.
Classification
Public spending may be classified in several different ways.
By level of government: central and local authorities, state or provincial authorities for federations, social security funds and public corporations.
By department: agriculture, defence, trade, and so on.
By function: such as environmental services, which might be provided by more than one department.
By economic category: current, capital, and so on.
Breaking down the economic effect of public spending into current and capital spending is a useful way to interpret it.

Current spending
Major categories of current spending include the following.
Pay of public-sector employees: this generally seems to rise faster than other current spending.
Other current spending: on goods and services such as stationery, medicines, uniforms, and so on.
Subsidies: on goods and services such as public housing and agricultural support.
Social security: including benefits for sickness, old age, family allowances, and so on; social assistance grants and unfunded employee welfare benefits paid by general government.
Interest on the national debt.

Taxes
Taxes can be Progressive or regressive
Progressive taxes take a larger proportion of cash from the rich than from the poor, such as income tax where the marginal percentage rate of tax increases as income rises.
Proportional taxes take the same percentage of everyone's income, wealth or expenditure, but the rich pay a larger amount in total.
Regressive taxes take more from the poor. For example, a flat rate tax of Rs. 5000, takes a greater proportion of the income of a lower-paid worker than of a higher-paid worker.
Indirect taxes. Levied on goods and services, these include the following:
Value-added tax (VAT) charged on the value added at each stage of production; this amounts to a single tax on the final sale price.
Sales and turnover taxes which may be levied on every transaction (for example, wheat, flour, bread) and cumulate as a product is made.
Customs duties on imports.
Excise duties on home-produced goods, sometimes at penal rates to discourage activities such as smoking.
Indirect taxes tend to be regressive, as poorer people spend a bigger slice of their income. They are charged at either flat or percentage rates.

Budget deficits (spending exceeds revenues) boost total demand and output through a net injection into the circular flow of incomes. As with personal finances, a deficit on current spending may signal imprudence. However, a deficit to finance capital investment expenditure helps to lay the basis for future output and can be sustained so long as there are pri­vate or foreign savings willing to finance it in a non-inflationary way.
 Budget surpluses (revenues exceed expenditure) may be prudent if a government is building up a large surplus on its social security fund in order to meet an expected increase in its future pensions bill as  the population ages.
Tighter or looser. Fiscal policy is said to have tightened if a deficit is reduced or converted into a surplus or if a surplus is increased, after taking into account the effects of the economic cycle. A move in the opposite direction is called a loosening of fiscal policy.

Saturday, June 23, 2012

Capital Markets Regulator SEBI notified Norms for Listing of Stock Exchange

Capital markets regulator Securities and Exchange Board of India (SEBI) on 21 June 2012 notified new rules for ownership and governance of stock exchanges to encourage the setting up of new bourses and enable exchanges to get listed. The amendments were announced following the legal tussle between the regulator and MCX Stock Exchange, which had earlier sought approval to start an equity platform.
The new norms require the recognised stock exchange to have a minimum net worth of Rs 100 crore at all times and at least 51 per cent of stake has to be held by public.
The ownership of a single investor was capped at 5% with an exemption for stock exchanges, depositories, insurance and banking companies and public financial institutions, which has been permitted to hold up to 15 per cent.  The shareholders who hold stake in excess of the new limits would have to comply with new norms within a period to be decided by SEBI and such period could be of up to three years.
SEBI also specified that direct and indirect exposure to any stock exchange will be considered while calculating the prescribed shareholding limit. The new rules permits stock exchanges to list on any recognised stock exchange other than itself and its associated stock exchanges, within three years of commencing operations.
It was highlighted that for a stock exchange that is not listed, an FII may acquire shares through transactions outside of a recognised stock exchange provided it is not an initial allotment of shares. For listed bourses, the FIIs can transact through the exchange where the shares are listed. The market regulator had earlier in April 2012 approved changes to the Manner of Increasing and Maintaining Public Shareholding (MIMPS) in recognised stock exchanges at a board meeting.
SEBI is currently in the process of formulating minimum listing standards for listing of companies on stock exchanges. A Conflicts Resolution Committee or CRC will be formed by SEBI with a majority of external and independent members to deal with all issues concerning conflicts of interest with respect to listing of companies. The CRC will first consider matters of policy and guidelines involving conflict issues and then recommend standards relevant to the areas of potential conflict in exchanges.
With respect to listing the market regulator mentioned that a recognised stock exchange may apply for listing of its securities on any bourse other than itself and its associated stock exchange, provided they comply with the new regulations of ownership and governance and also has completed three years of continuous trading operations and has got SEBI’s approval. The shares of a recognised stock exchange and a recognised clearing corporation is required to be in demat form, while clearing corporation cannot hold any right, stake or interest in an exchange.

The myth of remunerative farm prices


“Bonanza for Farmers” and “Price Shoots Up” were some of the shrill headlines in the leading financial dailies that reported the announcement of minimum support prices (MSP) for kharif crops, 2012-13, made by the Cabinet Committee On Economic Affairs (CCEA) on June 15.
Almost every newspaper vied with the other to portray it as the biggest ever hike and fuel fears that it will stoke food inflation, as though they were all paid to report this news in a particular manner. They claim that the MSP announced will worsen food subsidy burden and the Government’s procurement costs will soar.
Most newspapers wilfully concealed the fact that input prices underwent massive hikes over the last few years, the last year being no exception to the trend.
It would not require extraordinary insight to comprehend that the prices announced were neither “fair” nor “remunerative”. All that reporters were required to do is to look at the massive price hikes in all non-urea fertilisers for the current kharif planting season on the same day they reported the kharif MSP increase.
Further still, if they had bothered to research a bit into the increase in prices of inputs over the last one year even without really meeting a single farmer, they would realise how cultivation costs had reached sky-high. They could at least have bothered to look into the deflated costs of production that the Government’s own advisory body, the Commission on Agricultural Costs and Prices (CACP) came up with in 2011-12 in its Kharif Price Policy document.

