SOCIO ECONOMY AT A GLANCE

Saturday, July 14, 2012

Anti Poverty Programmes

S.No.	Anti Poverty Programmes	Year of Beginning	Objective/Description
1	Antodaya Yojana	1977	To make the poorest families of the village economically independent (only in Rajasthan)
2	Swarnajayanti Gram Swarozgar Yojana (SGSY)	1999	Assistance is given to the poor families living below the poverty line in rural areas for taking up self employment.
4	Sampoorna Gramin Rozgar Yojana (SGRY)	2001	Providing gainful employment for the rural poor.
6	Employment Assurance Scheme	1993	To provide gainful employment during the lean agricultural season in manual work to all able bodied adults in rural areas who are in need and desirous of work, but can not find it..
7	Pradhanmantri Gramodaya Yojana (PMGY)	2000	Focus on village level development in 5 critical areas, i.e. primary health, primary education, housing, rural roads and drinking water and nutrition with the overall objective of improving the quality of life of people in rural areas.
8	National Rural Employment Guarantee Scheme (NREGS)	2006	To provide legal guarantee for 100 days of wage employment to every household in the rural areas of the country each year, To combine the twin goals of providing employment and asset creation in rural areas
9	Swarnajayanti Shahari Rozgar Yojana (SJRY)	1997	It seeks to provide employment to the urban unemployed lying below poverty line and educate upto IX standard through encouraging the setting up of self employment ventures or provision of wage employment.
10	Antidaya Anna Yojana	2000	It aims at providing food securities to poor families.
11	National Housing Bank Voluntary Deposit Scheme	1991	To utilize black money for constructing low cost housing for the poor.
12	Integrated Rural Development Programme (IRDP)	1980	All Round development of the rural poor through a program of asset endowment for self employment.
13	Development of Women and Chidren in Rural Areas (DWCRA)	1982	To provide suitable opportunities of self employment to the women belonging to the rural families who are living below the poverty line.
14	National Social Assistance Programme	1995	To assist people living below the poverty line.
15	Jan Shree Bima Yojana	2000	Providing insurance security to people below poverty line.
16	Jai Prakash Narayan Rojgar Guarantee Yojana	Proposed in 2002-03 budget	Employment Guarantee in most poor districts.
17	Shiksha Sahyog Yojana	2001	Education of Children below poverty line.

Child Welfare Programmes

S.No.	Child Welfare Programmes	Year of Beginning	Objectives/Description
1	Integrated Child Development Services (ICDS)	1975	It is aimed at enhancing the health, nutrition and learning opportunities of infants, young children (O-6 years) and their mothers.
2	Creche Scheme for the children of working mothers	2006	Overall development of children, childhood protection, complete immunisation, awareness generation among parents on malnutrition, health and education.
3	Reproductive and Child Health Programme	1951	To provide quality Integrated and sustainable Primary Health Care services to the women in the reproductive age group and young children and special focus on family planning and Immunisation.
4	Pulse Polio Immunization Programme	1995	To eradicate poliomyelitis (polio) in India by vaccinating all children under the age of five years against polio virus.
5	Sarva Shiksha Abhiyan	2001	All children in school, Education Guarantee Centre, Alternate School, ' Back-to-School' camp by 2003; all children complete five years of primary schooling by 2007 ; all children complete eight years of elementary schooling by 2010 ; focus on elementary education of satisfactory quality with emphasis on education for life ; bridge all gender and social category gaps at primary stage by 2007 and at elementary education level by 2010 ; universal retention by 2010
6	Kasturba Gandhi Balika Vidyalaya	2004	To ensure access and quality education to the girls of disadvantaged groups of society by setting up residential schools with boarding facilities at elementary level.
7	Mid-day meal Scheme	1995	Improving the nutritional status of children in classes I – VIII in Government, Local Body and Government aided schools, and EGS and AIE centres.Encouraging poor children, belonging to disadvantaged sections, to attend school more regularly and help them concentrate on classroom activities. Providing nutritional support to children of primary stage in drought-affected areas during summer vacation.
8	Integrated programme for Street Children	1993	Provisions for shelter, nutrition, health care, sanitation and hygiene, safe drinking water, education and recreational facilities and protection against abuse and exploitation to destitute and neglected street children.
9	The National Rural Health Mission	2005	Reduction in child and maternal mortality, universal access to public services for food and nutrition , sanitation and hygiene and universal access to public health care services with emphasis on services addressing women's and children's health universal immunization, etc.

Employment Generation Programmes

S.No.	Employment Generation Programme	Year of Beginning	Objective/Description
1	Employment Guarantee Scheme of Maharashtra	1972	To assist the economically weaker sections of the rural society.
2	Crash Scheme for Rural Employmement (CSRE)	1972	For rural employment
3	Training Rural Youth for Self-Employment (TRYSEM)	1979	Program for Trainingrural youth for self employment.
4	Integrated Rural Development Programme (IRDP)	1980	All-round development of the rural poor through a program of asset endowment for self employment.
5	National Rural Employment Program (NREP)	1980	To provide profitable employment opportunities to the rural poor.
6	Rural Landless Employment Guarantee Program (RLEGP)	1983	For providing employment to landless farmers and laborers.
7	Self-employment to the Educated Unemployed Youth (SEEUY)	1983	To provide financial and technical assistance for self-employment.
8	Self-Employment programme for Urban Poor (SEPUP)	1986	To provide self employment to urban poor through provision of subsidy and bank credit.
9	Jawahar Rozgar Yojana	1989	For providing employment to rural unemployed.
10	Nehru Rozgar Yojana	1989	For providing employment to urban unemployed.
11	Scheme of Urban Wage Employment (SUWE)	1990	To provide wages employment after arranging the basic facilities for poor people in the urban areas where population is less than one lakh.
12	Employment Assurance Scheme (EAS)	1993	To provide employment of at least 100 days in a year in village.
13	Swarnajayanti Shahari Rozgar Yojana (SJSRY)	1997	To provide gainful employment to urban unemployed and under employed poor through self employment or wage employment.
14	Swarna Jayanti Gram Swarozgar Yojana (SYGSY)	1999	For eliminating rural poverty and unemployment and promoting self employment.
15	Jai Prakash Narayan Rojgar Guarantee Yojana (JPNRGY)	Proposed in 2002-03 budget	Employment guarantee in most poor distt.
16	National Rural Employment Guarantee Scheme	2006	To provide atleast 100 days wage employment in rural areas.
17	Sampoorna Grameen Rozgar Yojana	2001	To provide wage employment and food security in rural areas and also to create durable economic ans social assets.
18	Food for Work Programme	2001	To give food thrugh wage employment in the drought affected areas in eight states. Wages are paid by the state governments partly in cash and partly in foodgrains.
19	Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)	2005	To create a right based framework for wage employment programmes and makes the government legally bound to provide employment to those who seek it.
20	Prime Minister’s Employment Generation Programme (PMEGP)	2008	To generate employment opportunities in rural as well as urban areas through setting up of new self-employment ventures/projects/micro enterprises.

