Financial Economics

Does New Delhi support a new Union Territory?

noreply@blogger.com (Onkar Jadhav) — Fri, 29 Jan 2021 10:04:00 +0000

Does New Delhi support a new Union Territory?

Upliftment of Jammu & Kashmir

Article 370 has always been a hot topic in the Republic of India. Several people have a variety of opinions regarding it. Most of the time these opinions are polarised. In this article, I am not going to talk about how Article 370 was productive or not. I am going to present a different aspect of it, i.e. economic impact on the new Union Territory after the removal of Article 370.

India’s Home Affairs Minister has presented a bill to remove the article. New Delhi has promised growth in the new Union Territory. So will the removal of Article 370 will have such a significant impact? To understand it we have to analyse the data.

More than a year has passed since the Government has removed the 370. So sample size is very small to conclude whether is it profitable or not, especially when almost half a time country was under lockdown. Thus, we have to use a different method to get a clear view. We will study the different investments and cash inflow in UT after scraping the article. These investments will contain all public and private investments in major sectors.

New Delhi has claimed that Article 370 has blocked development in Jammu and Kashmir; by scrapping it a new window of opportunity will be created. It will now allow the rest of Indians and FDI to flow into the economy. The education system, Tourism Industry and agriculture industry etc. will get a much-needed boost as some of the sectors in the Union Territory are lacking compared to other states and UTs in the country.

I will start with my favourite and most productive type of investment strategy i.e. Public-Private Partnership. New Delhi has selected Public Private Partnership strategy to pull investment in Jammu and Kashmir and I think this is the perfect strategy in this case. The public industry will have the backing of New Delhi thus, it will act as a guarantee to their investment, and the Government will also enjoy control over private investors so that these firms do not exploit residents.

Public-Private Partnership

The Indian Government is also providing incentives to firms to start their operations in UT. These incentives can be as high as INR 10 crore per project. These incentives will surely encourage firms to start their operations in the Union Territory and this is not the only way New Delhi is also allotting land at concession rate to the industrial areas on lease for 90 years. Leasing land on concession rates is common in India, especially when authorities want to force industries to start working in a specific area.

Government is not only relying on private industries. Most of the heavy investments in a UT is sponsored by New Delhi. National Highway Infrastructure Development Corporation to develop 5 tunnels which will cost $ 3.2 Million, This will ensure the better connectivity to other parts of India so that trade can be increase. Authorities are also creating Srinagar, a smart city. As you all know a smart city is a concept created by the govt. to develop cities like Mumbai and Bangalore etc. Getting a smart city in the heart of Jammu and Kashmir can be a game-changer as per my perspective. A smart city will not only give better connectivity but also will create a huge employment opportunity in the Union Territory.

Roads play an important role in the development as it is a very economical way of transporting goods from one place to another and authorities are planning to grab this method of transport by adding 1000 KM of highways to the pre-existing 35,289 KM of highways. The Ministry is planning to achieve this target by the end of the financial year 21-22. This will unlock rural areas and with better roads, the domestic the business will also receive a massive boost. The government has not stopped here as it understands the potential of the agricultural and handloom industry in the UT and to support it with a new freight terminal with a carrying capacity of 15 lacking to 20 lakh cargo is being planned and will connect with the newly constructed freight corridor.

Roads in UT

New Delhi also plans to create dry ports each at Jammu, Srinagar and Rangreth. Dry ports act as a buffer station for goods. This will not only allow domestic goods to be quickly distributed in other parts of the country but also will able to reach ports across south India and east India for export purposes and vice versa. With this local product along with agriculture products will get higher demand in the market and will surely pump up demand and supply game in the UT.

Tourism and film tourism has a lion’s share in the Jammu and Kashmir’s economy thus; if we want to develop our new UT then we should focus on improving infrastructure. Cabinet has also proposed 48 KM of the Metro project for Jammu and Srinagar which is expected to be completed by 2025 along with a couple of new airports each for Jammu and Kashmir, these entire projects will give better connectivity to and from the Union Territory. Some hotel chains are also expected to start their operations. It will help the tourism industry to expand shortly.

Tourism in Jammu and Kashmir

Housing is also a big problem in the Union Territory, to solve this issue and provide a home to common people govt. will build 1 lakh to 2 lakh houses by the end of 2022. These houses will be available across UT. Authorities will also develop new satellite township in Jammu and Kashmir.

The next big issue is the electricity currently there is a problem of supply of electricity. This difficulty might arise after the inception of the industry but to tackle the complications New Delhi has already started working on different projects to meet the current and future demand and surprisingly this time authorities' the approach was to go green. The government has proposed $64.09 billion solar power project and $56.94 billion wind power project across the nation.

These are a few major once which will have a significant impact on the development of in UT. There are many other small projects like free Wi-Fi in the state, the establishment of a new educational institution, the establishment of the pharmaceutical industry, doubling the output of the irrigation projects and raising the supply of freshwater etc. This will also have a significant impact on the development of Jammu and Kashmir.

Conclusion -

As per my observations, the Indian government is trying its best to boost the economic development in UT. There are plenty of projects going on and many in the pipeline which has the potentials to have a significant impact on the lives of common people. Private industries are also taking an interest in investing in the Union Territory. The introduction of the private industry is key for development as per my opinion. Private institutions have better quality and efficiency in the working and now the extra burden of investing in the UT by themselves can be shifted from the government. The FDI flow will give the much-needed factor of production i.e. Capital, now businesses in the Union Territory can expand beyond their existing limit. New infrastructure projects will boost the transportation of goods in both directions which can tackle several issues in UT. I am not saying everything is perfect right now but I am pretty much sure it is heading towards a right direction. After reviewing all the projects and their potential I can confidently say that the New Union Territory is developing.

India is facing Inflation during Recession?

noreply@blogger.com (Onkar Jadhav) — Tue, 06 Oct 2020 08:33:00 +0000

The Indian economy is facing Inflation during the Recession?

Inflation at 6.93% even at GDP record -23.9%

India is a third world country. It does not possess the money or the resources that other countries across the globe enjoy. Then the Indian economy has blossomed in the past and is currently in the top 6 economies in the world. The world is expecting the Indian economy to be in the top 3 economies in the world in half-a-century or less.

COVID-19 has emerged in late 2019 and spread across the globe like wildfire. It has impacted not only developing but also developed countries. Many nations have imposed lockdowns to stop spreading the virus but it has shown adverse effects on the economic activity of the countries.

Restrictions imposed in India have also shown the same output. Very few people are allowed to travel or work. As a result Demand contracts and those without enough labour output for business also shrunk. All these activities make the idle recipe of Recession and it has been confirmed to the GDP data of -23.9%

As an economist, I expected it. As I have talked about it, in my earlier blog, I expect the Indian economy to document a decline of more than 10% to 15%. But presumably, I did not consider it a monumental factor, and that factor is called “inflation”.

The Indian economy was facing inflation from the pre-COVID-19 era. I was expecting coronavirus slowdown might not be able to overshadow it, but at least make a considerable dent. Now the question arises how Indian GDP is falling but inflation is rising. Let’s discuss.

(The data shared in this blog is researched and collected by myself. I have collected data from Mumbai and Mumbai suburbs. I have collected data from 50 families, 7 retail sellers, 2 wholesalers and 5 offices. It took me more than a couple of months to collect and process the data)

Before starting let’s first try to understand what is a recession.

Recession definition

“A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.”

In simple words, the recession is a situation in which an economy registers less economic activities in a period and this period determines the severity of the recession.

We usually do not consider an economy to slow a recession until it sustains it for consecutive quarter i.e. 6 months.

- www.Tradingeconomics.com

In the above graph, it is visible that the Indian economy has been facing a downfall for over a year. Thus we can conclude that the Indian economy is in recession.

In theory, when an economy is going through a recession price of goods and services reduces. There are different factors for it but the main reason is the low demand in the market. Due to the lesser demand suppliers reduce the prices to attract more customers.

In the current economic situation inflation in India is rising.

- Tradingeconomics.com

The CPI index shows a continuous rise in inflation even after New Delhi imposed a countrywide lockdown. Now let’s discuss how India is facing inflation at the time of recession.

Panic buy –

Demand determines the price of goods and services. Higher demand can lead to an increase in the price of goods and services and vice versa. In the current lockdown situation, many Indian families went into a mode of a panic buy and purchased goods in the larger quantity than regular. Which lead to the sudden spike in demand.

This happens due to less knowledge about the actual time frame of lockdown. 50 out of 50 families I have talked with, either have no or very limited knowledge about the lockdown. No one in these families has ever experienced lockdown of this magnitude.

48 families out of 50 have bought groceries that are sufficient for them for over a month and 10 out of 48 have bought groceries for over a quarter. Restaurants and shops closed due to lockdown thus families have bought goods which they usually do not purchase or buy at a lesser quantity.

This panic buy has given suppliers the confidence that people will buy the goods at any price and in large quantity. Thus, the prices of goods are not dropping. The limited supply due to a reduction in labour and vehicles have appreciated value.

Uncertainty of lockdown –

When I spoke with the wholesalers they were expecting lockdown to end in the first month or upcoming month thus they refused to lower the price. New Delhi imposes a lockdown on the country and the extension of it is been usually informed a few days before the end of the current lockdown.

In this scenario, wholesalers have a very limited vision i.e. maximum one month and with no reduction in demand, wholesalers find no reason to cut prices.

Holding on –

The Indian economy was already facing recession for over a year; so many businesses were already running at a loss. When I talked with the people working in the offices they accept that if the goods were not perishable then other than selling it in fewer amounts they like to hold the assets and sell when the price is higher.

Let's understand with an example.