UNDERESTIMATION BY CACP

According to the CACP’s own admission, it has arrived at the likely levels of cost of production in different States for 2011-12, on the basis of the cost of production data available for the year 2008-09. This data itself had been much contested by the peasants and peasant organisations at that time. The CACP conveniently seems to have forgotten to upwardly revise these figures, while computing the MSP for 2012-13 kharif.
According to the document, the weighted average Cost of Production (C2) for paddy in 2011-12 was Rs 887.82 a quintal. This figure is deceptive as it is an average of the costs of production in various States. It ranges from a low of Rs 688.39 a quintal in Uttarakhand to a high of Rs 1,482.13 a quintal for Maharashtra. The cost projection by States was much higher and ranged from a low of Rs 950 a quintal in West Bengal to Rs 1,780 a quintal in Maharashtra.
Even if one were to uncritically take Rs 887.82 a quintal as the C2, and apply the M.S. Swaminathan Commission Recommendation of C2+50 per cent to compute the MSP, then it must have stood at Rs 1,331.73 a quintal in 2011-12. Now, after one full year the Government has announced an MSP of Rs 1,250 a quintal and Rs 1,280 a quintal for paddy for 2012-13 kharif.
According to the CACP’s own admission, MSP fixed on the basis of weighted average cost of production did not meet even the cost of production in many States in 2011-12.
Despite assurances that the overall cost of production will include the crop insurance premium paid by the farmers, marketing and transport cost incurred by them and apparent approval for the same by the Government, it has just remained on paper. The CACP, however, in 2011-12 had conducted an exercise to calculate the cost of production, inclusive of marketing, transportation and insurance premium. These figures are even higher than the 2012-13 MSP for almost all crops (see table).
Based on the 2011-12 cost of production data, the C2+50 per cent is far higher than the kharif 2012-13 MSP for all crops except urad, for which it is marginally higher. While the CACP has made some effort in 2011-12 to portray its exercise as being inclusive of marketing, insurance premium and transportation costs and factored in these costs in the modified cost of production, it seems to have remained oblivious to the skyrocketing prices of all agricultural inputs while computing the MSP for kharif 2012-13.

FERTILISER COSTS

The truth that neither the CACP nor the experts have spoken about, however, is that ever since 2008-09, the prices of inputs have increased drastically. The increase in fertiliser prices over the last two years, ever since the nutrient-based subsidy (NBS) came into being, has been phenomenal.
On the same day that the Government announced the MSP of kharif crops, fertiliser companies drastically raised farmgate prices of all non-urea fertilisers, citing depreciation of the rupee and reduction in subsidies on various nutrients by the Government under the NBS scheme.
The MRP of di-ammonium phosphate (DAP), the most widely used fertiliser after urea, has gone up from Rs 9,350 a tonne in 2010 April to Rs 24,000. The price of muriate of potash has risen from Rs 4,455 a tonne to Rs 17,000 a tonne during the same period. These are net figures and do not include State taxes.
The experience across the country has been that the farmers are forced to pay more due to black marketing and artificial scarcity created by unscrupulous traders. Farmers have been paying as high as Rs 26,000 a tonne for DAP even in April. (Given below is a table comparing non-urea fertiliser prices at present with prices during the last rabi.)
The Department of Fertilisers has also further proposed a hike of another 10 per cent in urea prices. Moves are afoot to cut the subsidies to chemical fertilisers even further on the pretext of subsidising bio-fertilisers. Unfortunately, the CCEA and the CACP have not factored in the exorbitant input costs while computing the MSP.
One can fudge the truth by resorting to clever jugglery of figures. The apologists of neo-liberal policies and their voices in the media are just doing that.

Importance of green accounting

GDP growth has become virtually every nation’s default measure of progress. For India, its slowing GDP continues to make headlines and is the subject of much debate.
Amid concerns from the Government, the business community and citizens on what impact external events such as the evolving European sovereign debt crisis may have on India’s growth and jobs, it might also be the perfect time to take a moment and reflect on India’s economic journey over the last decade, and ask whether the remarkable GDP growth has been a true measure of the nation's wealth and more significantly, its economic sustainability.
Like all emerging and growing economies, India is facing a catch-22 situation: On the one hand, there is pressure to maintain GDP growth as this is the perceived foundation upon which the future economic security of its growing population is based, but conversely, India must also take into consideration the costs of development and not self-cannibalise its rich natural capital wealth and jeopardise the very future of the people it is trying to secure.
Over-reliance on GDP as a measure of economic health can be misleading. As noted long ago by Robert F. Kennedy: “it measures everything, in short, except that which makes life worthwhile.”

ENVIRONMENTAL LOSS

GDP measures the value of output produced within a country over a certain time period. However, any depreciation measurements used, will account only for manmade capital and not the negative impact of growth on valuable natural capital, such as water, land, forests, biodiversity and the resulting negative effects on human health and welfare.
For India, there is much to lose if action is not taken to preserve its natural environment. Its wide range of climate, geography and culture make it unique amongst biodiversity rich nations.
Biodiversity is an incredibly valuable asset. It is the underlying foundation of the earth’s ecosystems, the variety and abundance of species that inhabit them and the variability and diversity of genetic material found within them.
It provides numerous benefits, from food and fuel, to services such as freshwater, soil fertility, flood control, pollination of crops and carbon sequestration by forests that are crucial to both environmental and human well-being. To this end, biodiversity loss does not only mean the loss of species, but also the loss of ecosystem functioning.
Although India’s economic growth is to be encouraged, the double-digit GDP fixation is threatening India’s biodiversity and ironically, its long-term growth and security.
For example, despite India having set in place a remarkable Protected Areas network (4.8 per cent of the total geographical area of the country), it continues to be challenged by the loss of natural habitats. Over the course of the last fifty years, India has lost over half its forests, 40 per cent of its mangroves and a significant part of its wetlands. At least 40 species of plants and animals have become extinct with several hundred more endangered.
Livelihoods have been lost, poverty increased, food security threatened and health risks raised. Today, annual economic costs of air pollution, contaminated water, soil degradation, and deforestation are estimated to be close to 10 per cent of India’s GDP.