Women Empowerment Programmes

S.No.	Women Empowerment Programmes	Location	Year Of Estb.
1	Support to Training and employment Programme for Women (STEP)	2003-04	To increase the self-reliance and autonomy of women by enhancing their productivity and enabling them to take up income generaion activities.
2	Rashtriya Mahila Kosh (RMK)	1993	To promote or undertake activities for the promotion of or to provide credit as an instrument of socio- economic change and development through the provision of a package of financial and social development services for the development of women.
3	Rashtriya Mahila Kosh	1993	To facilitate credit support or micro-finance to poor women to start income generating activities such as dairy, agriculture, shop-keeping, vending, handicrafts etc.
4	Rajiv Gandhi Scheme for Empowerment of Adolescent Girls (RGSEAG) – ‘Sabla’	2010	It aims at empowering Adolescent girls of 11 to 18 years by improving their nutritional and health status, up gradation of home skills, life skills and vocational skills.
5	Central Social Welfare Board (CSWB)	1953	To promote social welfare activities and implementing welfare programmes for women and children through voluntary organizations.
6	Rashtriya Mahila Kosh - (National Credit Fund for Women)	1993	It extends micro-finance services through a client friendly and hassle-free loaning mechanism for livelihood activities, housing, micro-enterprises, family needs, etc to bring about the socio-economic upliftment of poor women.
7	Indira Gandhi Matritva Sahyog Yojana (IGMSY)	----	To improve the health and nutrition status of pregnant, lactating women and infants
8	SwayamSiddha	2001	At organizing women into Self-Help Groups to form a strong institutional base.
9	Short Stay Home for Women and Girls (SSH)	1969	To provide temporary shelter to women and girls who are in social and moral danger due to family problems, mental strain, violence at home, social ostracism, exploitation and other causes.
10	Swadhar	1995	To support women to become independent in spirit, in thought, in action and have full control over their lives rather than be the victim of others actions.
11	Support to Training and Employment Programme for Women (STEP)	1986	To mobilise women in small viable groups and make facililies available through training and access to credit, to plovide training for skill upgradation, etc.
12	Development of Women and Children in Rural Areas (DWCRA)	1982	To improve the socio-economic status of the poor women in the rural areas through creation of groups of women for income-generating activities on a self-sustaining basis. The
13	Tamil Nadu Corporation for Development of Women	1983	Aims at the socio-economic empowerment of women

Eradication Of Child Labor Programmes

S.No.	Child Labor Programme	Year of Beginning	Objective/Description
1	Child Labor Eradication Programme	1994	To shift child labor from hazardous industried to schools.
2	National Authority for the Elimination of Child Labour (NAECL)	1994	Laying down the policies and programs for the elimination of child labour, especially in the hazardous industries, etc.
3	National Child Labour Project Scheme (NCLP)	1998	Establishment of special schools for child labour who are withdrawn from work.
4	Education Department and District Primary Education Program (DPEP)	1994	To revitalise the primary education system and to achieve the objective of universalisation of primary education for young children.
5	International Programme for Elimination of Child Labor (IPEC)	1991	To contribute to the effective abolition of child labor in India
6	National Commission for the Protection of Child Rights (NCPCR)	2007	To protect, promote and defend child rights in the country.
7	National Policy on Child Labour	1987	General development programmes benefiting children wherever possible. Project-based approach in the areas of high concentration of child labourers.

National Health Programmes In India

S.No.	National Health Programmes	Year of Beginning	Objective/Description
1	National Cancer Control Programme	1975	Primary prevention of cancers by health education regarding hazards of tobacco consumption and necessity of genital hygiene for prevention of cervical cancer, etc.
2	National Program of Health Care for the Elderly (NPHCE)	2010	To provide preventive, curative and rehabilitative services to the elderly persons at various level of health care delivery system of the country, etc.
3	National Program for Prevention and Control of Deafness (NPPCD)	----	To prevent the avoidable hearing loss on account of disease or injury, etc.
4	District Mental Health Program (NMHP)	1982	To ensure availability and accessibility of minimum mental health care for all in the foreseeable future, particularly to the most vulnerable and underprivileged sections of population.
5	National Cancer Registry Programme	1982	To provide true information on cancer prevalence and incidence.
6	National Tobacco Control Program	2007	Preventing the initiation of smoking among young people, educating, motivating and assisting smokers to quit smoking, etc.
7	National Leprosy Eradication Program	started in 1955, launched in 1983	To arrest the disease activity in all the known cases of leprosy.
8	Universal Immunization Program (UIP)	1985	To achieve self-sufficiency in vaccine production and the manufacture of cold-chain equipment for storage purpose, etc.
9	National Vector Borne Disease Control Program	----	For the prevention and control of vector borne diseases

Various Development Programmes

S.No.	Development Programmes	Year of Beginning	Objective/Description
1	Housing and Urban Development Corporation	1970	Loans for the development of housing and provision of resources for technical assistance.
2	Members of Parliament Local Area Development Scheme (MPLADS)	1993	To sanction Rs. 1 Crore per year to every member of Parliament for various development works in their respective areas through DM districts.
3	Scheme for Infrastructural Development in Mega Cities (SIDMC)	1993	To provide capital through special institutions for water supply, sewage, , drainage, urban
4	Scheme of Integrated Development of Small and Medium Towns	Sixth five year plan	To provide resources and create employment in small and medium towns for for prohibiting the migration of population from rural areas to big cities.
5	District Rural Development Agency (DRDA)	1993	To provide financial assistance for rural development.
6	National Slum Development Programme	1996	Development of Urban Slums.
7	Integrated Rural Development Programme (IRDP)	1980	All-round development of the rural poor through a program of asset endowment for self employment.
8	Development of Women and Children in Rural Areas (DWCRA)	1982	To provide suitable opportunities of self employment to the women belonging to the rural families who are living below the poverty line.