In Nahur, Mumbai the average price of 1BHK flat cost around INR 1 crore ($ 136,022) pre COVID-19 era, but even after economy is fallen the average of the same commodity is around INR 95 lakh ($ 129,220)

This drop is very low, especially when the construction industry is the worst affected industry in the country, with an expected fall in revenue of 15% to 20%

This is just one industry, the same is happening in many industries.

Reduction in Imports –

The Indian economy imports more than it exports. In the import, the bill consists of many essentials as well as raw materials etc. When the import starts plummeting the number of these goods also shrinks which put additional pressure on domestically manufactured goods.

Essential raw material supply is also affecting by restriction, which also contracts output. This situation magnified when the tension between India and China started to emerge.

New Delhi has imposed restrictions on many Chinese manufactured goods. All these affect the quantity in the market and finally on the price of goods.

CPI consists of more than 70% of consumable goods and the recession has a greater effect on other industries than these, Thus CPI is not falling.

These are the few factors. There might be more but I mentioned a few.

Conclusion

Coronavirus recession is a completely new type of recession. It will require a new technique to counter the recession. I feel that the effects of this recession have been amplified by the current situation in the world.

I feel that steps taken by the Indian government might not be sufficient and will require more and innovative way to counter it. Different sectors of the Indian economy have been affected differently and require a unique way to counter it. Hope the Indian government will present a new strategy to counter this recession.

Economic recovery after COVID-19 crisis

noreply@blogger.com (Onkar Jadhav) — Tue, 11 Aug 2020 14:24:00 +0000

Economic recovery after COVID-19 crisis

Types of economic recoveries

It has been almost over a half year has elapsed from first-ever novel coronavirus case recorded in the People’s republic of China. In this, a couple of quarters the world had witnessed a bunch of unexpected scenarios which had directly or indirectly affected the normal life of Homo sapiens.

COVID-19 has claimed 602K lives and infected over 14 million people across the globe. The curve shows no signs of slowing down in the coming month or so. As the virus is highly contagious governments have to impose strict lockdowns in their respective countries.

This result in loss of revenue to the firms and people start losing their jobs. Many firms have filed for bankruptcy whereas many firms have asked for govt. help to sustain the current crisis. As a wise man said, every cloud has a silver lining. The cases in a bunch of nations seem to slow down and authorities are gradually opening its economy.

Governments have proposed many different ways such as establishing a bubble etc. but the question arises how can the economy recover from the current crisis? There is an answer to the aforementioned question in economics.

As per theories, there are 3 ways how an economy can recover but in modern economics, there are 5 ways.

1. “V” shaped of recovery –

“V” shaped of recovery is a very common and basic form of recovery. With this type of recovery, the economy contracts to a point and bounces back just after that point.

As shown in the above figure the GDP falls continues till quarter 3 but after that point, we witness some kind of recovery and with the next couple of weeks economy gets back to its previous levels. This type of recovery resembles the English letter V that’s why it is called as “V” shape of the recovery.

The biggest example of this type of recovery is the 2008-2009 financial crisis.

- www.worldometers.info

As seen in the above figures, world GDP drooped as the 2008 crisis emerged but in 2010 we saw a recovery.

Why we might see “V” shaped of recovery

In the case of the current economic crisis, we might see the “V” shaped of recovery as the present recession is occurring due to the implementation of lockdown from the respected government. The economic output of firms has declined due to a decline in demand in the market, and as the demand gets restored companies can start gaining profit and the economy can start recovering.

Why we might not see “V” shaped of recovery

Restoring demand to pre-coronavirus era might not be sufficient. As people across the globe have lost their jobs and many businesses have recorded historical losses. So just demand and supply cannot solve the current crisis. Nations attitude towards China will also play a major role in recovery. Unrest in middle-east and near the South China Sea can hugely impact the structure of the curve.

2. “W” shaped of recovery –

“W” shaped of economic recovery is just an extension of “V” shaped of economic recovery. This type of recovery usually occurs in uncertain economic scenarios. The economy falls immediately again after recovery.

As shown in the above figure Economy falls but after a short gain, it fell again. The biggest example of this type of recovery is The Great Depression.

In the case of coronavirus, we can witness “W” shaped of recovery only if we face the second wave of infection. In that case, the government again has to impose restrictions which can lead to “W” shaped recovery.

There is also another chance of “W” shaped recovery is war. If the world faces another war then also we can witness the “W” shaped recovery but the second dip on the curve will depend upon the gravity of the war. With the current situation in the world, we cannot fully write-off both of the situations.

3. “U” shaped of recovery –

“U” shaped recovery is the opposite of a “V” type of recovery. The economy does not bounce back after a crisis. The economy took some time to recover and which result in “U” shape. In its economy, it can take longer than usual and this phase can last from 2 quarter or more.

The chances of “U” shaped economy are very low. As the world is become very competitive and with the current population of the world. The world economy might not face a “U” shaped recovery but many firms and industries might face it. These industries include Hospitality & Travel etc. In it, we might not see much of the demand and can witness a low demand for at least a couple of quarters or more.

4. “Swoosh” shaped of recovery –

“Swoosh” shaped of recovery or more commonly known as “L” shaped of recovery is the very basic type of recovery. In it, when an economy falls the recovery phase is longer than usual and can take a half year or more in some conditions to get to the previous level.

We have witnessed “Swoosh” shaped of recovery in the early and mid-1900s at that time economy was not evolved and globalised compared to current economic conditions. Presently economies are open and competitive. Thus “L” shaped is strenuous.

5. “Reverse Square Root” shaped of recovery–

Reverse Square root shaped recovery can occur when the economy can recover from the slowdown but fails to gain previous levels. In this situation, the economy tops the level well below the previous high.

As shown in the figure, the economy is not able to reach the initial level. This can happen due to the significant change in the taste, habit or preferences of consumer behaviour. In it, the actual recovery time can go as high as a couple of years.

The chances of this type of recovery is very low but some industry can show us this type of recovery such as airline industry etc.

Conclusion

Coronavirus has affected our economy very badly. This type of recession has raised new questions and pushed economists to think outside the box to counter the situation. Although I feel that there is one more issue that we might able to face shortly is tension between China and other countries. Doomsday clock is almost 100 seconds before midnight, with Beijing consciously calming other countries' land. We can only hope this aggression will not trigger any war-like the situation, the war in the current situation can only cause havoc.

Helicopter Money

noreply@blogger.com (Onkar Jadhav) — Wed, 17 Jun 2020 08:29:00 +0000

Helicopter Money

Coronavirus has shown its impact on the world economy. The lockdown imposed by nations has savoury depleted economic activity. Thus the world is in recession. To support the economy, many countries have proposed relief packages. In this scenario, monetary policy is on the rise, i.e. Helicopter Money. Helicopter Money is a concept used by economists to boost the economy of a country. To understand helicopter money and how it can help revive an economy, let’s first understand what is helicopter money.

Helicopter money meaning:-

This helicopter money was first introduced by the noble price winner economist Milton Friedman in 1969 in his research paper “The Optimum Quantity of Money”. This concept was focused upon raising liquidity in the economy to counter the recession by provoking people to spend more which will boost the demand for a product or service which then can lift the economic output which will help the economy get out of recession.

In simple words, the government is trying to boost its economy by giving away free money to the people to spend. This concept was created to help in the liquidity crunch scenario. According to this concept, the government has to print more money and have to drop it from a helicopter (but the government don’t have to drop it and can add that amount of money in the people bank account). There are a few assumptions to this concept.

People have to spend the money which they received from the government. People should not stockpile money. If people stockpile, then the situation will not change.
The government has to precisely calculate the total amount of money injection. Overspending can lead to inflation and underspending will not change the situation.
The government has to select the areas carefully for helicopter money as every area has different needs.

Now let’s understand how helicopter money can help the economy.

Raising liquidity–

The biggest problem at the time of recession is the economy got stuck in a liquidity crunch. It is a situation where cash is in the hands of the firm and people deplete. Companies and people find it difficult to spend money and the economy slowly heads towards recession, with the help of helicopter money this depleting cash in the economy can be restored if properly used. Spending money at the time of recession is the primary step and with the help of helicopter money, this goal can be achieved.

Raising Spending–

When an economy is stuck in a recession, expansion of the firms stops and GDP contracts along with public spending. Thus one of the steps to get out of this vicious circle of recession is to raise spending and with the help of helicopter money, now with more money in the hands of people supplied by the Govt. people and business can spend, and the economy will boost to get out of this vicious circle.

Why should we consider Helicopter money in crisis COVID-19?

It is estimated that the world economy will face $8 to $9 Trillion loss due to coronavirus. This figure is so enamouring that this figure is more than double the GDP of India and more than Japan and Germany’s GDP. Drop at the price of the oil also have negatively impacted oil-producing countries. (You can read my article on COVID-19 & Decreasing Oil Prices). Some economies have recorded a negative growth rate in the GDP. Governments have announced as much as 30% to 40% of their total GDP as a relief package.

These steps are appreciable and have hail by many economists, but as we know there is always a policy lag. Due to the policy lag steps implemented by the respective government can take years to show its impacts, but in the current situation, the country doesn’t have much time. Many firms and people are protesting against the lockdown. Many people across the globe are in urgent need of essential goods and services. Countries should not only reopen the economy but also have to raise output. Usually, the recovery can happen in U-shape which can take time. This type of recovery can easily take a couple of quarters or a year. Thus we need a policy which can have a direct impact. Helicopter money can be a solution to the current crisis.

Why we should not consider Helicopter money in crisis COVID-19?

We should not consider Helicopter money even in this case, as there is a high probability that this step can backfire and hurt the economy. In every economy, there are a specific number of currencies in circulation. Central banks have to carefully evaluate the supply of currency in the economy. The country should raise an 'n' number currency if its GDP rise by 'x%' and vice versa. This number can differ for every nation.