GREEN ACCOUNTING

Better macroeconomic and societal indicators are needed to reflect the contribution of biodiversity and ecosystem services to human well-being.
One approach that is gaining momentum across the globe is “green accounting” whereby national accounts are adjusted to include the value of nature´s goods and services.
Mr Jairam Ramesh, the former environment minister, advocated greening India’s national accounts by 2015 and encouraged policy makers to recognise the trade-off between pursuing high growth economic policies against the extensive impact they could have on India’s natural capital.
One organisation that is already leading the way is the Green Indian States Trust (GIST) which, in 2003 unleashed a series of environmentally adjusted accounts under the Green Accounting for Indian States Project. According to their results, the loss of forest ecological services (i.e. soil erosion prevention, flood control and ground water augmentation) over three years (2001-03) due to declining dense forests was estimated at an astounding 1.1 per cent of GDP.
Breaking it down by States, they showed that for native forest-rich states such as Arunachal Pradesh, Assam, Himachal Pradesh, Jammu and Kashmir and Mizoram, the loss of these services was significantly high as a proportion of their net state domestic product (NSDP) — an estimated 6 per cent. For instance, if we look at Assam where forest cover decreased by 0.28 million hectares over three years, the value of effective flood control alone was at a loss of Rs 800 million.
Following up on the initial study, GIST performed another round of accounting for the period 2003-2007 and the results speak loudly. Although the FSI claims an increase in overall forest cover in India, native dense forest cover is still declining rapidly.
According to GIST´s latest results, the North-Eastern states continue to be most affected, particularly Arunachal Pradesh and Mizoram where the loss of forest ecological services is more than 12 per cent of their NSDP.
So how is India responding?
India is beginning to recognise that protecting biodiversity and ecosystems is a critical national priority. As a sign of its commitment, India will host the most important meeting relating to the United Nations Convention on Biological Diversity (CBD) — the 11th Conference of Parties (COP-11) — in Hyderabad, during October 8-19, 2012.
The CBD framework emerged from the Rio Earth Summit of 1992 as the most comprehensive international agreement that aims to help protect and sustain biodiversity and ecosystems worldwide of which India is a signatory.
As proud hosts to this important event, India has the opportunity to show the world that it can take the lead and deliver on its commitments to preserving and protecting biodiversity and the ecosystem services it supports. At least this is one step in the right direction.

Thursday, June 14, 2012

Poverty Alleviation Programmes

The fruits of economic growth have not benefited everyone uniformly. Some are left behind and some others are not touched by the benefits of economic growth. It is proved globally that the so-called trickle-down effect does not work in all the societies and India is no exception to this. There are various reasons for this uneven development in the society. Modern economy is technology driven and not labour-intensive.

High volume of high quality goods and services are produced with fewer labour hands. In short, the modern economy is not generating much employment and sometimes it displaces and replaces labour with machines and tools. The period of 1999-2000 to 2004- 2005 saw rapid economic growth in the country but it has not impacted on the unemployment problem of the country. During this period, the unemployment rate remained almost same for rural males and decreased by just one percentage for urban male. On the other hand, unemployment among females increased by one percentage for urban and rural females.

One-third of the country’s population is still illiterate and a majority are not educated up to the age of 15 years. Even among the educated, all do not have employable skills of the modern economy. The education system is not tuned to the changing economic scenario. The large agriculture workforce in rural areas is not sustainable with dwindling cultivable land and use of modern methods of cultivation. As a result, the rural labour is pushed into cities in search of work but they do not have any employable skills in the urban formal sector often end up doing odd jobs in urban areas.

Urbanization in this country is mainly due to acute poverty in rural areas, rather than due to the economic opportunities in urban areas. Further, poverty is not uniformly spread in the country. States like Orissa, Bihar and Madhya Pradesh have high level of poverty and the levels have not come down significantly in the post-economic reform era.

It is also pertinent to understand that some of the people are unable to be part of the economic reform and do not have the capacity to participate in the economic development process. Such groups need government intervention to ensure that they are not left behind in the development process and deprived of the benefits because they do not have the capacity to be part of the global economy. The government needs to develop safety nets for such groups and try to mainstream them in the development process. They need welfare measures in the form of poverty alleviation programmes to ensure that they survive, if not prosper, in this era of economic reform. Further, the poor are not a homogeneous population and their capacity to survive the economic reform varied from one group of poor to another. Especially, those who are below the poverty line or the poorest among the poor need more government help.

The government of India's poverty alleviation programmes can be broadly classified under five categories: (a) Self-employment programmes like the Swarnajayanti Gram Swarojgar Yojana; (b) Wage-employment programmes like the Sampoorna Grameen Rojgar Yojana and the National Rural Employment Guarantee (NREG) scheme; (c) Area development programmes like Drought Prone Area Programmes and the Rashtriya Sam Vikas Yojana; (d) Social security programmes like the National Old Age Pension Scheme; (e) Other programmes like the Indira Awaas Yojana.

Self-employment programmes
Self-employment programmes were introduced at the national level in the late 1970s. Initially, the programmes were designed to provide skills, subsidized credit and infrastructure support to small farmers and agricultural labourers so that they could find new sources of income.

In the 1980s, the focus of the self-employment programmes was extended to cover target groups such as scheduled castes and tribes, women and rural artisans. The coverage also extended to specific areas such as animal husbandry, forestry and fishery.

The largest of these programmes was the Integrated Rural Development Programme (IRDP). According to a mid-term appraisal of the Ninth Plan done by the Planning Commission, the IRDP suffered from several defects including: sub-critical investment, unviable projects, illiterate and unskilled beneficiaries with no experience in managing an enterprise, indifferent delivery of credit by banks, overcrowding of lending in certain projects such as dairy, under-emphasis on activities like trading, service and even simple processing, poor targeting and selection of non-poor, rising indebtedness, and scale of IRDP outstripping capacity of government and banks.

Other self-employment programmes suffered from similar deficiencies.

In 1999, several self-employment programmes were integrated into the Swarnajayanti Gram Swarojgar Yojana (SGSY). The key feature of the SGSY is that it does not seek to promote individual economic activities. It seeks to promote self-help groups that are trained in specific skills so they can formulate microenterprise proposals. Such projects are based on activities that are identified for each block on the basis of local resources, skills and markets. The projects are supported by bank credit and government subsidies.

While the SGSY is implemented by district rural development agencies through panchayat samitis, NGOs are expected to play a major role in the success of the programme.

Wage-employment programmes
The first major wage-employment programme was introduced in the 1960s to provide employment to the rural unemployed particularly during the lean agricultural season.

Subsequently, several wage-employment programmes were launched by the Central and State governments. The largest of these was the Jawahar Rozgar Yojana (JRY), which was redesigned in 1999 as the Jawahar Gram Samridhhi Yojana (JGSY).

Other notable schemes were: the Employment Assurance Scheme (EAS), and the Employment Guarantee Scheme of the Maharashtra government.

According to a mid-term appraisal of the Ninth Plan done by the Planning Commission, the JRY suffered from the following defects: Provided inadequate employment (only 11 days as per concurrent evaluation); Resources were spread too thin; Violation of material-labour norms and corruption (fudging of muster rolls); Projects were executed by contractors who sometimes hired outside labourers at lower wages.

There were similar deficiencies in the EAS.