Agricultural Development Programmes

S.No.	Agricultural Development Programme	Year of Beginning	Objective/Description
1	Intensive Agriculture Development Program (IADP)	1960	To provide loan , seeds , fertilizer tools to the farmers.
2	Intensive Agriculture Area Program (IAAP)	1964	To develop the special harvest.
3	High Yielding Variety Program (HYVP)	1966	To increase productivity of foodgrains by adopting latest varieties of inputs for crops.
4	Green Revolution	1966	To increase the foodrains , specially food production.
5	Nationalization of 4 banks	1969	To provide loans for agriculture , rural development and other priority sector.
6	Marginal Farmer and Agriculture Labor Agency (MFALA)	1973	For technical and financial assistance to marginal and small farmer and agricultural labor.
7	Small Farmer Development Agency (SFDA)	1974	For technical and financial assistance to small farmers.
8	Farmer Agriculture Service Centres (FASC)	1983	To popularize the use of improved agricultural instruments and tool kits.
9	Comprehensive Crop Insurance Scheme	1985	For insurance of agricultural crops.
10	Agricultural and Rural Debt Relief Scheme (ARDRS)	1990	To exempt bank loans upto Rs. 10,000 of rural artisans and weaver.
11	Intensive Cotton Development Programme (ICDP)	2000	To enhance the production, per unit area through (a) technology transfer, (b) supply of quality seeds, (c) elevating IPM activities/ and (d) providing adequate and timely supply of inputs to the farmers .
12	Minikit Programme for Rice, Wheat & Coarse Cereals	1974	To increase the productivity by popularising the use of newly released hybrid/high yielding varieties and spread the area coverage under location specific high yielding varieties/hybrids.
13	Accelerated Maize Development Programme (AMDP)	1995	To increase maize production and productivity in the country from 10 million tonnes to 11.44 million tonnes and from 1.5 tonnes/hectare to 1.80 tonnes/hectare respectively upto the terminal year of 9th Plan i.e. 2001-2002 (revised).
14	National Pulses Development Project (NPDP)	1986	To increase the production of pulses in the country to achieve self sufficiency.
15	Oil Palm Development Programme (OPDP)	1992	To promote oil palm cultivation in the country.
16	National Oilseeds and Vegetable Oils development Board (NOVOD)	1984	The main functions of the NOVOD Board are very comprehensive and cover the entire gamut of activities associated with the oil seeds and vegetable oil industry including – production, marketing, trade, storage, processing, research and development, financing and advisory role to the formulation of integrated policy and programme of development of oil seeds and vegetable oil.
17	Coconut Development Board	1981	To increase production and productivity of coconut To bring additional area under coconut in potential non-traditional areas To develop new technologies for product diversification and by-product utilisation To strengthen mechanism for transfer of technologies To elevate the income level of small and marginal farmers engaged in coconut cultivation. To build up sound information basis for coconut industry and market information To generate ample employment opportunities in the rural sector.
18	Watershed Development Council (WDC)	1983	Central Sector Scheme(HQ Scheme)

Friday, July 13, 2012

Banking and Financial Terms

Accrued interest: Interest due from issue date or from the last coupon payment date to the settlement date. Accrued interest on bonds must be added to their purchase price.

Arbitrage: Buying a financial instrument in one market in order to sell the same instrument at a higher price in another market.

Ask Price: The lowest price at which a dealer is willing to sell a given security.

Asset-Backed Securities (ABS): A type of security that is backed by a pool of bank loans, leases, and other assets. Most ABS are backed by auto loans and credit cards – these issues are very similar to mortgage-backed securities.

At-the-money: The exercise price of a derivative that is closest to the market price of the underlying instrument.

Basis Point: One hundredth of 1%. A measure normally used in the statement of interest rate e.g., a change from 5.75% to 5.81% is a change of 6 basis points.

Bear Markets: Unfavorable markets associated with falling prices and investor pessimism.

Bid-ask Spread: The difference between a dealer’s bid and ask price.

Bid Price: The highest price offered by a dealer to purchase a given security.

Blue Chips: Blue chips are unsurpassed in quality and have a long and stable record of earnings and dividends. They are issued by large and well-established firms that have impeccable financial credentials.

Bond: Publicly traded long-term debt securities, issued by corporations and governments, whereby the issuer agrees to pay a fixed amount of interest over a specified period of time and to repay a fixed amount of principal at maturity.

Book Value: The amount of stockholders’ equity in a firm equals the amount of the firm’s assets minus the firm’s liabilities and preferred stock

Broker: Individuals licensed by stock exchanges to enable investors to buy and sell securities.

Brokerage Fee: The commission charged by a broker.

Bull Markets: Favorable markets associated with rising prices and investor optimism.

Call Option: The right to buy the underlying securities at a specified exercise price on or before a specified expiration date.

Callable Bonds: Bonds that give the issuer the right to redeem the bonds before their stated maturity.

Capital Gain: The amount by which the proceeds from the sale of a capital asset exceed its original purchase price.

Capital Markets: The market in which long-term securities such as stocks and bonds are bought and sold.

Certificate of Deposits (CDs): Savings instrument in which funds must remain on deposit for a specified period, and premature withdrawals incur interest penalties.

Closed-end (Mutual) Fund: A fund with a fixed number of shares issued, and all trading is done between investors in the open market. The share prices are determined by market prices instead of their net asset value.

Collateral: A specific asset pledged against possible default on a bond. Mortgage bonds are backed by claims on property. Collateral trusts bonds are backed by claims on other securities. Equipment obligation bonds are backed by claims on equipment.

Commercial Paper: Short-term and unsecured promissory notes issued by corporations with very high credit standings.

Common Stock: Equity investment representing ownership in a corporation; each share represents a fractional ownership interest in the firm.

Compound Interest: Interest paid not only on the initial deposit but also on any interest accumulated from one period to the next.

Contract Note: A note which must accompany every security transaction which contains information such as the dealer’s name (whether he is acting as principal or agent) and the date of contract.