In the current economic situation GDP of almost every country is shrinking and in this situation, if we raise the supply of the money then it will directly contradict the rules of economics. At this point, rising currency supply may give temporary upshift but eventually, it will be stuck in a liquidity trap which will hurt the economy in the long run. This excessive supply of money can ignite inflation and without proper handling can result in hyperinflation. We have examples of Venezuela and Zimbabwe where excess money supply has led to hyperinflation.

One of the assumptions for helicopter money is people should not stock up the money and in the current situation, there may be a group of people who will not follow the rule. Thus implementing the concept of helicopter money will be a huge risk.

Conclusion –

Helicopter money is a good concept but it has its risks. As per my opinion helicopter money should be considered as a last resort. I totally agree that this crisis is one of the worst in history and requires efforts to recover from the crisis. Helicopter money seems attractive and can give immediate returns but it will hurt in the long run. Governments across the globe should not focus on shortcomings but should focus upon the bigger picture.

How is India proliferating its Foreign Exchange Reserve?

noreply@blogger.com (Onkar Jadhav) — Tue, 09 Jun 2020 11:17:00 +0000

How is India proliferating its Foreign Exchange Reserve?

Money is at the core of every economic activity in the world. Governments need cash to run daily activities. Authorities usually raise funds either by capital gain or revenue gains, i.e. by selling goods and services or taking out loans. Nations usually hesitate to acquire loans as countries have to pay interest etc. And only apply for the loan for a longer period. New Delhi uses Indian foreign exchange reserves (made up of Indian foreign exchange or Indian foreign exchange markets) to tackle short term needs.

Thus, most of the Govt. Tries to use funds from revenue gains, but in the current coronavirus, crisis authorities are not having an adequate amount of reserves thus nations are now turning their attention to their foreign exchange reserves to counter its requirement.

Thus, eventually, countries’ foreign exchange reserves are plummeting rapidly. The Kingdom of Saudi Arabia, Republic of China (Taiwan) and Hong Kong are examples of the few nations. Few countries are still recording a positive slope in their foreign exchange reserves. One of the countries that form that bunch is India.

Countries	Change in Foreign Exchange
India	+ 3,436
Saudi Arabia	- 24,717
Taiwan	+ 2,738
Hong Kong	+ 1,100

- www.RBI.org

India has been registering continuous upraise in its foreign exchange reserves in the past couple of weeks. So how is a country with the world’s second-largest population not only able to sustain but also able to jack up its reserves? Let’s figure it out.

IMF defines Forex reserves as

“External Assets that county’s monetary authority can use to meet the balance of payments financing needs.”

According to the Oxford Reference, Foreign Exchange Reserve means

“Liquid assets held by a country’s government or central bank for the purpose of intervening in the foreign exchange market. These include gold or convertible foreign currencies. They do not include working balances of foreign currencies or short-dated foreign securities held by a country’s banks or other firms. In an emergency, some of these could probably be added to a country’s foreign exchange reserves.”

Having a considerable amount of foreign reserves becomes a must in the current competitive world. Forex reserve has different uses it helps to stabilise a currency as well as significantly increase the economy’s strength and help to explode. Nation’s reputation is raised in the international market.

A country’s Foreign Exchange Reserve can increase when countries expenses are slighter than their income or vice versa. India has registered a hike of $1.622 billion in its external reserves in a single week. So how is India able to minimise its expenses and amplify its income?

1. Lowering the oil import bill –

India is a power-hungry nation. It ranked 3rd globally with 5,123,000 million barrels per day (estimated) in 2018 i.e. $111.9 and now it has shrunk by 9% to $102 billion. It has saved New Delhi’s billions of dollars.

Financial Year	Import Bill ($ billion)
2019-2020	102.2
2018-2019	111.9
2017-2018	87.8
2016-2017	70.2
2015-2016	63.9

- www.economictimes.com

This pocket-size drop has also saved India at least $9 billion. Which has been deposited directly into forex reserve of the nation. Falling oil prices also help India to cut down its cost. As a matter of fact, New Delhi is capitalising on the aforementioned event by not only filling its oil reserves but also cracking a deal with the USA for lending extra oil storage.

For more insight you can read my previous blog ‘COVID-19 & decreasing oil prices’ in it I have talked in detail.

2. Upraising Pharmaceutical export –

The Indian pharmaceutical industry has been on the rise since last year. It has started to capture and acquire an additional share in the international market.

- www.statista.com

(2020* - figure can raise as year progress)

Coronavirus crisis has given a positive boost to Indian firms. The most notable incident was Hydroxychloroquine. India is currently exporting it to almost 97 countries with 285 million tablets. The total figure rose from $1.22 billion to $5.50 billion in the first half of the year. The Indian pharma industry has a surly helped nation to earn more cash in times of crisis.

3. Depleting Imports –

India tends to import more than it exports. For most of its history, the Indian economy is facing a trade deficit, although the trade deficit is diminishing, it is hurting the economy. In the current crisis, Indian imports have registered a nosedive.

- Ministry of Commerce and Industry, India

Indian imports have plummeted by 58.65% compared to last year. Gold imports in India slumped by 99.92%, Petroleum products imports dropped by 55.01%, Coal and briquettes plunged by 43.82%, Electronic goods by 59.06%, Iron and steel by 47.93% etc. It is recorded that India has documented an eleven-year low in April 2020. There are plenty of points which I didn't use but have had a significant impact on proliferating India's Forex reserves.

So what next?

Having a considerable external reserve doesn’t guaranty development. India has got a really nice boost and New Delhi should capitalise on that. India's external reserves are at an all-time high and it should utilise them properly. The Indian economy is contracting, many firms are facing issues and people have lost their jobs, there is an issue of migrant workers across the nation.

All these problems need to solve as quickly as possible, but at least New Delhi will not face the issue of liquidity crunch. The reputation of India is much better than it used to be. India has easy access to loans etc. Which will help in the betterment of the Indians. There is still a long way to go, New Delhi has got a foundation now it all depends upon its decisions to counter the current crisis.

Conclusion –

In January 1991 India’s Forex reserve saw its lowest point of $1.2 Billion, which was sufficient to support the country for next 10 days and now India has the world’s 5th largest external reserve of $493,480 Billion. India has come a long way from 1991 to 2020, but I feel New Delhi should not stop here. India’s Foreign exchange reserve is still minuscule compared to top dogs like China etc. India should not stop here and should push its boundaries.

"Bad Bank" proposal for India and bad bank list

noreply@blogger.com (Onkar Jadhav) — Sun, 31 May 2020 07:19:00 +0000

"Bad Bank" proposal for India and bad bank list

Why India should not create it.

The banking industry is the core of any economic activity. Banks mostly rotate around the money, which acts as blood in the economy. A healthy banking system can give a boost to an economy and vice versa. Thus having a well-organised banking system becomes a need, and many nations across the globe are taking extra precautions to keep the banking system healthy. But as we know, nothing is perfect. There are many flaws and loopholes in this system which can hurt the economy in the long run.

One of the biggest problems in the banking sector is the bad debt or frequently known as NPAs i.e. Non-Performing Assets. These are the loans given by any financial institution (There are many institutions but in this scenario, we will only consider the banks) to a person or a firm which fails to repay it. These NPAs are hazardous to the banking system. Bad debt should be less than 4% to 5% in a given institution (This the number can vary) above this limit it considers as dangerous. NPAs can restrict the supply of money to the economy as people do not repay loan and economy slowly dragged into a liquidity crunch scenario. There are many rules and guidelines provided by the Govt. to counter NPAs but the number of bad debts was on the rise after implementation of guidelines also. Thus, a new concept has been considered by the Indian government and i.e. Bad Banks.

Let’s understand a Bad Bank

A bad bank is a corporate body which helps banks or financial organisations to isolate liquidity and high-risk assets in the position of these organisations. In simple words, it helps banks and other financial organisations to overcome excessive holdings of NPAs and bad debts by transferring it to Bad Banks. In this system, a country will create a new firm and name it as a Bad Bank and every bank and financial organisation will sell their NPAs to this bank. A bad bank was first used in 1988 by Mellon bank in the USA and after that many nations have started to adopt this strategy, especially after the crisis of 2008. At that time the financial industry was very venerable. It is still questionable about the output of Bad Bank. Economist the community has a polarised opinion regarding it.

Why do we need Bad Bank in COVID-19 crisis?

In the coronavirus crisis, the world economy is suffering. India has also started to feel its effects. GDP of India has touched 11 years low in the January to March quarter. Thus the Indian economy required a strong push to get back on track, but investors are being conscious to invest in banks and in some scenarios they are withdrawing their funds from banks. This is most likely to trigger a Vicious circle where soon banks can feel the liquidity crunch situation. The current problem is being magnified by the NBFC crisis and the fall of some banks. Just before the COVID-19 crisis, The Indian economy was facing a crisis in its banking sector. The top dogs like IL&FS etc. have shocked the nation and investors by the extent of their NPAs. In fact, some private and public banks also found themselves in the middle of a storm in no time. All this crisis is been carry forward in the current crisis and will most likely cost a ton of money for New Delhi to recover from it.

In this situation, economists in the country have proposed a plan to create a Bad Bank. When you analyse the current situation, Bad Bank cannot be that bad of a solution as currently, the nation requires a huge amount of stimulus package and without the help of organised and unorganised sector, New Delhi might not able to execute the plan successfully. As I stated above, investors and people are turning their backs from banks due to the high level of NPAs and in this situation, Bad Bank can be a game-changer. As Bad Banks buys the NPAs from these institutions with less than the face value (More commonly 50% of the total value). With this situation, Banks and Financial institution’s account will get clear and it will attract investors etc. on the other hand, Bad bank gets assets at a much lower price.

If Bad Bank is that good then why am I saying India should not create it?