In 2001, the JGSY and EAS were merged to form the Sampoorna Grameen Rojgar Yojana (SGRY). The objective of the scheme is to provide additional wage employment with food security in rural areas. Beneficiaries are temporarily employed to build community assets and infrastructure. The cost of the scheme, which includes the distribution of foodgrain, is shared by the Central and State governments in a ratio of 87.5:12.5.

In August 2005, the Indian Parliament passed the National Rural Employment Guarantee Act (NREGA), one of independent India’s most ambitious interventions to address rural poverty and empower poor people.

The NREGA follows a set of legally enforceable employment norms. Its aim is to end food insecurity, empower village communities, and create useful assets in rural areas. It is based on the assumption that every adult has a right to basic employment opportunities at the statutory minimum wage.

Under the scheme, one member of every poor rural family is guaranteed 100 days of work at the minimum wage of Rs 60 a day. All rural poor are eligible, not just those designated below the poverty line (BPL). One-third of the beneficiaries must be women. If five or more children accompany their mothers to any site, the implementing authority must appoint a woman to look after them on the site.

Panchayats at district, intermediate and village levels will identify and monitor the project, together with a programme officer. Social audits of the work will be available at gram sabhas. Work will, as far as possible, be provided within a radius of 5 km.

The work to be undertaken will be public works such as water harvesting, drought-proofing, micro and macro irrigation works, renovation of traditional water bodies, flood control barriers and rural connectivity.

Medical costs necessitated by injuries at work will be borne by the implementing authority.

Area development programmes
Drought Prone Area Programmes (DPAP), Desert Development Programmes (DDP), Hilly Area Development Programmes and Tribal Area Development Programmes were introduced in the 1970s to prevent environmental degradation and provide employment to the poor in these regions.

In the mid-‘90s, the environment management aspect of these programmes was strengthened by the introduction of watershed development programmes.

Currently, several Central government, State government and non-government watershed development programmes are being implemented.

The government has mooted a “single national initiative” under the National Watershed Development Projects for Rain-fed Areas (NWDPRA) programme. A new Department of Land Resources has been created by merging all area development programmes with the Department of Wasteland Development.
The Tenth Plan has a new scheme called the Rashtriya Sam Vikas Yojana(RSVY) to tackle the problem of extreme deprivation in backward pockets of the country.

Started with an outlay of Rs 2,500 crore for 2002-03, the RSVY aims to promote focused developmental programmes for backward areas that would help reduce imbalances, speed up development and help backward areas overcome poverty. The programme also aims to encourage states to take up productivity-enhancing reforms.

Social security programmes
Social security programmes were launched, at the national level, in the 1980s with an old age pension scheme. Currently, there are four major national social security schemes:
—National Old Age Pension Scheme (NOAPS), which provides a pension to people above the age of 65 with no source of income or financial support.
—National Family Benefit Scheme, which provides Rs 10,000 to families living below the poverty line when their main earning member dies.
—National Maternity Benefit Scheme, which provides Rs 500 to pregnant women of families living below the poverty line.
—Rural Group Insurance Scheme, which provides a maximum life insurance of Rs 5,000 covering the main earning members of families living below the poverty line on a group insurance basis; the government pays half the premium of Rs 50-Rs 70.

Other programmes
The largest of the 'other' programmes is the Indira Awaas Yojana (IAY), which provides houses free of cost to below the poverty line scheduled caste and scheduled tribe families living in rural areas. Recently, several other poverty alleviation programmes have been launched, including Pradhan Mantri Gramodaya Yojana, which provides additional funds to States so that they can provide basic minimum services such as primary health, primary education and drinking water.

Under the Pradhan Mantri Gramodaya Yojana there are two schemes, Gramin Awas for rural shelter and the Rural Drinking Water Project for water conservation in DPAP and DDP programme areas.

Pradhan Mantri Gram Sadak Yojana, launched in December 2000, to provide road connectivity to 1.6 lakh remote habitations with a population of over 500 by the end of the Tenth Plan period

Antyodaya Anna Yojana, launched in December 2001, to provide 25 kg of foodgrain at highly subsidized rates to 100 million of India's poorest families living below the poverty line. In 2002, around 24 lakh tonnes of foodgrain were provided by the central government under this scheme.

The Annapurna Scheme to provide 10 kg of foodgrain per month free of cost to persons who are eligible for pension under the NOAPS but haven’t received any.

Swarnajayanti Gram Swarojgar Yojna:
 This programme was launched in April, 1999. This is a holistic programme covering all aspects of self employment such as organisation of the poor into self help groups, training, credit, technology, infrastructure and marketing.

The objective of SGSY is to provide sustainable income to the rural poor. The programme aims at establishing a large number of micro-enterprises in the rural areas, based upon the potential of the rural poor. It is envisaged that every family assisted under SGSY will be brought above the poverty-line with in a period of three years.

This programme covers families below poverty line in rural areas of the country. Within this target group, special safeguards have been provided by reserving 50% of benefits for SCs/STs, 40% for women and 3% for physically handicapped persons. Subject to the availability of the funds, it is proposed to cover 30% of the rural poor in each block in the next 5 years.

SGSY is a Centrally Sponsored Scheme and funding is shared by the Central and State Governments in the ratio of 75:25 respectively.

SGSY is a Credit-cum-Subsidy programme. It covers all aspects of self-employment, such as organisation of the poor into self-help groups, training, credit technology, infrastructure and marketing. Efforts would be made to involve women members in each self-help group. SGSY lays emphasis on activity clusters. Four-five activities will be identified for each block with the approval of Panchayat Samities. The Gram sabha will authenticate the list of families below the poverty line identified in BPL census. Identification of individual families suitable for each key activity will be made through a participatory process. Closer attention will be paid on skill development of the beneficiaries, known as swarozgaris, and their technology and marketing needs.

Jawahar Gram Samriddhi Yojna:
 The critical importance of rural infrastructure in the development of village economy is well known. A number of steps have been initiated by the Central as well as the State Governments for building the rural infrastructure. The public works programme have also contributed significantly in this direction.

Jawahar Gram Samridhi Yojna (JGSY) is the restructured, streamlined and comprehensive version of the erstwhile Jawahar Rozagar Yojana. Designed to improve the quality of life of the poor, JGSY has been launched on 1st April, 1999. The primary objective of the JGSY is the creation of demand driven community village infrastructure including durable assets at the village level and assets to enable the rural poor to increase the opportunities for sustained employment. The secondary objective is the generation of supplementary employment for the unemployed poor in the rural areas. The wage employment under the programme shall be given to Below Poverty Line(BPL) families.

JGSY is implemented entirely at the village Panchayat level. Village Panchayat is the sole authority for preparation of the Annual Plan and its implementation.