Controlling Shareholder: Any person who is, or group of persons who together are, entitled to exercise or control the exercise of a certain amount of shares in a company at a level (which differs by jurisdiction) that triggers a mandatory general offer, or more of the voting power at general meetings of the issuer, or who is or are in a position to control the composition of a majority of the board of directors of the issuer.

Convertible Bond: A bond with an option, allowing the bondholder to exchange the bond for a specified number of shares of common stock in the firm. A conversion price is the specified value of the shares for which the bond may be exchanged. The conversion premium is the excess of the bond’s value over the conversion price.

Corporate Bond: Long-term debt issued by private corporations.

Coupon: The feature on a bond that defines the amount of annual interest income.

Coupon Frequency: The number of coupon payments per year.

Coupon Rate: The annual rate of interest on the bond’s face value that a bond’s issuer promises to pay the bondholder. It is the bond’s interest payment per dollar of par value.

Covered Warrants: Derivative call warrants on shares which have been separately deposited by the issuer so that they are available for delivery upon exercise.

Credit Rating: An assessment of the likelihood of an individual or business being able to meet its financial obligations. Credit ratings are provided by credit agencies or rating agencies to verify the financial strength of the issuer for investors.

Currency Board: A monetary system in which the monetary base is fully backed by foreign reserves. Any changes in the size of the monetary base has to be fully matched by corresponding changes in the foreign reserves.

Current Yield: A return measure that indicates the amount of current income a bond provides relative to its market price. It is shown as: Coupon Rate divided by Price multiplied by 100%.

Custody of Securities: Registration of securities in the name of the person to whom a bank is accountable, or in the name of the bank’s nominee; plus deposition of securities in a designated account with the bank’s bankers or with any other institution providing custodial services.

Default Risk: The possibility that a bond issuer will default ie, fail to repay principal and interest in a timely manner.

Derivative Call (Put) Warrants: Warrants issued by a third party which grant the holder the right to buy (sell) the shares of a listed company at a specified price.

Derivative Instrument: Financial instrument whose value depends on the value of another asset.

Discount Bond: A bond selling below par, as interest in-lieu to the bondholders.

Diversification: The inclusion of a number of different investment vehicles in a portfolio in order to increase returns or be exposed to less risk.

Duration: A measure of bond price volatility, it captures both price and reinvestment risks to indicate how a bond will react to different interest rate environments.

Earnings: The total profits of a company after taxation and interest.

Earnings per Share (EPS): The amount of annual earnings available to common stockholders as stated on a per share basis.

Earnings Yield: The ratio of earnings to price (E/P). The reciprocal is price earnings ratio (P/E).

Equity: Ownership of the company in the form of shares of common stock.

Equity Call Warrants: Warrants issued by a company which give the holder the right to acquire new shares in that company at a specified price and for a specified period of time.

Ex-dividend (XD): A security which no longer carries the right to the most recently declared dividend or the period of time between the announcement of the dividend and the payment (usually two days before the record date). For transactions during the ex-dividend period, the seller will receive the dividend, not the buyer. Ex-dividend status is usually indicated in newspapers with an (x) next to the stock’s or unit trust’s name.

Face Value/ Nominal Value: The value of a financial instrument as stated on the instrument. Interest is calculated on face/nominal value.

Fixed-income Securities: Investment vehicles that offer a fixed periodic return.

Fixed Rate Bonds: Bonds bearing fixed interest payments until maturity date.

Floating Rate Bonds: Bonds bearing interest payments that are tied to current interest rates.

Fundamental Analysis: Research to predict stock value that focuses on such determinants as earnings and dividends prospects, expectations for future interest rates and risk evaluation of the firm.

Future Value: The amount to which a current deposit will grow over a period of time when it is placed in an account paying compound interest.

Future Value of an Annuity: The amount to which a stream of equal cash flows that occur in equal intervals will grow over a period of time when it is placed in an account paying compound interest.

Futures Contract: A commitment to deliver a certain amount of some specified item at some specified date in the future.

Hedge: A combination of two or more securities into a single investment position for the purpose of reducing or eliminating risk.

Income: The amount of money an individual receives in a particular time period.

Index Fund: A mutual fund that holds shares in proportion to their representation in a market index, such as the S&P 500.

Initial Public Offering (IPO): An event where a company sells its shares to the public for the first time. The company can be referred to as an IPO for a period of time after the event.

Inside Information: Non-public knowledge about a company possessed by its officers, major owners, or other individuals with privileged access to information.

Insider Trading: The illegal use of non-public information about a company to make profitable securities transactions

Intrinsic Value: The difference of the exercise price over the market price of the underlying asset.

Investment: A vehicle for funds expected to increase its value and/or generate positive returns.

Investment Adviser: A person who carries on a business which provides investment advice with respect to securities and is registered with the relevant regulator as an investment adviser.

IPO price: The price of share set before being traded on the stock exchange. Once the company has gone Initial Public Offering, the stock price is determined by supply and demand.

Junk Bond: High-risk securities that have received low ratings (i.e. Standard & Poor’s BBB rating or below; or Moody’s BBB rating or below) and as such, produce high yields, so long as they do not go into default.

Leverage Ratio: Financial ratios that measure the amount of debt being used to support operations and the ability of the firm to service its debt.

Libor: The London Interbank Offered Rate (or LIBOR) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market). The LIBOR rate is published daily by the British Banker’s Association and will be slightly higher than the London Interbank Bid Rate (LIBID), the rate at which banks are prepared to accept deposits.

Limit Order: An order to buy (sell) securities which specifies the highest (lowest) price at which the order is to be transacted.

Limited Company: The passive investors in a partnership, who supply most of the capital and have liability limited to the amount of their capital contributions.

Liquidity: The ability to convert an investment into cash quickly and with little or no loss in value.

Listing: Quotation of the Initial Public Offering company’s shares on the stock exchange for public trading.

Listing Date: The date on which Initial Public Offering stocks are first traded on the stock exchange by the public

Margin Call: A notice to a client that it must provide money to satisfy a minimum margin requirement set by an Exchange or by a bank / broking firm.

Market Capitalization: The product of the number of the company’s outstanding ordinary shares and the market price of each share.

Market Maker: A dealer who maintains an inventory in one or more stocks and undertakes to make continuous two-sided quotes.