The first thing which we have to remember, just shifting NPAs from one institution to another will not solve the issue, as NPAs will remain NPAs in Bad Banks also. In fact, Bad Bank has to work hard to revive their money but they may bargain and might not get full money out of those NPAs but it that situation also Bad Bank will be in profit as they have bought that asset at a much lower cost but the remaining amount will be a loss.

Let’s understand it with an example –

Imagine a bank has created an NPA of Rs. 1 Cr. ($142,857 I took $1=Rs.70). The bank sold it to Bad Bank at 50% of its face value i.e. Rs. 50 Lakh ($71,428). After much effort, Bad Bank can recover the money but it only can recover 75% of face value i.e. Rs. 75 Lakh ($107,142). When you calculate Bad Bank has successfully recovered the money which is invested with a small amount of profit i.e. Rs. 25 Laks ($35,714) but we are forgetting the reaming 25% i.e. Rs. 25 Laks ($35,714) which just vanished in thin air. This is a loss. I just took a small figure, just imagining Lakhs of Crores then loss figures can be gigantic. It is also highly possible that Bad Bank will recover less money than this figure can skyrocket and vice versa.

By creating Bad Banks government are protecting banks but we cannot forget that these institutions are the creators of these NPAs, and with this current decision New Delhi will only be able to control output, not input. After the lockdown govt. will try to push the economy by providing cheap loans with this will encourage banks and financial institutions to supply loans to non-eligible people also, which will create more issues in future.

Banks and financial institutions will now be fearless as due to Bad Banks they will be confident as at least 50% of their money will return no matter the condition. This will only amplify the problem. Thus I feel India should not create Bad Banks.

List of Bad Banks:-

Since the inception of the term, Bad Bank the world economies have tried it and the following are examples of it.

1. Mellon Bank:-

Mellon Bank is situated in the USA. In 1988 it created a bad bank which was able to hold bad loans up to $1.4 billion. This figure is gigantic especially at the time of 1988. This bank has dumped around $1 billion worth of bad loans at approximately 57% of its face value. In 1995 the bank dissolved, but it became the first-ever bad bank on the planet.

2. Swedish banks in 1992:-

The next country that constructs a bad bank is Sweden. In early 1990s Sweden's Korona started to face an issue. In fact, in 1992 the top 3 out of 4 major banks were facing trouble of insolvency. To solve the aforementioned issue Stockholm has set up a couple of Bad banks i.e. Retriva and Securum.

3. Finland:-

In the same year, another Scandinavian country faced the same issue. In the 1990s two major banks in Finland collapsed. Helsinki followed in the footsteps of Stockholm and established a couple of bad banks to support its banking system. There are also many countries who have used some kind of bad banks in the past to support its economy. These countries include Belgium, France, Germany, Indonesia, Portugal and Spain etc.

Conclusion –

Indian banking systems are facing the issue but the decision taken by New Delhi could hurt the economy in the long run. The government should not focus upon short run it should also consider the long run. As per my opinion, the current problem needs to be solved at an initial level rather than the final level. I am had tried to address this issue in my upcoming research paper named as “Indian NBFCs Raising problem for Business and Economy”. I will update you guys as soon as it gets published. In this paper, I have given my views about how India can tackle this problem.

COVID-19 & Decreasing Oil Prices

noreply@blogger.com (Onkar Jadhav) — Sun, 26 Apr 2020 10:58:00 +0000

Black Gold, Blood of an economy, etc. These are a few phrases given to the oil. Oil is one of the most fundamental parts of any economy. It has driven economies for ages and been at the heart of every economic activity in the world. Countries have fought many wars to influence the oil industry.

Oil has helped some small and weak states to develop into one of the world’s wealthiest nations. Oil also has created a crisis in the world’s biggest economy and compelled it to revise its foreign policies. This industry has created the world’s biggest company and one of the biggest empires. In the past decade, oil has given immense power to nations to manipulate things as they will. If a state possesses an oil reservoir, it has thrived and archived the unthinkable growth in a few decades, but possessing an oil reserve doesn’t mean a nation will prosper.

Many nations have fallen after having a mammoth amount of oil reservoirs. The nations have to use these reserves statistically. To accomplish this organisations like OPEC have formed but after so much effort prices of oil suffered a nosedive. So what went wrong with oil? Let’s try to find out. This is my second blog on the series of COVID-19 and the World Economy.

Oil has influenced the world economy like no other commodities. It has been the centrepiece of many economic activities. Almost every sector in the economy depends on the oil or by-products of oil at some stage of its production, distribution or consumption. In some industries, it is difficult to start a business without oil. Thus if the oil is essential, then why is its value depleting? There cannot be a specific reason behind it, but coronavirus has a colossal impact on it. As per my opinion, COVID-19 has only a share of 70% in decreasing the cost of oil, 30% are other factors behind the fall.

COVID-19

Coronavirus has a lion’s share in reducing oil prices around the globe. Because of COVID-19 oil prices has registered a nosedive.

This problem has arisen because of a contraction in demand for oil in the world. Demand for oil in India has slumped by 70% in this lockdown.

The above image shows a million barrels per day. Figures showed world consumption had fallen in the early quarter of 2020. The first quarter is the time of coronavirus pandemic. Oil has been affected by COVID-19, now, let’s understand different sectors and their impact on oil prices. This decline in the cost has deteriorated because the nations which are the biggest importers of oil have been experiencing pandemics like China, India, etc.

Restrictions on Automobiles:-

As coronavirus started spreading its roots in society, most of the countries in the world have imposed lockdown. Lockdown has shown a positive impact on fighting COVID-19 but it hurts the economy. Due to lockdown, many business activities have stopped. Transportation between states and nations has partially or completely shut down. E.g. India has 10 million registered trucks and it is reported that almost 90% of those trucks are off roads and this figure is from only one country.
Now as goods were not able to transport to the consumers the producers have an excess amount of goods stored in their warehouse. Many factories have not received the supply of raw materials, which is necessary for the production, which has a direct relation with the productivity of manufacture.
The government has also put restrictions on private vehicles on roads. This has also impacted the sale of petrol across the nation. This results in the lower consumption of petrol and diesel in the country. In India, the demand for diesel has fallen by 24.3% and for petrol fallen by 16.3% approximately in March. The drop is the biggest this decade.

Restrictions on Firms:-

Firms that use the byproducts of oil i.e., oil and wax etc. are also forced to shut, thus not only petrol and diesel the total demand for oil has fallen. This is not only happening in one country but in almost every country that is facing the coronavirus crisis.

Restrictions on Airline Industry:-

Aeroplanes around the world have also stopped flying, this includes all passenger and freight flights. As the airline industry is one of the leading fuel consumption industries this has a mammoth impact on the oil demand. There are private jets which also have been grounded by the government along with helicopters. All these also have an impact on oil consumption of a country. The airline industry accounts for 6-8% of total crude consumption. Airlines have cancelled more than 200,000 flights, mostly from China. Let's take an example to understand it: A Boeing 747 uses 4 litres of fuel every second while in flight. If this flight lasts for 10 hours then this plane will burn around 150,000 litres.

Restrictions on Shipping Industry:-

As coronavirus has spread around the globe, many nations have put restrictions on ships docking in their docs. Like Japan & the USA has blocked docking of cruise ships. Diamond Princess and Zaandam and Rotterdam are the names of those ships respectively. The ships which have put restrictions include goods transportation ships, fishing ships and cruise ships etc. On average, a large cruise ship uses up to 250 tons of fuel every day, i.e. 80,000 gallons (302,832.943 litres). Cruise ship almost takes a week to cross the Atlantic, so you can imagine the fuel needed by this single ship.
The other factors are the slowdown in the world economy. The world economy was already facing a slowdown in the past few months which have a direct relation with the production process and demand for oil in the market. The oil price war between Russia and Saudi Arabia has only escalated into the current problem but we will talk about these factors in another blog.

Conclusion –

Impact of the COVID-19 on the oil industry and the oil-producing nation is significant. This oil price fall can be controlled if OPEC makes some concrete decisions without interference this fall, which may continue and could cause further damage to the industry as well as economies. Coronavirus The crisis is just one part of the crisis. The other part i.e. the economic crisis is still pending and can be worse than the current one. Thus oil-producing nations should come together and try to solve this issue mutually.

COVID – 19 & the World Economy

noreply@blogger.com (Onkar Jadhav) — Sat, 04 Apr 2020 09:43:00 +0000

The novel Corona Virus is also known as the COVID-19 is the newest member of the Corona Virus family. This virus has been first discovered in Wuhan, China. This COVID-19 now has spared worldwide and impacted around 787,000 and 38,540 casualties have been reported (Till the date). This virus has been reached on every continent of the globe. Europe has now become a new battleground. People are dying daily and WHO has declared coronavirus as Pandemic.

As the world is trying to revive from this virus, the world economy is starting to feel the impact of the coronavirus. The developed economies along with the developing economies all are facing recession. As per experts, the worst is yet to come. Many people are comparing this recession with the recession of 2008. As per the ILO (International Labour Organisation) almost 25 million people are likely to lose their jobs due to the crisis.

So how a virus lead the world economy into crisis and cause an axe on 25 Million people job? In this series of blogs, we are going to talk about this topic. To understand in detail I will make different blogs for the impact of the virus on different sectors.

In this blog, we will talk about the Share Market and COVID-19

There are different sectors which have shown a significant impact and one of the most visible impacts was on the share market. It is been seen that if a country's economy is in trouble then the share market also tumbles and many people have said that the share market is the mirror of a countries economy.

The world economy was already in recession before COVID-19 but the Pandemic has poured oil into the fire. Due to the coronavirus outbreak governments around the world has to impose a lockdown in their respective countries. This led to lower production of goods and services. This has a direct relation to the GDP output of the nations and global trade. Due to the imposed lockdown economic activity and output of the nations has severely impacted. Which has been reflected in the share market?

To understand the impact on the share market I have bifurcate share markets according to nations.