The programme is implemented as Centrally Sponsored Scheme on cost sharing basis between the Centre and the State in the ratio of 75:25 respectively.

The programme is to be implemented by the Village Panchayats with the approval of Gram sabha. No other administrative or technical approval is required.

Indira Aawas Yojna:
 IAY is the flagship rural housing scheme which is being implemented by the Government of India with an aim of providing shelter to the poor below poverty line. The Government of India has decided that allocation of funds under IAY will be on the basis of poverty ratio and housing shortage.

The objective of IAY is primarily to help construction of new dwelling units as well as conversion of unserviceable kutcha houses into pucca/semi-pucca by members of SC/STs, freed bonded labourers and also non-SC/ST rural poor below the poverty line by extending them grant-in-aid.

IAY is a beneficiary-oriented programme aimed at providing houses for SC/ST households who are victims of atrocities, households headed by widows/unmarried women and SC/ST households who are below the poverty line. This scheme has been in effect from 1st April, 1999.

IAY is a Centrally Sponsored Scheme funded on cost sharing basis between the government of India and the States in the ratio of 75:25 respectively.

Grant of Rs. 20,000 per unit is provided in the plain areas and Rs. 22,000 in hilly/difficult areas for the construction of a house. For conversion of a kutcha house into in pucca house, Rs. 10,000 is provided. Sanitary laterines and chulahs are integral part of the house. In construction/upgradation of the house, cost effective and environment friendly technologies, materials and designs are encouraged. The household is allotted in the name of a female member of beneficiary household.

DRDA Administration: 
District Rural Development Agency (DRDA) has traditionally been the principal organ at the District level to oversee the implementation of the anti-poverty programmes of the Ministry of Rural Development. Created originally for implementation of Integrated Rural Development Programme (IRDP), the DRDAs were subsequently entrusted with a number of programmes, both of the Central and State governments. Since inception, the administrative costs of the DRDA (District Rural Development Agency) were met by setting aside a part of the allocations for each programme. Of late, the number of programmes had increased and several programmes have been restructured with a view to making them more effective. While an indicative staffing structure was provided to the DRDAs, experience showed that there was no uniformity in the staffing structure. It is in this context that a new centrally sponsored scheme—DRDA Administration—was introduced from April 1, 1999, based on the recommendations of an inter-ministerial committee known as Shankar Committee. The new scheme replaced the earlier practice of allocating percentage of programme funds to the administrative costs.

The objective of the scheme of DRDA (District Rural Development Agency) Administration is to strengthen the DRDAs and to make them more professional and effective. Under the scheme, DRDA is visualised as specialised agency capable of managing anti-poverty programmes of the Ministry on the one hand and effectively relate these to the overall efforts of poverty eradication in the district on the other.

The funding pattern of the programme is in the ratio of 75:25 between the Centre and the States.

The DRDA will continue to watch over and ensure effective utilisation of the funds intended for anti-poverty programmes. It will need to develop distinctive capabilities for poverty eradication. It will perform tasks which are different from Panchayati Raj Institutions and line departments. The DRDAs would deal only with the anti-poverty programmes of the Ministry of Rural Development. If DRDAs are to be entrusted with programmes of other Ministries or those of the State Governments, it must be ensured that these have a definite anti-poverty focus. In respect of such States where DRDA does not have a separate identity and separate accounts.

Basic Minimum Services:
 The Government of India launched this scheme in 1997 incorporating seven vital services of importance to common people. The State Government has opted to provide shelter to shelter-less below poverty line under this scheme.

The objective of providing this scheme is to supplement the constitution of dwelling units for members of SC/ST, freed bonded labour and also non-SC/ST rural poor below the poverty line by providing them with grant.

The Central government provides additional funds for Basic Minimum Services subject to the condition that the State government will provide 15% of the required funds.

Additional Indira Awas are being constructed with the guidelines analogous to that for the Awas Yojana. The salient features are:
—Rs. 20,000 is provided to the beneficiaries for construction of the houses in phases. Sanitary latrines and smokeless chulah are integral part of the houses.
—Houses are allotted in the name of female members of the family or in joint names of both spouses.
—Selection of construction technology, materials and design is left entirely to the choice of beneficiaries. Contractors, Middlemen or the Departmental Agencies have no role in the construction of houses.
—Cost effective and environment friendly housing technologies/design and materials are provided.
  
Drought-Prone Areas Programme:
 The Drought Prone Areas Programme (DPAP) aims at mitigating the adverse effects of drought on the production of crops and livestock and productivity of land, water and human resources. It strives to encourage restoration of ecological balance and seeks to improve the economic and social conditions of the poor and the disadvantaged sections of the rural community.

DPAP is a people's programme with government assistance. There is a special arrangement for maintenance of assets and social audit by Panchayati Raj Institutions. Development of all categories of land belonging to Gram Panchayats, Government and individuals fall within the limits of the selected watersheds for development.

Allocation is to be shared equally by the Centre and State government on 75:25 basis. Watershed community is to contribute for maintenance of assets created. Utilisation of 50% of allocation under the Employment Assurance Scheme (EAS) is for the watershed development. Funds are directly released to Zila Parishads/District Rural Development Agencies (DRDAs) to sanction projects and release funds to Watershed Committees and Project Implementation Agencies.

Village community, including self-help/user groups, undertake area development by planning and implementation of projects on watershed basis through Watershed Associations and Watershed Committees constituted from among themselves. The Government supplements their work by creating social awareness, imparting training and providing technical support through project implementation agencies.
 
Credit-cum-Subsidy Scheme for Rural Housing:
 There were a large number of households in the rural areas which could not be covered under the IAY, as either they do not fall into the range of eligibility or due to the limits imposed by the available budget. On the other hand due to limited repayment capacity, these rural households cannot take benefit of fully loan based schemes offered by some of the housing finance institutions. The need of this majority can be met through a scheme which is part credit and part subsidy based.

The objective of this scheme for rural housing is to facilitate construction of houses for rural families who have some repayment capacity. The scheme aims at eradicating shelter-lessness from the rural area of the country.

The scheme provides shelter to rural families who have not been coveted under IAY and who are desirous of possessing a house. All rural households having annual income up to Rs. 32,000 are covered under this scheme.

The funds are shared by the Centre and the State in the ratio of 75:25, respectively.

Poor just above the poverty line are entitled to get the benefits of the scheme. A maximum subsidy of Rs. 10,000 per unit is provided for the construction of a house. Sanitary latrine and smokeless chulha are integral part of the house. Cost effective and environment friendly technologies, materials, designs, etc. are encouraged. Sixty per cent (60%) of the houses are allocated to SC/ST rural poor.