Market Order: An order to buy or an order to sell securities which is to be executed at the prevailing market price.

Money Market: Market in which short-term securities are bought and sold.

Mutual Fund: A company that invests in and professionally manages a diversified portfolio of securities and sells shares of the portfolio to investors.

Net Asset Value: The underlying value of a share of stock in a particular mutual fund; also used with preferred stock.

Offer for Sale: An offer to the public by, or on behalf of, the holders of securities already in issue.

Offer for Subscription: The offer of new securities to the public by the issuer or by someone on behalf of the issuer.

Open-end (Mutual) Fund: There is no limit to the number of shares the fund can issue. The fund issues new shares of stock and fills the purchase order with those new shares. Investors buy their shares from, and sell them back to, the mutual fund itself. The share prices are determined by their net asset value.

Open Offer: An offer to current holders of securities to subscribe for securities whether or not in proportion to their existing holdings.

Option: A security that gives the holder the right to buy or sell a certain amount of an underlying financial asset at a specified price for a specified period of time.

Oversubscribed: When an Initial Public Offering has more applications than actual shares available. Investors will often apply for more shares than required in anticipation of only receiving a fraction of the requested number. Investors and underwriters will often look to see if an IPO is oversubscribed as an indication of the public’s perception of the business potential of the IPO company.

Par Bond: A bond selling at par (i.e. at its face value).

Par Value: The face value of a security.

Perpetual Bonds: Bonds which have no maturity date.

Placing: Obtaining subscriptions for, or the sale of, primary market, where the new securities of issuing companies are initially sold.

Portfolio: A collection of investment vehicles assembled to meet one or more investment goals.

Preference Shares: A corporate security that pays a fixed dividend each period. It is senior to ordinary shares but junior to bonds in its claims on corporate income and assets in case of bankruptcy.

Premium (Warrants): The difference of the market price of a warrant over its intrinsic value.

Premium Bond: Bond selling above par.

Present Value: The amount to which a future deposit will discount back to present when it is depreciated in an account paying compound interest.

Present Value of an Annuity: The amount to which a stream of equal cash flows that occur in equal intervals will discount back to present when it is depreciated in an account paying compound interest.

Price/Earnings Ratio (P/E): The measure to determine how the market is pricing the company’s common stock. The price/earnings (P/E) ratio relates the company’s earnings per share (EPS) to the market price of its stock.

Privatization: The sale of government-owned equity in nationalized industry or other commercial enterprises to private investors.

Prospectus: A detailed report published by the Initial Public Offering company, which includes all terms and conditions, application procedures, IPO prices etc, for the IPO

Put Option: The right to sell the underlying securities at a specified exercise price on of before a specified expiration date.

Rate of Return: A percentage showing the amount of investment gain or loss against the initial investment.

Real Interest Rate: The net interest rate over the inflation rate. The growth rate of purchasing power derived from an investment.

Redemption Value: The value of a bond when redeemed.

Reinvestment Value: The rate at which an investor assumes interest payments made on a bond which can be reinvested over the life of that security.

Relative Strength Index (RSI): A stock’s price that changes over a period of time relative to that of a market index such as the Standard & Poor’s 500, usually measured on a scale from 1 to 100, 1 being the worst and 100 being the best.

Repurchase Agreement: An arrangement in which a security is sold and later bought back at an agreed price and time.

Resistance Level: A price at which sellers consistently outnumber buyers, preventing further price rises.

Return: Amount of investment gain or loss.

Rights Issue: An offer by way of rights to current holders of securities that allows them to subscribe for securities in proportion to their existing holdings.

Risk-Averse, Risk-Neutral, Risk-Taking:

Risk-averse describes an investor who requires greater return in exchange for greater risk.

Risk-neutral describes an investor who does not require greater return in exchange for greater risk.

Risk-taking describes an investor who will accept a lower return in exchange for greater risk.

Senior Bond: A bond that has priority over other bonds in claiming assets and dividends.

Short Hedge: A transaction that protects the value of an asset held by taking a short position in a futures contract.

Settlement: Conclusion of a securities transaction when a customer pays a broker/dealer for securities purchased or delivered, securities sold, and receives from the broker the proceeds of a sale.

Short Position: Investors sell securities in the hope that they will decrease in value and can be bought at a later date for profit.

Short Selling: The sale of borrowed securities, their eventual repurchase by the short seller at a lower price and their return to the lender.

Speculation: The process of buying investment vehicles in which the future value and level of expected earnings are highly uncertain.

Stock Splits: Wholesale changes in the number of shares. For example, a two for one split doubles the number of shares but does not change the share capital.

Subordinated Bond: An issue that ranks after secured debt, debenture, and other bonds, and after some general creditors in its claim on assets and earnings. Owners of this kind of bond stand last in line among creditors, but before equity holders, when an issuer fails financially.

Substantial Shareholder: A person acquires an interest in relevant share capital equal to, or exceeding, 10% of the share capital.

Support Level: A price at which buyers consistently outnumber sellers, preventing further price falls.

Technical Analysis: A method of evaluating securities by relying on the assumption that market data, such as charts of price, volume, and open interest, can help predict future (usually short-term) market trends. Contrasted with fundamental analysis which involves the study of financial accounts and other information about the company. (It is an attempt to predict movements in security prices from their trading volume history.)

Time Horizon: The duration of time an investment is intended for.

Trading Rules: Stipulation of parameters for opening and intra-day quotations, permissible spreads according to the prices of securities available for trading and board lot sizes for each security.

Trust Deed: A formal document that creates a trust. It states the purpose and terms of the name of the trustees and beneficiaries.

Underlying Security: The security subject to being purchased or sold upon exercise of the option contract.

Valuation: Process by which an investor determines the worth of a security using risk and return concept.

Warrant: An option for a longer period of time giving the buyer the right to buy a number of shares of common stock in company at a specified price for a specified period of time.

Window Dressing: Financial adjustments made solely for the purpose of accounting presentation, normally at the time of auditing of company accounts.

Yield (Internal rate of Return): The compound annual rate of return earned by an investment

Yield to Maturity: The rate of return yield by a bond held to maturity when both compound interest payments and the investor’s capital gain or loss on the security are taken into account.

Zero Coupon Bond: A bond with no coupon that is sold at a deep discount from par value.