1. Indian Share Market (BSE) –

Bombay Stock Exchange is located in Mumbai the financial capital of the nation. India was one of the nations which have recorded very few cases and still at the second stage, but it doesn’t mean it has not been impacted by the virus.

Bombay Stock Exchange

- Moneycontrol.com

As per shown in the above figure BSE has been fallen from 40,000 points to almost 25,000 points in a month. It is reported that investors have lost INR 33 lakh crore in a month.

2. US Share Market –

The US economy is the world’s biggest economy and it has also faced issue due to the recession.

- Tradingeconomics.com

As you can see in the above figure the US stock market has lost 7000 points from the staring of this year. Dow’s has lost 10% points which are most since the 1987 market crash. This data can indicate the magnitude of the current recession. It is estimated that $3.5 trillion was lost in this crisis.

3. Chinese Stock Market –

The epicentre of this virus in China and it was obvious that the Chinese stock market will have an impact.

- Tradingeconomics.com

The Chinese stock market has dropped down from almost 3050 points to 2750 points. Result of this fall is that investors have almost loss $700 billion (The amount can be much higher than given).

4. Spain Stock Market –

Spain has recorded 2^nd highest deaths due to COVID-19. This pandemic has also hurt Spain financially. One of the biggest football club in the world Barcelona who has Millions of Euros’ turnover has asked its footballers for cutting their salary

- Tradingeconomics.com

IBEX – 35 has reported 14% of the drop in a single day. Spain regulators also said in March 2020 that it will ban 69 stocks which include all liquid shares which price fell more than 10%

5. Italian Stock market –

Italy has become a new epicentre of this pandemic. Italy has register highest deaths in the world due to the coronavirus. Its economy is also suffering. People are losing jobs and share markets are down.

- Tradingeconomics.com

It is recorded that FTSE MIB has registered a 17% drop in the share market which is a considerable amount.

The world economy has observed fall in the past few months not only above share markets but also stock markets in Russia have dropped by 36%, Brazil’s Share market is dropped by 36%, the French share market has observed a 30.35% slide, Germany with 29.43%, Argentina has 29.31% slide, the UK also faced 28.12% drop in their share market.

It is clear that COVID-19 has a significant impact on the economy and share market. In some share market, this dip is marked worsen since 1987.

Conclusion –

The fall in the share market is outcome due to the Pandemic. It has started from China which has a mammoth share in the world trade and acts as a factory of the world. Many economists have warned that it can get worse if we fail to contain COVID-19, but as there is always a silver lining behind the dark cloud. China is slowly starting its factories. It means the production will start and we can see some positive symptoms on our economy.

why is the Australian economy slowing down

noreply@blogger.com (Onkar Jadhav) — Wed, 03 Jul 2019 09:07:00 +0000

why is the Australian economy slowing down

Australian economy possesses the crown for the economy with no recession from past years. Australia is considering land with no depression. The Australian economy has recorded an uninterrupted growth from the last 27 years. The economy of Australia has even successfully overcome from the recession of 2008. Many strong developed and underdeveloped economies have affected, but the Australian economy has held his ground in an adverse situation, and this is the dream of many economies. Australian Dollar has also shown stability in past years.

When you look at the Australian economy, it doesn't have a large economy like the USA or export-oriented economy like China, etc. which can help to have sustainable growth. When you look at the Australian economy it doesn't have any particular sector or factor which is responsible for this growth, but we have to appreciate Australian economist and lawmakers for this, but all this growth is starting to slow down in fact in the second half of 2018. The Australian economy has recorded almost zero expansion and just grew 0.4 percent in the first three months of 2019. This is a worrying sign for the Australian economy. So why did the Australian economy is facing such a problem? Let's find in this Blog.

The GDP growth of the Australian economy in 2018 was declining consciously, but the main argument in this at how much? It divided into two different rates. Some sources said it is near 1%, on the other hand, some sources said that it is around 3% official statement of the Government of Australia noted that growth rate is about 2.9%. So it is a bit confusing, but, inevitably, the graph is going downwards.

- CEIC

In this, I will discuss points, which are affecting the growth.

1. The decline in earning from coal –

The Australian coal industry is vital to its economy and acts as one of the pillars of the economy. Australia is the fourth-largest producer of coal in the world. Coal is the second-largest exporting commodity of Australia. In 2016-17 coal industry produced 440 million tons of coals, out of which Australia has exported 202 million tonnes of thermal coal and 177 million tonnes of metallurgical coal. This industry has grown 550 percent from 1999-00. The leading importers of Australian coal are Asian nations. Growing Asian market demanded more coal, which result in more demand and which result in more profit to Australia. This industry has generated approx — $ 5 billion in royalties.

So technically coal exporting business was profitable for Australia, but the price of coal is starting to decline, which results in shrinking profits. The value of Australia's coal exports is forecast to decline sharply over the next 18 months as thermal coal prices drop 25% and metallurgical coal prices fall 23%. The decline in the spot price of both products will see their combined export value fall from $60.8bn in 2018-19 to $49.9bn in 2019-20, a deterioration of 18%.

- Trading Economics

- Datawrapper

As you guys can see, the declining price of coal hurt the coal earning and this is not good for the economy as this is the second number of most export by Australia.

Nowadays, the world is changing; the Importance of the use of green and clean energy is rising. Many firms and nations are now taking steps towards it, and people view also changing, and this will surely have an impact on the coal industry. Not immediately but in upcoming years will inevitably show its effect.

2. Consumer spending –

Despite the uplift in jobs – and falling unemployment, which some experts forecast will drop to about 5 percent by year's end – consumer confidence bottomed out in August 2017 at 95.5 according to the Westpac-Melbourne Institute's monthly survey. This result was dragged down by pressures on family finances, and concerns over deteriorating housing affordability and rising energy prices. Anything below 100 means more consumers are pessimistic than optimistic. This same confidence measure then surprised by rebounding to 103.3 in December. Luxury car sales are down, falling 1.8 percent in the 12 months to the end of August 2017, a 15-month low. It was the most significant annual drop in five years. According to CommSec's Luxury Vehicle Index, which tracks sales of 17 brands, including Audi, BMW, Ferrari, Lexus, Mercedes-Benz, and Rolls-Royce. Weak household spending, slowing further from last year and up just 1.8 percent over the year, with households cutting back on their discretionary spending, particularly in new household items, recreation, and hospitality. Household spending overall contributed just 0.1 percentage point to growth.

3. Falling of House prices –

I have talked about this in one of my Blog Australian House bubble.

House prices in Sydney have fallen almost 15% from the peak of the last two year.

4. High household debt and stagnant wages –

To understand the effects of household lets first understand what household debt means, Household debt is defined as the amount of money that all adults in the household owe financial institutions. It includes consumer debt and mortgage loans. Australian household debt nears highest worldwide. Australian families are facing a collective $700 billion cut to their wealth from the need to rewind the massive amounts of debt built up during the property boom. Australia's predicament is made worse by the need to cut debt occurring during a period of falling house prices and at a time when the household savings rate is a wafer-thin 1 percent of disposable income. Australian household has been raised past three, In fact, the ratio of household debt to income has more than doubled between 1995 and 2015, going from 104% to 212%, according to the OECD Data released in 2015. This means if the average person earns $80,000 net, they are spending $169,600 per year. Values are approximately so there can be a slight deflection in figure with this Australian worker is getting the smallest pay raise. The reason behind this is mainly companies is not increasing wages to raise their profits. The wage rate is lower than inflation in the country. Many of you will this is common in the developing region why it is a factor for an economic slowdown? The main issue is that Australia is developed the country and due to this standard of living is very high and price of the day to day goods is very high so for payment for that people will need a high amount of wages. In Australia, wages increase is lower than inflation increase, and this is creating problems. To understand the magnitude of this situation, the Australian government has written an article on this topic on 9th of April 2019; I will give a link in 1st comment.

There are many other factors also, but I have mentioned a few.

Conclusion –

Australian economy enjoys a long run of almost 27 years without a recession; I would say it happen because of two factors first due to decisions of lawmakers and government, and second luck. Yes, I told luck this is because Australia is unable to diversify its economy at a rate which a developed nation has to. We have examples of many countries falling in recession due to overdependence on one sector. I am not saying the Australian economy will face one soon but if Australian govt. Didn't take a concrete decision but I am sure the Australian economy will surely do something.

Globalization in India Part 1

noreply@blogger.com (Onkar Jadhav) — Mon, 10 Jun 2019 10:52:00 +0000

1. History of Globalization

Theodore Levitt is the person who created the term “Globalization”

He was a Harvard Business School professor. He invented term in Harvard Business School review in 1983 the article named as “Globalization of the Market.”

Meaning of Globalization in Cambridge Dictionary –

“The increase of trade around the world, especially by large companies producing and trading goods in many different countries.”

Meaning of Globalization –

“The process of interaction and integration among the people, companies and government of different nations, a process driven by international trade and investment and aided by information technology.”

In simple words, Globalization refers to the increasingly global relationship of culture, people, and economic activity. It generally used to refer to economic globalization. The global distribution of the production of goods and services through the reduction of various taxes and tariffs.

The 19^th century witnessed the advent of globalization approaching its modern form.

According to most people, Globalization is Morden term, but there is some evidence that shows globalization was way back in history. The Sumerian Civilization and Indus Valley Civilization has a trade link between them and after there were some trade links between India, Egypt Greece and the Roman Empire

2. Globalization in India

India was Largely and intentionally isolated from the world markets, to protect its fledgling economy and to achieve self-reliance. Foreign trade was subject to import tariffs, export taxes, and quantitative restrictions on another hand, FDI was restricted its essential limit on technology, export restrictions, and govt. the approval which led to limiting FDI average only up to $200 Million annually between 1985 to 1991.

Indian international trade was 12.15 billion rupees in 1950-51.