Appraisal of Anti-poverty programmes
On review of all the poverty alleviation programmes, one gets the impression that these programmes are not benefiting the poor in terms of increasing their income. For example, the PDS is plagued with seepage, corruption, high administrative cost and targeting errors. Self-employment are better utilized by the non-poor or those who are above BPL. Wage employment programme is caught in red-tapism and administrative delays leading to poor utilization of the allocated funds. All these factors have been used by some economists to argue against these programmes and to suggest the winding up the programmes.

Looking at purely narrow economic point of view is not the right approach to poverty alleviation. Poverty does not mean not having enough income alone. Poverty means not having access to a whole lot of services like education, health services, water supply, sanitation and so on. It also means loss of status in the community, exclusion from certain social functions, and a sense of inferiority in the group or community. In short, poverty means marginalization of an individual or household in the community.

There is no denial that poverty alleviation programmes should lead to high income to the poor, but to come out of the culture of poverty, one needs to be empowered and also requires access to basic services. While some of the poverty alleviation programmes may not be performing well in terms of utilizing the allocated funds and increasing the income of the poor, these programmes have contributed to the social arena of poverty. For example, wage employment programme was not very successful in terms of utilizing the allocated resources and generating additional employment for the BPL. But this programme has created village level assets and infrastructure in terms of schools, health centers, roads and ponds.

Similarly, Self-help Groups (SHGs) formed by the women has given them tremendous confidence and empowered them to become entrepreneurs. Today, SHGs are not only active in creating micro-enterprises but also they are involved in implementing community programmes like immunization programmes, literacy programmes and so on. Some of them have empowered to the level of contesting panchayat elections and become members of Panchayat Raj Institutions (PRI). Again, there is no denial that all these cannot be achieved without an increase in income. Therefore, the economic and social aspects of poverty alleviation are interlinked to one another. Economic upliftment alone cannot alleviate poverty but it must lead to social upliftment in terms of access to services, empowerment and independence. Therefore, the current poverty alleviation programmes in the country should broaden their focus and goal in addition to increasing income to achieve the target of removing poverty from the country.

Also, involvement of the local communities is key to the success of poverty alleviation programmes. In the absence of community involvement, the programmes are plagued with bureaucratic muddle and corruption at every level. Unfortunately, States still lag behind handing over these programmes to Panchayati Raj Institutions (PRIs). While PRIs are created in most of the States and elections are held, these institutions are not given the financial resources, administrative powers and the capacity to run programmes. State governments still hold the financial powers and the PRI is not in a position to plan and decide based on their needs. The administrative machinery of the PRI is very week to carry out these national level programmes. Also, the PRI does not have the capacity to handle resources and technical capacity to implement programmes. These issues have to be addressed immediately to strengthen PRI to implement poverty alleviation programmes.

Apart from decentralization and community involvement, participation of the poor in the programme that affects their welfare, is important. Some of the self-employment schemes failed to take off because no effort was made to involve the poor in identifying the skills which they can learn easily. Some of the skills imbibed may not have job potential in the community. On the positive side, micro-enterprise under the self-employment programme was successful because of the role of SHGs. The SHG members actively participated in the whole process and decided for themselves for the kind of skills they wanted to learn and also the kind of credit they needed from the bank to start the microenterprise. Many well-intentioned programmes fail to take off because of lack of understanding of the ground realities due to lack of participation of the beneficiaries.

At the macro-level, there is a need to co-ordinate a myriad of poverty alleviation programmes of the central government and the State governments. The transfer of central funds to the States for different programmes should be efficient. Currently, such funds and goods like foodgrains are not fully utilized by the States. There is a need to strengthen the financial management capacity of certain States to use the funds efficiently. These are the States where the percentage of the BPL is more than the national average.

Poverty is more of social marginalization of an individual, household or group in the community/society rather than inadequacy of income to fulfill the basic needs. Indeed, inadequate income is one of the factors of marginalization, but not the sole factor. The poverty alleviation programmes should not aim merely to increase the income level of individual, household or group, but mainstreaming marginalized in the development process of the country.

Friday, June 8, 2012

SOCIO ECONOMIC AWARENESS PRACTICE MCQs

1. Under Microfinance, SHG stands for—
(A) Self High Group
(B) Self Help Group
(C) Saving High Group
(D) Self Help Goods
Answer: Self Help Group

2. What is the target of the Government of India for the year 2012-13 to the agriculture sector ?
(A) Rs. 575000 crore
(B) Rs. 4050000 crore
(C) Rs. 18500 crore
(D) Rs. 16390 crore
Answer: Rs. 575000 crore

3. The government has put a target of disbursing Rs. 575000 crore institutional credit to agriculture sector during—
(A) 2012-13
(B) 2013-14
(C) 2014-15
(D) 2016-17
Answer: 2012-13

4. The Banking Regulation (Amendment) Bill 2004 was introduced for—
(A) Privatisation of Bank
(B) Credit Control
(C) For removing 10% cup on voting rights and also encouraging foreign banks to set up subsidiaries and attract foreign investment
(D) Bank Rate
Answer: (C)

5. India Millennium Deposit (IMD) scheme was launched by the—
(A) SBI
(B) RBI
(C) UTI
(D) UBI
Answer: SBI

6. RBI announced its Monetary & credit policy 2012-13 on—
(A) January 1, 2012 

(B) March 17, 2012
(C) April 17, 2012 

(D) May 4, 2012
Answer: April 17, 2012

7. What is the base year of newly introduced Consumer Price Index (CPI) ?
(A) 2004-05 

(B) 2010
(C) 2011 

(D) 2012
Answer: 2010

8. Planning Commission has lowered the poverty line from `32 per day to—
(A) Rs. 28 

(B) Rs.29
(C)
Rs.30 
(D) Rs.31
Answer: 
Rs.28

9. In Monetary and Credit Policy 2012-13, Cash Reserve ratio kept—
(A) At 7% 

(B) At 8%
(C) At 4•75% 

(D) At 9%
Answer: At 4•75%

10. In RBI's Monetary and Credit Policy 2012-13 (Announced on April 17, 2012)—
(A) GDP growth projection maintained at 10%
(B) Credit growth projection for 2012-13 cut to 8%.
(C) Money supply growth target reduced to 10%
(D) Repo rate reduced from 8•5% to 8•0%
Answer: Repo rate reduced from 8•5% to 8•0%