India to focus on enhancing trade ties with West Africa

India is focussing on enhancing economic and trade co-operation with West African nations and has set sights on increasing the trade turnover with such African countries to around $20 billion by 2015 from the present $14.1 billion per annum.

In addition, the focus would be on acquisition of energy assets, including oil and gas, and penetrate African markets for the pharmaceutical sector with generic drugs taking the lead. As a step in this direction, India will be holding a three-day ‘India Show’ in Ghana from July 9 in which nearly 100 leading Indian companies, including Airtel, L&T, Reliance Industries, Sun Group, Ashok Leyland, Apollo Hospitals and Tata Group are taking part.

Besides, Commerce and Industry Minister Anand Sharma will lead a delegation of businessmen and officials to explore the vast business opportunities in the Economic Community of West African States (ECOWAS), which includes nations such as Mali, Niger, Togo, Congo and Senegal, according to Vikramjit Singh Sahani of Sun Group and lead the delegation on behalf of Federation of Chambers of Commerce and Industry (FICCI).

The delegation comprised representatives from sectors such as fertilizer, oil and gas, agriculture, food processing, services, health, IT, telecom, manufacturing, energy, pharmaceuticals, textiles and education, Mr. Sahney said.

Interestingly, Defence Research and Development Organisation (DRDO), the research arm of the Ministry of Defence, will also be showcasing its innovations that have civilian application and particularly in areas where there is suitability for the African sub-continent.

India to focus on enhancing trade ties with West Africa

Two-tier structure to monitor PPP

The Union Cabinet approved the setting up of an institutional mechanism for effective monitoring of the contract performance of projects under the public-private partnership (PPP) mode to ensure timely completion.

As per the Cabinet decision on the Planning Commission’s proposal, the institutional mechanism for monitoring of PPP projects will have a two-tier scanning structure by way of a ‘Projects monitoring unit’ (PMU) and a ‘Performance review unit’ (PRU) in view of the fact that a number of infrastructural development projects are likely to be routed through the partnership mode for implementation.

Stressing on the need for such an approach, an official statement on the Cabinet decision said: “It has become necessary to adopt a well-defined institutional structure for overseeing contract performance effectively. This is all the more necessary as concessionaires will have an incentive to cut corners whereas the criticism would be faced by the government”.

To ensure timely completion of PPP projects, while the PMU will monitor their performance at the project authority level, the PRU will also oversee their implementation at the Ministry or state government level. Thereafter, as per the mechanism, the PMU will prepare a report and submit it to the PRU within 15 days of the close of each relevant month.

According to the statement, the PMU reports covering compliance of conditions, adherence to time lines, assessment of performance, remedial measures and imposition of penalties will be taken up for review by the PRU to oversee or initiate action for rectifying any defaults or lapses. Apart from adhering to these monitoring mechanism guidelines, the Ministries concerned will also have to submit a quarterly compliance report to the Planning Commission with a copy to the Union Finance Ministry.

On the basis of such compliance reports, the Commission, in consultation with the Finance Ministry, will prepare a summary of these inputs along with recommendations and place it before the Cabinet Committee on Infrastructure (CCI) once in each quarter for the next two years.

Based on the outcome and the experience gained in this regard, modifications would be made in the guidelines, if necessary. As of now, while the Planning Commission will have a major role in ensuring quality monitoring, the CIC will also be able to scan the progress of PPP projects every quarter.

Rs. 1,000 cr minimum capital mooted for holding company of new bank

Banks and institutions have suggested to the Reserve Bank of India (RBI) that the minimum capital required for the proposed non-operative holding company (NOHC) of new banks in the private sector should be Rs. 1,000 crore instead of Rs. 500 crore.

The RBI released on Tuesday the gist of comments and suggestions received on the draft guidelines for ‘licensing of new banks in the private sector’, which were placed on its website on August 29, 2011. The RBI said it would take these suggestions / comments into account while finalising the guidelines.

There were suggestions that the time for dilution of promoter shareholding (to 40 per cent in the bank) should be increased from 2 years to 3-5 years. There were suggestions that the the process of dilution should be done in a staggered way over a period of 15 years. “Certain parties suggested that the schedule for dilution of promoters’ shareholding should be reckoned from the date of commencement of business instead of date of licensing of the bank,” said RBI.

On foreign shareholding in the bank, some institutions felt that it should not be restricted in the new banks and be permitted up to a level of 74 per cent. A few business houses, NBFCs and a federation felt that restricting foreign shareholding to 49 per cent for initial 5 years was not a deterrent. Further, a federation suggested that 5 per cent cap for non-resident individual/ group was passive and that it would be important to raise the limit from 5 per cent to 25 per cent to attract strategic investors and bring synergy in banking.

The RBI said that some had suggested that the requirement of the non-operative holding company (NOHC) to be wholly-owned by the promoters might be revisited and diversified shareholding at the NOHC level be permitted to improve corporate governance and avoid regulatory overlap. Certain NBFCs also had suggested that existing non-operative investment/holding companies should be allowed to own / hold shares of the NOHC.

Unemployment to remain high in developed world: OECD

Unemployment levels will remain high in most of the developed world till the end of next year and low-skilled people are expected to bear the brunt, OECD said.

“To get employment rates back to pre-crisis levels, about 14 million jobs need to be created in the OECD area.

Members of the grouping, that accounts for over 60 per cent of global economic output, include the US, Germany and the UK.

“The current weak economic recovery will keep unemployment rates in OECD countries high until at least the end of 2013,” it noted.

The jobless rate in the 34-nation OECD region is projected to be 7.7 per cent in the fourth quarter of 2013, close to the high of 7.9 per cent unemployment rate recorded in May this year.

“This leaves around 48 million people out of work across the OECD. In the euro area, unemployment rose further in May to an all-time peak of 11.1 per cent,” Organisation for Economic Cooperation and Development (OECD) said.

Amid persisting European debt turmoil hurting global economic growth prospects, many businesses are either not adding new people or are looking to trim workforces to reduce costs.

OECD Secretary-General Angel Gurria said recent deterioration in the economic outlook was very bad news for the labour market.

“Moreover, job creation during the weak recovery of the past two years has often been concentrated in temporary contracts because many firms are reluctant to hire workers on open-ended contracts in today’s uncertain economic environment,” OECD noted.