During the British phase India’s share of world income decline from 22.3% in 1700 AD to 3.8% in 1952.

Introduction on Globalization

In India Globalization was introduce in 1991 by the Finance Minister of that time Manmohan Singh

"The grave economic the crisis now facing our country requires determined action on the part of Government. I suggest to this august House that the emergence of India as a major economic power in the world happens to be one such idea. Let the whole world hear it loud and clear. India is now wide awake. We shall prevail. We shall overcome."

This is the words from him on June 1991

On August 15, 1947, the Republic of India stuck to socialistic economic strategies. In the 1980s, Rajiv Gandhi, the then Prime Minister of India, started several financial restructuring measures. In 1991, the country experienced a balance of payments dilemma following the Gulf War and the downfall of the erstwhile Soviet Union. The state had to make a deposit of 47 tons of gold to the Bank of England and 20 tons to the Union Bank of Switzerland. This was necessary under a recovery pact with the IMF or International Monetary Fund. Furthermore, the International Monetary Fund necessitated India to assume a sequence of systematic economic reorganizations. Consequently, the then Prime Minister of the country, P V Narasimha Rao initiated groundbreaking economic reforms. However, the Committee formed by Narasimha Rao did not put into operation several changes which the International Monetary Fund looked for.

Dr. Manmohan Singh, the present Prime Minister of India, was then the Finance Minister of the Government of India. He assisted. Narasimha Rao and played a key role in implementing these reform policies.

Narasimha Rao Committee's Recommendations
The recommendations of the Narasimha Rao Committee were as follows:

· Bringing in the Security Regulations (Modified) and the SEBI Act of 1992 which rendered the legitimate power to the Securities Exchange Board of India to record and control all the mediators in the capital market.

· Doing away with the Controller of Capital matters in 1992 that determined the rates and number of stocks that companies were supposed to issue in the market.

· Launching of the National Stock Exchange in 1994 in the form of a computerized share buying and selling system which acted as a tool to influence The restructuring of the other stock exchanges in the country. By the year 1996, the National Stock Exchange surfaced as the biggest stock exchange in India.

· In 1992, the equity markets of the country were made available for Investment through overseas corporate investors. The companies were allowed to raise funds from foreign markets through the issuance of GDRs or Global Depository Receipts.

· Promoting FDI using raising the highest cap on the contribution of international capital in business ventures or partnerships to 51 percent from 40 percent. In top priority industries, 100 percent of global equity was allowed.

· Cutting down duties from a mean level of 85 percent to 25 percent, and withdrawing quantitative regulations. The rupee or the official Indian currency was turned into a convertible currency on the trading account.

· The recognition of the methods for sanction of FDI in 35 sectors. The boundaries for international investment and involvement were demarcated.

The outcome of these reorganizations can be estimated by the fact that the overall amount of overseas investment (comprising portfolio investment, FDI, and investment collected from foreign equity capital markets ) rose to $5.3 billion in 1995-1996 in the country) from the microscopic US $132 million in 1991-1992. Narasimha Rao started industrial guideline changes with the production zones. He did away with the License Raj, leaving just 18 sectors which required licensing. Control on industries was moderated.

Steps were taken for Globalization

(i) Reduction in tariffs:

Customs duties and taxes imposed on imports and exports are reduced gradually just to make India economy attractive to the global investors.

(ii) Long term Trade Policy:

Forcing trade policy was enforced for a longer duration.

Main features of the policy are:

(a) Liberal policy

(b) All controls on foreign trade have been removed

(c) Open competition has been encouraged.

(iii) Partial Convertibility of Indian currency:

Partial convertibility can be defined as to convert Indian Coin (up to a specific extent) in the currency of other countries. So that the flow of foreign investment in terms of Foreign Institutional Investment (FII) and Foreign Direct Investment (FDI).

This convertibility stood valid for the following transaction:

(a) Remittances to meet family expenses

(b) Payment of interest

(c) Import and export of goods and services.

(iv) Increase in Equity Limit of Foreign Investment:

Equity limit of foreign capital investment has been raised From 40% to 100% percent. In 47 high priority industries foreign direct investment (FDI) to the extent of 100% will be allowed without any restriction. In this regard, the Foreign Exchange Management Act (FEMA) will be enforced.

If the Indian Economy is shining at the world map currently, its sole attribution goes to the implementation of the new economic policy in 1991.

(i) The rupee was devalued by 20% in July 1990-91. The devaluation was made to encourage
exports and discourage imports.

(ii) The government offered partial convertibility j of rupee through the budget of 1992-93. Full convertibility was provided in 1993-94. Convert¬. the ability of rupee was aimed at encouraging
export earnings.
(iii) The government announced a foreign trade policy for five years, i.e., 1992-97. The sole purpose of this policy was liberalization.
(iv) To build up our competitive strength, customs, and tariff policies were modified to promote international trade.

The second part of this blog will be posted soon.

Devaluating Yuan A Masterstroke by China

noreply@blogger.com (Onkar Jadhav) — Tue, 19 Mar 2019 15:43:00 +0000

Devaluating Yuan A Masterstroke by China

I have been criticizing China for their aggressive international policy, but one thing I would like to appreciate is their economic policy for handling of their currency in the global market.

In the past and currently, many countries are worried about decreasing value of their currency, but China can devaluate Yuan without affecting their economic situation.

The economies of those nations have shown an adverse effect, but China is on raising aside.

So how did the Chinese economy is not only able to survive but also able to grow at a high pace? What are those steps that help China to achieve this? And how devaluating Yuan helped China? I will try to answer these questions in this blog

To understand this, first, we have to understand the difference between the Devaluation of currency and Deprecation of currency.

Devaluation of currency –

In this situation, Govt. of a country is purposefully lower the value of their currency for some strategic reasons. This is relatively stable.

Deprecation of currency –

In this situation, the value of currency gets lower due to demand and supply of money. This is relatively imbalanced.

1. So by this, we know that Chinese Govt. is devaluating Yuan so now let’s see how they can do it?

Using other International currencies –

To manipulate Yuan China mainly used other currencies, China sells the coins in the international market to devalue Yuan. To understand it in better let’s taken an example, Due to export is more than import Yuan will get stronger than other currencies so to tackle this China increase supply of Yuan this increased supply reduces the value of Yuan. In this forex reserves play an essential role, and China has a vast forex reserve USD forex reserve.

Using gold reserve –

The gold reserve of the country has a significant impact on the value of the currency, and a land which has a massive amount of Gold in their reserves can stabilize their money and can manipulate it.

China is in 7th place when you calculate total Gold reserve.

Let’s understand it in detail.

-          The world gold council report (2019)

As you can see in above fig. the US is number one with 75% of total world gold reserve and China is in 7th place, and India is in 11th place.

So this shows how USD has such stable rates. This does not mean the country with the lower reserve cannot manipulate their currency the most prominent example of this the situation is the UK which is in 18th place then to their money (Pound) is much stronger than Indian Rupee.

Let’s understand why Gold reserve is necessary, the gold which is in the treasury of the central banks of the country can be used as the emergency money means this the reserve can be sell in emergency and help stabilize the currency.

To understand this let’s take an example India’s currency was losing its value in the international market in 2018 so to secured the Rupee RBI (Central Bank) purchased gold in Sept. of 2018, and this showed a positive impact on Rupee Value.

-          www.google.com

As you can see after the purchase of the gold value of Rupee is stabilized.

2. How devaluating Yuan helping exporters –

When the value of the home currency gets lower the exporter gets more profit and export increases business which results in a rise in GDP of the country. Currency rate and shipping have an inverse relationship as the value of currency decrease export increases. This is happened due to exporter gets more money for the same amount of product.

Let’s understand it with an example, let’s assume a seller in China sells 1 kg Oranges at $5 and the exchange rate is $1 = 15 Yuan then the seller will get 75 Yuan for that 1 kg of oranges and when China devalued Yuan to $1 = 20 then the seller will get 100 Yuan for the same amount of peaches. In this seller enjoys more profit without changing anything.

3. How China devaluation helped China to grow fast –

As we have seen above how devaluation has the inverse relationship with Exports, depreciation has a direct connection with Import as the currency gets devalued Import falls.
As imported things get expensive, this gives a boost to the economy of the country due to export more and import less.
More export-led to more production, more production means more employment and more the production which led to the high growth in the GDP.

- www.wikipedia.com

As you can see China Export less and Import more this gives China a boost and helped to become an exporting superpower.

Conclusion –

By devaluing Yuan China gives an edge to their producers in the international market, due to this Chinese goods are available at a much lower rate than competitors.

In the end, I would say it was a masterstroke by China.

Boeing 737 Max Crash How badly it is going to affect Boeing

noreply@blogger.com (Onkar Jadhav) — Wed, 13 Mar 2019 14:49:00 +0000

The world was in a shock when it heard about a Boeing 737 Max had crashed in Ethiopia, and this crash killed 157 people. After this crash, some strong steps had taken by many countries, but the question arises, how much this will hit badly to Boeing. In this blog, we will see how economical it will affect Boeing.

Boeing 737 Max is a relatively new plane introduced in August 2011, and it performed its first flight in January 2016. It is a fourth generation aircraft which cost from $99.7 million to $134.9 million for a unit. They consider this plane a modern plane.

It is not the first time that a plane has crashed and people died if but it is rare that an aircraft manufacturing company is to be directly blamed for the accident. Here, Boeing is in the fault because of the same model Boeing 737 Max 8 has crashed twice in five months killing all approx. Three hundred forty-six people on board and the pattern was similar in both planes as both crashed within 15 minutes of take-off.

After the whole crash world was started criticizing the plane and the company so let’s see how it will affect the Boeing.