11. SLR refers to—
(A) That portion of total deposit of a commercial bank which it has to keep with itself in the form of case reserves
(B) Interest Rate
(C) Bank Rate
(D) Repo Rate
Answer: (A)

12. When RBI reduced SLR from 25% to 24% ?
(A) December 16, 2010 

(B) July 1, 2011
(C) July 16, 2011 

(D) October 1, 2011
Answer: December 16, 2010

13. Which is more closed to Base Rate of the Banks?
(A) Repo Rate 

(B) Reverse Repo Rate
(C) PLR 

(D) CRR
Answer: PLR

14. What is Bank Rate (As on April 17, 2012) ?
(A) 9•0% (B) 7 %
(C) 8% (D) 6%
Answer: 9•0%

15. On April 17, 2012 Repo Rate fixed at—
(A) 8•75% 

(B) 8•25%
(C) 8•0% 

(D) 8•50%
Answer: 8•0%

16. Which is not correct ?
(A) Bank Rate : 9•0 % 

(B) Reverse Repo Rate : 7•0 %
(C) Repo Rate : 8•0 % 

(D) SLR : 40%
Answer: SLR : 40%

17. At present how many commercial banks in Public Sector are working in the country ?
(A) 27 

(B) 30
(C) 35 

(D) 18
Answer: 27

18. Which bank is the largest Public Sector bank in the country ?
(A) Union Bank of India 

(B) HDFC
(C) RBI 

(D) SBI
Answer: SBI

19. Which is the largest Private Sector Bank in the country ?
(A) HDFC Bank 

(B) ICICI Bank
(C) Kotak Mahindra Bank 

(D) AXIS Bank
Answer: ICICI Bank

20. On June 30, 2011 how many branches of SBI and Group were working in the country ?
(A) 17976 

(B) 18200
(C) 67300 

(D) 62650
Answer: 17976

Tuesday, June 5, 2012

Bihar topped in Gross State Domestic Product with 13.1 Per Cent Growth in 2011-12

According to data released by Ministry of Statistics of India on 1 June 2012, Bihar emerged as the state with highest economic growth rate in the country. The state which until recently was synonymous with poverty, recorded an impressive 13.1 per cent growth in 2011-12. Bihar topped the list for second consecutive year. The state’s economy even surpassed the Punjab on the back of four years of double-digit growth.
The state was closely followed by Delhi and Puducherry. Chhattisgadh and Goa were the other two states in the list of top five states. Tamil Nadu and Gujarat, the two highly industrialized states registered the growth of 9.4 per cent and 9.1 per cent respectively in the fiscal year 2011-12.
Punjab, leading food grain producing state of India, Andhra Pradesh and Karnataka, both the heart of the IT sector of the country, and Uttar Pradesh, the country's most populous state, registered growth of 6.5% in 2011-12, lower than India's GDP growth.
With the Bihar government taking numerous measures to attract investment in the state, the result is quite visible with the growth number rising on constant basis. An improved law and order situation and developing infrastructure in the state are apparently boosting the investment sentiments of the industrial houses in the country which are now coming ahead with proposals to set up factory in the state. Agricultural productivity has also taken a quantum jump in the state apparently contributing to the overall growth of the state. A slew of development measures have also been put into place by the government to ensure enhanced education and medical facilities in the state.

India’s Forex Reserves plunged by 1.74 Billion Dollar to 290 billion dollar

According to the data released by the Reserve Bank of India (RBI) on 2 June 2012, India’s foreign exchange reserve plummeted by 1.74 billion dollar to 290 billion dollar for the week ended 25 May 2012. The RBI data displayed a sharp decline in the country’s forex reserves for the fourth consecutive week. The forex reserves had dropped by 1.80 billion dollar, 1.37 billion dollar and 2.18 billion dollar, respectively, in the previous three weeks.
The drop in forex reserve is largely due to sale of dollar by the central bank to defend consistently falling rupee. The Indian rupee plunged to a record low in recent weeks and stood 55.54 against a dollar on 1 June 2012. The rupee fall for the nine consecutive weeks is the longest losing streak since the 2008 economic crisis. RBI had reportedly sold dollars to arrest the further fall of Indian rupee.
The value of gold reserves of the country for the week ended 25 May 2012 remained unmoved at 26.61 billion dollar.

Friday, June 1, 2012

National Telecom Policy (NTP)-2012 was approved by union cabinet

The Union Cabinet approved the National Telecom Policy -2012 (NTP - 2012) and also approved introduction of Unified Licence and authorised the Department of Telecommunications to finalise the new Unified Licensing regime with the approval of Minister of Communications & IT.
The salient features of the National Telecom Policy-2012 are as follows: 
The policy envisions providing secure, reliable, affordable and high quality converged telecommunication services anytime, anywhere for an accelerated inclusive socio-economic development. The main thrust of the Policy is on the multiplier effect and transformational impact of such services on the overall economy. 
The thrust areas of NTP - 2012 are

  • Increase rural teledensity from the current level of around 39 to 70 by the year 2017 and 100 by the year 2020
  • Repositioning of Mobile phone- as an instrument of empowerment
  • Broadband –“'Broadband For All” at a minimum download speed of 2 Mbps
  • Domestic Manufacturing- Making India a global hub
  • Convergence of Network, Services and Devices
  • Liberalisation of Spectrum- any Service in any Technology
  • Simplification of Licensing regime- Unified Licensing, delinking of Spectrum from License, Online real time submission and processing
  • Consumer Focus - Achieve One Nation - Full Mobile Number Portability and work towards One Nation - Free National Roaming
  • Resale of Services
  • Voice over Internet Protocol
  • Cloud Computing, Next Generation Network including IPV6

The policy seeks to provide a predictable and stable policy regime for a period of about ten years. Policy will be operationalised by bringing out detailed guidelines, as may be considered appropriate, from time to time. Implementation will enable smooth implementation of the policies for providing an efficient telecommunication infrastructure taking into account the primary objective of maximizing public good by empowering the people of India. The policy will further enable taking suitable facilitatory measures to encourage existing service providers to rapidly migrate to the new regime in a uniformly liberalised environment with a level playing field.