The employment situation is witnessing diverse trends across countries. Unemployment has been rising in the European Union since the end of 2011 but has been stable at around 8.25 per cent in the US.

In OECD countries, the unemployment rate was the highest in Spain 24.6 per cent, with double-digit rates also in Estonia, France, Greece, Hungary, Ireland, Italy, Portugal and the Slovak Republic.

Saturday, July 7, 2012

GAAR: What is it?

GAAR stands for General Anti-Avoidance Rules. It is aimed at checking the tax avoidance by companies. The Economic Times article HERE discusses the different dimensions and actual thought behind it. It is good for reading and making relevant notes.

Friday, June 29, 2012

Repurchase Agreements (Repo)

Repo

Repo is a money market instrument, which enables collateralised short term borrowing and lending through sale/purchase operations in debt instruments.

Under a repo transaction, a holder of securities sells them to an investor with an agreement to repurchase at a predetermined date and rate. In the case of a repo, the forward clean price of the bond is set in advance at a level which is different from the spot clean price by adjusting the difference between repo interest and coupon earned on the security.

In the money market, this transaction is nothing but collateralised lending as the inflow of cash from the transaction can be used to meet temporary liquidity requirement in the short term money market at comparable cost.

A repo is also sometimes called a ready forward transaction as it is a means of funding by selling a security held on a spot (ready) basis and repurchasing the same on a forward basis.

When an entity sells a security to another entity on repurchase agreement basis and simultaneously purchases some other security from the same entity on resell basis it is called a double ready forward transaction.

Reverse Repo

A reverse repo is the mirror image of a repo. For, in a reverse repo, securities are acquired with simultaneous commitment to resell. Hence whether a transaction is a repo or a reverse repo is determined only in term of who initiated the first leg the transaction. When the reverse repurchase transaction matures, the counter party returns the security to the entity concerned and receives its cash along with the profit spread. One factor which encourages an organisation to enter into reverse repo is that it earns some extra income on its otherwise idle cash.

Repo Period

Repo period could be overnight, term, open or flexible. Overnight repos last only one day. If the period is fixed and agreed in advance it is a term repo where either party may call for the repo to be terminated at any time although requiring one or two days’ notice. Though there is no restriction on the maximum period for which repos can be undertaken generally term repo are for an average period of one week. In an open repo there is no such fixed maturity period and the interest rate would change from day to day depending on the money market conditions.

Types of Repos

Broadly, there are four types of repos available in the international market when classified with regard to maturity of underlying securities, pricing, term of repo etc. They comprise buy-sell back repo, classic repo, bond borrowing and lending and tripartite repos.

Buy-Sell Back Ropo – Under a buy-sell repo transaction the lender actually takes position of the collateral. Here a security is sold outright and brought back simultaneously for settlement on a later date. In a buy-sell repo the ownership is passed on to the buyer and hence he retains any coupon interest due on the bonds. The spot buyer/borrower of securities in affect earns the yield on the underlying security plus or minus difference between these and the repo interest rate.
Classic Repo – Is an initial sale of securities with a simultaneous agreement to repurchase them at a later date. In the case of this type of repo the start and end prices of the securities are the same and the separate payment of “interest” is made.
Bond Lending/Borrowing – In a bond lending/borrowing transaction, the customer lends bonds for an open ended or fixed period in return for a fee. The fee charged would depend on the type of underlying instrument, size and term of the loan and the credit rating of the counterparty. The transaction would be taken care of by an agreement on securities lending and cash or other securities of equal value could be provided as collateral in the transaction.
Tripartite repo – Under a tripartite repo a common custodian/clearing agency arranges for custody, clearing and settlement of repos transactions. They operate under a standard global master purchase agreement and provides for DVP system, substitution of securities, automatic marking to market, reporting and daily administration by single agency.

This type of arrangement minimises credit risk and can be utilized when dealing with clients with low credit rating.

Basel Committee

The Basel Committee on banking supervision provide a forum for regular cooperation on banking supervision matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide. It seeks to do so by exchanging information on national supervisory issues, approaches and techniques, with a view to promoting common understanding.

At times, the committee uses this common understanding to develop guidelines and supervisory standards in areas where they are desirable. In this regard the committee is best known for its international standards on capital adequacy; the core principles for effective banking supervision; and the Concordat on cross-border banking supervision.

The committee encourages contacts and cooperation among its members and other banking supervisory authority. It circulates the supervisors throughout the world both published and unpublished papers proving guidance on banking supervisory matters. Contacts have been further strengthen by an International Conference for Banking Supervisors (ICBS) which takes place every two years. The Committee's Secretariat is located at the Bank for International Settlement in Basel, Switzerland, and is staffed mainly by professional supervisors on temporary secondment from member institutions. In addition to undertaking the secretariat work for the committee and its many expert sub-committees, it stands ready to give advice to supervisory authorities in all countries. Wayne Byres is the Secretary General of the Basel Committee.

The committee does not poses any formal supranational supervisory authority, and its conclusions do not, and were never intended to, have legal force. Rather, it formulates broad supervisory standards and guidelines and recommends statements of best practice in the expectation that individual authority will take steps to implement them through detailed arrangements-statutory or otherwise-which are best suited there own national systems. In this way, committee encourages convergence towards common approaches and common standards without attempting detailed harmonisation of member countries' supervisory techniques.

The committee reports to the central bank governors and Heads of Supervision of its member countries. It seeks their endorsements for their major initiatives. These decision cover very wide range of financial issues. On important objective of the committee's work has been to close gaps in international supervisory coverage in pursuit of two basic principles: that no foreign banking establishment should escape supervision; and that supervision should be adequate. To achieve this, the committee has issued a long series of documents since 1975.

In 1988, the Committee decided to introduce a capital measurement referred to as the Basel Capital Accord. This system provided for the implementation of a credit risk measurement. Framework with a minimum capital standard of 8 percent by end-1992 since 1988, this framework has been progressively introduced not only in member countries but also in virtually all other countries with internationally active banks. In June 1999, the committee issued a proposal for a revised Capital Adequacy Framework.