1. Countries grounding planes-

The biggest problem which Boeing is facing is that after this many countries ground 737 Max. Till now 29 countries had grounded the plane, which comprise Argentina, Australia, Austria, Belgium, Brazil, Cayman Islands, China, Ethiopia, EASA member states, France, Germany, Iceland, India, Indonesia, Ireland, Italy, Malaysia, Mexico, Mongolia, Morocco, Netherlands, Norway, Oman, Poland, Singapore, South Africa, South Korea, Turkey and the UK are the countries.

The problem is not stopping here many countries have also banned this plane in their airspace this is an enormous problem for Boeing as this will reduce demand for their aircraft.

Because of ground many pre-booked flights have to get cancelled or has to use another place, this will create pressure on the airline, and if this problem is not solved or the ban is not lifted quickly, then this will affect the future orders for the Boeing.

In New Delhi they have cancelled from this morning, only 14 flights and the airline have to pay the refund.

2. Future orders can get cancelled-

As we see above how an airline and passengers have to suffer in this situation and due to all this-this will affect the other place by the airlines for this plane.

The biggest market for Boeing is China and China was one of the first countries to ground the planes. Boeing has estimated that China will need 7,690 commercial jets in upcoming years. According to Boeing 180 planes had ordered by a dozen of Chinese airlines and 76 out of them had delivered.

Boeing has received approx. Four thousand seven hundred orders for 737 Max and 80% of it are a backlog.

If this situation continues, then Boeing can face problems as many airlines can cancel their orders.

Let’s understand it numerically how big this loss can become.

Earlier Boeing has 4,700 orders imagine if 10% of it gets cancelled, which are 470 plans and cost of one plane is $134.9 million, then the total loss will be $63.403 Billion, which is an enormous amount and it is just for 10% of the current order.

3. The share price of Boeing-

The Boeing share price had shown a drop in share price after the crash of 10Th March 2019.

- www.Google.com

As we can see in the above diagram, the price of the share has dropped, it is rising after the incident, but you can see the drop.

4. Goodwill of Boeing-

Goodwill is an image of the organization in the world, and every MNC’s tried to establish and raise their goodwill in the market. Moore the goodwill more company gets profit, and more these companies get new business.

As you can see in an above diagram, the goodwill of the Boeing is raised, and this is a good thing for any company, but after the incident, it is a very much likely that Boeing will lose some of its goodwill.

Goodwill is not only raising by the business reviews and opinions of people also affects the goodwill in this Boeing will get hurt because of the problem is being lifted by international media this topic was breaking news for many news channels for hours,
there is a hashtag on twitter #737max which spread the news and this news creating the bad image regarding the plane and company in the minds of many people.

5. Invest in identifying and solving the problem-

The very next problem arises after a crash is to identify and solve the problem in Boeing 737 Max and will take a considerable amount of money and Boeing has to do the research on the plane and identify the problem and solve the problem as soon as possible. Already Boeing was said to have invested about $3 to $4 Billion (might be higher) in developing of this plane and additional money, which will be required to identify and solve the problem, after doing that also it is no guaranty that this plane will get the same response as early. So Boeing is when it has to invest, but the return is uncertain.

Many countries will strictly examine before adding this plane onto their fleet.

Conclusion-

Boeing is one of the leading companies in the aeroplane making industry, and its 737 series is in use from 1967. It was a shock when two planes of the same model crashed; these crashes will going to affect Boeing economically. Boeing has to work harder if they want to get their market share back.

I feel sad for the people and their family who have suffered in this crash, and that’s why I support the grounding of Boeing 737 Max.

Can India able to create a crisis in Pakistan?

noreply@blogger.com (Onkar Jadhav) — Mon, 11 Mar 2019 12:52:00 +0000

Currently, India and Pakistan’s relation is on the decline side in the past few weeks due to attack on CRPF soldiers killed in bomb blast in the Jammu and Kashmir. In response, the Indian air force attacked a terrorist camp in Pakistan. This caused a warlike, but the question arises how much war can affect Pakistan’s economy? Can does India create a crisis in Pakistan without announcing a war?

Then my answer will be partial ‘Yes’ without announcing a war India can create a crisis in Pakistan. So let’s see how India can able to do it.

Pakistan’s economy is not a self-sufficient economy; it depends upon other countries to run its day to day life and India can block this to create a crisis.

1. Stopping the exports –

The first step that Indian can take is by stopping the exports and imports to Pakistan. India and Pakistan trade was not significant; it was $2.4 Billion in the year 2017-18 which is 0.31% of India’s total business. In this India export around $1.9 Billion worth of goods and Imports $500 Million.

India exports consist of Cotton; Organic Chemicals etc. is having the highest stakes.

India has given Pakistan the MFN (Most Favoured Nation) status due to which will hurt the ambition for increasing trade with India.

India didn’t stop here. India imposed 200% Tariff on Pakistani goods. India supplies some of the essential products such as medical supplies etc. which is necessary for Pakistan. India and Pakistan trade are not too big that it will affect the economy severely, but the Indian economy can surely give a shock to the Pakistan Economy with these trade restrictions.

2. Naval blocked –

Naval blocked means active interception of ships (Any ships) heading towards the port of a country. The Navy and India do this had done this in the past with Pakistan in 1971’s war. In this navy intercepted ships going to the port of the country with the aim of cutting the supply of the country.

Pakistan’s top 5 importers consist of China, UAE, Saudi Arabia, Indonesia, and Japan out of these five countries four countries do not share a border with Pakistan, and their primary mode of export will be waterway and if India is successfully able to impose a naval blocked then Pakistani economy can suffer a considerable loss.

As we know India has a vast navy which has an active presence in oceans near India, so Indian Navy can easily do it, and in the period of the air strike, one Indian Submarine was near Pakistani waters.

To better understand let’s take an example –

India can create oil shortage by naval blocked as Pakistan imports crude petroleum (5.2%) and petroleum gas (3.3%) if India stops these ships reaching Pakistan then an oil crisis can emerge.

3. International pressure –

India can also increase pressure on Pakistan internationally as we know the Pakistani economy is not in good shape and it needed money from other countries
In earlier days the USA helped Pakistan, but slowly the USA stop giving aid and now Saudi Arabia is helping Pakistan, but the main issue which every country have with Pakistan that it failed to stop terrorism on their soil and India can take advantage of this topic to blacklist Pakistan. Newly India is trying to blacklist Pakistan in FATF etc. India’s these steps can create a crisis as due to these Pakistan will get less amount for their economy to work and raising international pressure will create pressure not only economically but also politically.

Pakistan pore oil in this mix with CPEC and using F-16 due to which the US will also less likely to help Pakistan

Conclusion –

We live in the 21st Century where a war cannot be only played on land some fights can be of other types, and if my calculations are right, then India can do much more damage to Pakistan if India starts a war on an economic level.

Brexit Why it is needed?

noreply@blogger.com (Onkar Jadhav) — Tue, 19 Feb 2019 09:49:00 +0000

Brexit has been a hot subject in the past few weeks as the UK is nearer to withdraw itself from the EU. As Brexit is around the corner, it's becoming a great topic whether Theresa May cannot present the deal, but also passed this deal through parliament. Till now Theresa May cannot give the bill.

There are many problems in the queue such as trade deal, Irish border, and EU people living in the UK and vice versa, but in this blog, we will see why the UK needs Brexit.

To understand lets first see what the EU is.
The European Union is a political and economic union of 28 member states that located primarily in Europe.
They established the EU in 1999 and came into full force in 2002.

EU has developed a single internal market through a law to all member nations. The main aim of the EU is to have a free movement of people, goods, services, and capital within the internal market. The EU also makes the rules for trade.

In simple words, the EU provides a collective barging power with any country, i.e. It collectively takes decisions on trade with non-European countries.
The EU also provides its member countries for easy labour migration. Because of which any EU citizen can migrate for work in any of the EU countries.

There is a free border along with the nations of the EU.

Because of the collective effort, EU countries have successfully achieved a developed economy tag.

Every country helps each other for economic development and as it said “power of unity” indeed applies for EU nations as every country want to do business with EU nations and their currency EURO have more value in the market than the world superpower Dollar.

Do all these businesses has flourished in across Europe and many technological, and economic advancement, has achieved by the EU, but as you know every coin has two sides, EU also has some negative, but many positive things overshadow that.

So why then the UK wants to leave the EU?

In fact, in the referendum held on 23rd June 2016 people just voted 51.9% in favour of leaving the EU, which shows how narrow the decision was and people in the UK also confused between them.

Most of Scotland were in favour to stay in the EU.

Now the UK had taken the decision to leave the EU, but what are the reasons because of the UK want to leave the EU to let’s discuss.

1. Restrictions on the UK’s lawmakers–

They have introduced Approximately 52,741 laws in the UK because of EU legislation since 1990. There are about 12,000 EU regulations in operation in the UK.

Some laws are which affected the UK–

The EU Climate and Energy “20-20-20” Package: Laws implementing the EU Emissions Trading Scheme to cut greenhouse gas emissions from major industries and various financial incentives to achieve 15% of UK energy from renewables by 2020;
Chemicals (REACH), hazardous substances (RoHS) and packaging requirements which UK manufacturers have to comply with to sell into the EU;
The Working Time Directive: Giving workers the right to a minimum holiday entitlement each year and limiting the working week to 48 hours;
The Temporary Agency Workers Directive: Seeking to give equal rights to agency employees and permanent employees carrying out the same job within a business;
The Capital Requirements Regulation (CRR) and Capital Requirements Directive: Setting out essential obligations for EU banks, including implementing Basel III prudential requirements, establishing the pass porting regime for banks and imposing remuneration requirements.
The Common Fisheries Policy gives European fishing fleets equal access to the waters of all EU states within 12 nautical miles of the coast and imposes quotas to preserve fish stocks.