Growth Rate of Eight Core Infrastructure Industries dipped to 2.2% in April 2012

As per the official data released on 31 May 2012, the growth rate of eight core infrastructure industries dipped to 2.2 per cent in April 2012 from 4.2 per cent in April 2011. The eight core sectors — crude oil, petroleum refinery products, coal, electricity, cement and finished steel has a weight of 37.9 per cent in the Index of Industrial Production (IIP). The dip in the growth of the core sector industries was attributed to poor performance by sectors such as natural gas, crude oil and fertilizers.
The overall infrastructure sector growth for March 2012 was revised downwards to 2.2 per cent as compared to a healthier 6.5 per cent expansion witnessed in the same month last year. Also, the cumulative growth of infrastructure industries was found to have slipped to 4.4 per cent, which is significantly lower than the 6.6 per cent increase seen in 2010-11.
As per the data released by the CSO, natural gas and crude oil output during April 2012 fell by 11.3 per cent and 1.3 per cent, respectively. Petroleum refinery products and fertiliser production also witnessed negative growth rates, contracting by 2.8 per cent and 9.3 per cent in April 2012. Slowdown in electricity generation was also witnessed in April. Electricity generation grew at a lower pace of 4.6 per cent during the month as compared to 6.4 per cent in April 2011.
However, three sectors- coal, steel and cement were noted to have fared better as compared to 2011. While coal production went up by 3.8 per cent in April 2012 as compared to an increase of 2.7 per cent witnessed in April 2011, the output of steel and cement grew by a healthy 5.8 per cent and 8.6 per cent during April 2012 as compared to negative growth rates of (-) 2.9 per cent and (-) 0.1 per cent witnessed by the two sectors in the corresponding period of 2011.

India's Exports registered a Growth of 3.2 Per Cent in April 2012

According to data released by the Commerce Ministry in New Delhi on 1 June 2012 India's exports registered a growth of 3.2 per cent on year-on-year basis to 24.4 billion dollar in April 2012. Exports figure in April 2011 stood at 23.6 billion dollar. The slumping export figures are largely attributed to the slowing global demand of goods.
Imports during the same period witnessed a growth of 3.8 per cent to 37.9 billion dollar, creating a trade deficit of 13.4 billion dollar. In April 2012, the country's oil imports grew about 7 per cent to 13.9 billion dollar compared to the same period in 2011. Non-oil imports expanded 2 per cent on year-on-year basis to 24 billion dollar during April the first month of fiscal year 2012-13.
On an annual basis Indian exports expanded 21 per cent to 303.7 billion dollar in the fiscal year 2011-12. The imports during the same period grew 32.2 per cent to 488.6 billion dollar. The trade deficit for the full fiscal year was 184.9 billion dollar.
A higher trade deficit will have an adverse impact over already ailing Indian economy. The broadening trade deficit could worsen the current account balance of the country and further weaken the rupee.

India’s Fiscal Deficit eased to 5.7 in the Fiscal Year 2011-12

According to the figures released by Controller General of Accounts (CGA) on 31 May 2012, India’s fiscal deficit eased to 5.7 per cent of GDP, lower than 5.9 per cent projected in the revised estimates in the Budget.
Fiscal deficit, the difference between the government's total receipts and expenditure, capped at 5.09 trillion rupees in 2011-12. While the tax revenue receipts curbed to 6.31 trillion rupees against the projected figure of 6.42 trillion rupees, government’s expenditure both non-plan expenditure and plan expenditure also went down at 8.84 trillion rupees and 4.13 trillion rupees respectively. The revenue deficit was at 4.3% of GDP.
The government is working hard to curtail the broadening fiscal deficit and aiming to bring it down to 5.1 per cent in the fiscal year 2012-13. In order to meet its fiscal deficit target the finance ministry is eyeing to cut the subsidy bill to below 2 per cent of GDP in the fiscal year 2012-13and 1.75 per cent in the subsequent years. The slowing economy is making it difficult for the government to achieve its fiscal deficit target.
The gross domestic product (GDP) data released by the Central Statistical Organisation (CSO), had capped the GDP growth rate rate of India in 2011-12 at 6.5 per cent, as against the earlier estimate of 6.9 per cent.

Thursday, May 24, 2012

Government Announces New Expert Panel on Poverty Estimates

The State-wise poverty lines and poverty ratio for 2009-10 have been computed following the extant Tendulkar methodology.  Based on the said methodology the Planning Commission has released the estimates through a Press Note issued on 19th March, 2012.  As indicated in the Press Note, the poverty ratio in the country has come down from 37.2% in 2004-05 to 29.8% in 2009-10.  As a result, the number of poor persons in the country has reduced from 40.7 crore in 2004-05 to 35.5 crore in 2009-10.

The Tendulkar Committee, which submitted its Report in 2009, has incorporated adequacy of expenditure from the normative and nutritional viewpoint.  It stated “while moving away from the calorie norms, the proposed poverty lines have been validated by checking the adequacy of actual private expenditure per capita near the poverty lines on food, education and health by comparing them with normative expenditures consistent with nutritional, educational and health outcomes”.

Taking note of the various points of views and perspectives expressed in the public domain with respect to the need to revisit poverty estimates and related methodologies, Government has since decided to set up an Expert Technical Group to revisit the methodology for estimation of the poverty and identification of the poor.

The Technical Group comprising of eminent economists under the Chairmanship of Dr. C. Rangarajan, Chairman, Prime Minister’s Economy Advisory Council, is as under:

1.         Dr. C. Rangarajan, Chairman, Prime Minister’s
Economy Advisory Council                                         ….        Chairman

2.         Dr. Mahendra Dev, Director, Indira
Gandhi Institute of Development Research                           Member

3.         Dr. K. Sundaram, formerly Delhi School
of Economics                                                                     Member

4.         Dr. Mahesh Vyas, Centre for
Monitoring Indian Economy                                                 Member

5.         Dr. K.L. Datta, Ex-Adviser (Perspective Planning),
Planning Commission                                                          Member Convener


The Terms of Reference of the Expert Technical Group have been finalized as under:

1.         “To comprehensively review the existing methodology of estimation of poverty and examine whether the poverty line should be fixed solely in terms of a consumption basket or whether other criteria are also relevant, and if so, whether the two can be effectively combined to evolve a basis for estimation of poverty in rural and urban areas.

2.         To examine the issue of divergence between consumption estimates based on the NSSO methodology and those emerging from the National Accounts aggregates; and to suggest a methodology for updating consumption poverty lines using the new consumer price indices launched by the CSO for rural and urban areas state-wise.

3.         To review alternative methods of estimation of poverty which may be in use in other countries, including their procedural aspects; and indicate whether on this basis, a particular method can be evolved for empirical estimation of poverty in India, including procedures for updating it over time and across states;

4.         To recommend how the estimates of poverty, as evolved above, should be linked to eligibility and entitlements for schemes and programmes under the Government of India”.