The proposed capital framework consist of three pillars: minimum capital requirement which seek to refine the standardised rules set forth in the 1988 accord; supervisory review of an institutions' internal assessment process and capital adequacy; and effective use of disclosure to strengthen market discipline as the complement to supervisory efforts. Following extensive interaction with banks, industry groups and supervisory authorities that are not members of the committee, the revised framework was issued on 26th June 2004. This text serves as the basis for national rule-making and for banks to complete their preparation for the new framework implementation.
Over the past few years, the committee has moved more aggressively to promote sound supervisory standard worldwide. In close collaboration with many jurisdictions which are not members of the committee in 1997 it developed a set of "core principles for effective banking supervision", which provides a comprehensive blueprint for an effective supervisory system. To facilitate implementation and assessment the committee in Oct 1999 developed the "core principles methodology". The core principles and methodology were revised recently and released in Oct 2006.
In order to enable a wider group of countries to be associated with the work being pursued in Basel, the committee has always encouraged contacts and cooperation between its members and other banking supervisory authorities.

Member countries:
Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong-Kong, India, Indonesia, Italy, Japan, Luxembourg, Mexico,-Netherlands, Russia, Saudi Arabia, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Turkey, UK, US.

Basel II

The Basel II Framework describes a more comprehensive measure and minimum standard for capital adequacy for national supervisory authorities are now working to implement through domestic rule-making and adoption procedures. It seeks to improve on the existing rules by aligning regulatory capital requirements more closely to the underlined risks the banks face. In addition, the Basel II Framework intended to promote a more forward-looking approach to capital supervision, one that encourage banks to identify the risks they may face, today and in the future and to develop or improve their ability to manage those risks. As a result, it is intended to be more flexible and better able to evolve with advances in markets and risk management practices.

The efforts of the Basel Committee on banking supervision to revise the standard governing the capital adequacy of internationally active banks achieved a critical milestone in the publication of an agreed text in June 2004.

In Nov 2005, the committee issued an updated version of the revised framework incorporating the additional guidance set forth in the committee's paper. The application of Basel II trading activities and the treatment of double default effects (July 2005).

On 4th July 2006, the committee issued a comprehensive version of the Basel II Framework. Solely as a matter convenience to readers, this 2004 Basel II Framework, the elements of the 1988 accord that were not revised during the Basel II process, the 1996 Amendment to the capital accord incorporate market risks, and the 2005 paper on the application of Basel II to trading activities and the treatment if double default effects. No new elements have been introduced in this compilation.

Basel III

Basel III is a comprehensive set of reform measures, developed by the Basel Committee on banking supervision, to strengthen the regulation, supervision and risk management of the banking sector. These measures aim to :

improve the banking sector's ability to absorb shocks arising from financial and economic stress, whatever the source
improve risk management and governance
strengthen banks' transparency and disclosures.

The reforms target:

bank level, or microprudential, regulation, which will help raise the resilience of individual banking institutions, to periods of stress.
macropurdential, system wide risk that can build across the banking sector as well as the procyclical amplification of these risks over time.

The two approaches to supervision are complementary as greater resilience at the individual bank level reduces the risk of system wide shocks.

Recommendations of Narasimham Committee on Banking Sector Reform – 1998

For Banking System

Pending the emergence of markets in India where market risk can be covered, it would be desirable that capital adequacy requirements take into account market risk in addition to credit risks.
In the next three years, the entire portfolio of Government securities should be marketed to market and this schedule of adjustment should be announced earliest.
The risk weight for a Government guarantee advance should be the same as for other advances.
Foreign exchange open position limits should carry a 100% risk weight.
An asset be classified as doubtful if it is in the substandard category for 18 months in the first instance and eventually for 12 months and loss if it has been so identified but not written off.
Banks and financial institutions should avoid the practice of “evergreening” by making fresh advances to their troubled constituents only with a view to setting interest dues and avoiding classification of the loan in question as NPAs.
Average level of net NPAs for all banks should be reduced to below 5% and 3% by the year 2000 and 2002, respectively, and net NPAs to 3% and 0% by these dates.
Banks should introduce calculation of interest as monthly rests.
There should be 100% computerization of bank’s operations. Unless 100% computerisation is made, it may not be feasible to implement the recommendation.
It is also necessary to tone up the legal machinery for speedy disposal of collateral taken as security for the advance.
Banks should bring out revised Operational Manual and update them regularly.

Structural Issues

DFIs should, over a period of time, convert themselves to banks.
If a DFI does not acquire a banking license with a stipulated time it would be categorized as a non-banking finance company.
Mergers between banks and between banks and DFIs and NBFCs need to be based on synergies and locational and business specific complementarities of the concerned institutions and must obviously make sound commercial sense.
A ‘weak bank’ should be one whose accumulated losses and net NPAs exceeds its net worth or one whose operating profits less its income on recapitalization bonds is negative for three consecutive years.
The policy of licensing new private banks (other than local area banks) may continue. The start-up capital requirement is Rs. 100 crore where set in 1993 and these may be reviewed.
Foreign banks may be allowed to setup subsidiaries or joint ventures in India. Such subsidiaries or joint ventures should be treated on par with other private banks and subject to the same conditions with regard to branches and directed credit as these banks.
All NBFCs are statutorily required to have a minimum net worth of Rs. 25 lakh if they are to be registered.
Then minimum period of FD be reduced to 15 days and all money market instruments should likewise have a similar reduced minimum duration.
Foreign institutional investors should be given access to the Treasury Bill market.
The Board for Financial Regulation and Supervision (BFRS) should be given statutory powers and be reconstituted in a way to be composed of professionals.
RBI should totally withdraw from the primary market in 91 days Treasury Bills.

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.

Substitution effect
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:

The price of the good;
The prices of factors of production;
The price of other goods produced; Expected future prices;
The number of suppliers;
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.

		India Economic and Human Development Indicators

		India Gender and Social Exclusion Indicators

		India Millennium Development Goal Indicators

		Assam Economic and Human Development Indicators

		Bihar Economic and Human Development Indicators

		Chhattisgarh Economic and Human Development Indicators

		Jharkhand Economic and Human Development Indicators

		Madhya Pradesh Economic and Human Development Indicators

		Maharashtra Economic and Human Development Indicators

		Orissa Economic and Human Development Indicators

		Rajasthan Economic and Human Development Indicators

		Uttar Pradesh Economic and Human Development Indicators


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Saturday, July 14, 2012

Anti Poverty Programmes

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India to focus on enhancing trade ties with West Africa

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