2. Forced to adopt the Euro-

As you know the UK uses the Pound and most of the EU countries use the Euro, and the EU plans to force the Euro to all of its member nations.
The UK has pushed in the past to accept the Euro but the UK denied as the value of the Pound was higher than the Euro, and the Pound has more value in the international market and referred as more stable currency than Euro. So the UK did not accept the Euro and continue to use the pound.

Now the EU is forcing all its member countries to accept the Euro as their currency which the UK consistently opposes.

The EU said the member nations have to accept the Euro by 2020.

3. Immigration laws-

The more significant dispute is immigration laws. As people from any country can easily migrate to the UK and have the benefit of working in the UK because of which it affected the resident.

Many migrants leaving the less developed country to more develop the land. Because of the war in Syria, many people migrated from there.

It's estimated that 3, 30,000 people legally immigrate, but the UK want it to be near 1, 00,000. This is happening because the EU is deciding the immigration policy, not the UK.

4. Membership fees-

Every EU country has to pay fees as the membership fees to the EU, but the EU also returns the money as a benefit to the state and this fee is not equal for every nation it depends upon the size of the economy because of which the UK has problems because of a big economy compared to other countries.

They estimate it the UK has paid 13 Billion Pound as a membership fee and in returns; the UK get 7 Billion approximately.

5. Economic slowdown-

The UK can develop more quickly than current speed if the UK leaves the EU as there are many laws has been imposed on the UK, which restricts its growth if the UK leaves the EU then it can create its rules which is more beneficial for the economy.

Above are factored because of which the UK wants to leave the EU.

The UK has taken a definite step in favour of their economy, and if it will positively affect the UK’s economy, then I would support the Brexit, but it all depends upon the deal which will be signed between the UK and the EU.

Changes in Tax [Part 1]

noreply@blogger.com (Onkar Jadhav) — Wed, 28 Nov 2018 09:07:00 +0000

The tax has become an integral part of the current situation.

The main purpose of this study is to find out how the tax changes in history and the current tax system.

There is a different tax for a different purpose and for a different reason but they all created to finance the government.

They have started tax way back in 1799 where The Britishers collect the tax to fund the war against French and this laid the foundation of modern tax.

In history, most of the tax was collected for funding wars but they have changed the definition of war for the upcoming years.

Nowadays tax is been the main revenue for the government for financing its various activities.

Tax changes over time.

As time changes the collection of tax also changed.

In India there is a different tax like Income tax, VAT, Excise duty etc. but all these taxes are replaced by GST.

But what is tax how it starts and how many taxes are there in India till now?

Before GST there was a vast tax system in India and how GST unite this tax all this we will see in this paper

I will post this Blog in two parts as this topic is more lengthy than I anticipated.

Chapters

1. History of Tax

2. Taxation policy before Independence

3. Taxation policy till GST

4. GST

1. History of Tax

What is mean by Tax?

According to Oxford dictionaries–

“A compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions.”

According to Cambridge Dictionaries–

“Money paid to the government that is based on your income or the cost of goods or services you have bought,"

In simple words, A Tax is a mandatory financial charge or some other levy imposed upon a taxpayer by a governmental organization to fund various public expenditures.

Worlds 1st known tax collected by the British Prime Minister William Pitt the Younger in 1799 to help to cover the cost of his country’s war with France.

Income Tax had also been introduced in this period.

In The US, Tax was started collecting from 1864 because of the Civil war.

In India, the tax system we all know today has been in force by the ancient times they refer various tax measures in both Manu Smriti and Arthasastra.

According to Manu Smriti

The King should arrange the collection of taxes in such a manner that the taxpayer did not feel the pinch of paying taxes. He laid down that traders and artisans should pay 1/5^th of their profits in Silver and Gold.

While the agriculturist was to pay 1/6^th, 1/8^th and 1/10^th of the production.

In Arthasastra

Mentioned that each tax was specific and there was no scope for arbitrariness. Tax collectors determined the schedule of each payment and its time, manner and quantity being all pre-determined. They fixed the land revenue at the 1/6^th share of the production, import and it determined export duties on the ad-valorem basis.

2. Taxation policy before Independence

In India tax was introduced in 1860, by Sir James Wilson to meet the losses sustained by the government on account of the Military Mutiny of 1857 The Indian debt, which was £51 Million in 1857 rose to £97 Million in 1862.

In 1918, they passed a new Income tax

In 1922 they passed a new act

In 1961-62 numerous amendments were made in the act.

1. Customs duties (Sulka) which comprise import duty (Pravesya), Export duty (Nishramya) and octroi and other tools

2. Transaction tax (Vyaji)

3. Share of production (Bhaga) 1/6^thshare

4. Tax (Kara) Cash form

5. Taxes in Kind including labour supply of soldiers

6. Countervailing duties or taxes (Vaidharana)

7. Road cess

8. Monopoly tax

9. Royalty

10. Army maintenance tax

Above are few names of taxes which were in India.

Most controversial tax in history was a salt tax. British East India Company imposed a tax on salt.

In 1772 Governor-General Warren Hastings brought the tax to control the companies and in 1780 rate was 2 rupees a mound with a tax of 1.1 to 1.5 rupees a maund

In 1781-82 tax revenue was 29,60,130 rupees

In 1784-85 tax revenue was 62,57,750 rupees

Year	Rs. (Million)	£ (Million)
1929-30	67	5.025
1930-31	68	5.1
1931-32	87	6.525
1932-33	102	7.65

www. wikipedia.org

3. Taxation Policy till GST

As we all know, we have Direct and Indirect taxation policies in India

In this, we will talk about the indirect taxation policy

Indirect tax is a tax that can transfer from one person to another person and the last person on the chain is always get the burden of payment of this tax. Sellers always shift the payment liability to the buyers.

They derive the authority of a levy from the Constitution of India which allocates the power to levy various taxes between the Central and the State

As per Article 265 of Constitution

“No tax shall be levied or collected except by the authority of law”

Therefore, each tax levied or collected has to be backed by an accompanying law, passed either by the parliament or the state legislature.

Tax policy in India is levied by the central and state government and local authorities also impose a tax on the people.

Following is the table of some different taxes imposed on people by both central and state government

1. Service Tax -

Service tax was a tax levied by Central Government of India on service provided or agreed to be provided.

From 1st June 2016 service tax rate to merged rate at 14% + 0.5% + 0.5% = 15%

0.5% = education cess and higher education cess

0.5% = Swach Bhart cess

Dr Raja Chelliah committee on tax reforms recommended introducing service tax in 1994.

The flat 5% from 1^st July 1994 till 2003 was levied.

On 13^th may the service tax structure out at a nominal 5% which is now 15%

The only exemption is when the service provided during the financial year is not more than Rs. 10 lakh

I am presenting the diagram below of service tax revenue in past years (In Crore)

jagoinvestor.com

it estimates 2015–16 figure

2. Custom duty -

A customs duty is an indirect tax levied on the import and export of goods in the International trade.

It includes both import and export duties but as export duties contributed only a nominal revenue, due to raising the competitiveness of exports.

Import duties alone made up a major part of the revenue its most probably 10% but it varies

There are different customs duty few as follows

i. Basic Customs Duty

ii. Counter veiling Duty (CVD)

iii. Additional Customs Duty or Special CVD

iv. SafeGuard Duty

v. Anti-Dumping Duty

vi. National Calamity Contingent Duty

vii. Education Cess on Customs Duty

viii. Protective Duty

Press information bureau Govt. of India

Above diagram is Indirect tax collection of Customs, Central Excise & Service tax from April to October 2015 (IN Rs. Crore)

3. Excise duty -

An excise duty is on duty on manufactured goods they levy which at the moment of manufacture,

The basic duty rate has been changed from 12% to 12.5%, however, they have removed education cess and higher education cess

Commodities	Collection in FY 15*	Collection In FY 16*	% of excise Kitty in FY 16
Petroleum products	1,06,653	1,98,793	69.23
Tobacco products	16,676	21,463	7.47
Iron and steel	15,970	16,632	5.79
Motor vehicles	8,546	14,220	4.95
Cement	9,572	10,544	3.67
Machinery	3,707	6,421	2.24
Plastics	5,150	6,092	2.12
Chemical products	5,103	5,419	1.89

CAG

Fig in Rs. crore

4. Central Sales tax (CST) -

CST is a levy of a tax on sales it affects which in interstate trade or commerce.

According to the constitution, any state should not impose a tax on intrastate trade, only central Govt. have authority to do it.

They passed the Central Sales Tax Act 1956 to implementation of the tax and its vary from 5% to 12.5%

I will be posting the second part of this Blog soon.

CPEC A road to an economic problem

noreply@blogger.com (Onkar Jadhav) — Tue, 16 Oct 2018 11:52:00 +0000

China Pakistan Economic Corridor (CEPC) is an initiative taken by a Chinese and Pakistani Govt.
It a part of China’s One Belt One Road initiative (OBOR), CPEC is creating to boost trade between China and Pakistan and by this route, China can by-pass oceans.
The CEPC plan involves constructing a network of transport, energy, industrial and agricultural projects that will stretch around 2,700 KM. from Gwadar port in Pakistan to Chinas Xinjiang.
CPEC can help Pakistan to increase its export and boost its economy, as the trade between China and Pakistan can become more comfortable. It will connect two ports of Pakistan with China via roads and rails. CPEC will make across Pakistan and connect to China.
So why did these projects will create problem to Pakistan we will discuss this in the Blog.

1. Overspending on CEPC –

CEPC is not a small project it will cover all of Pakistan and it not only have roads and railways which will cost there are various energy and agricultural projects proposed in CEPC.

CPEC is approximately worth $62 Billion as of 2017.
China’s Exim bank will be giving a loan to Pakistan of $11 Billion at a rate of 1.6%
$7 billion of the planned $8.2 billion overhauls of the Main Line 1 railway is to be financed by concessionary loans, which extended by China's state-owned banks.

The long-planned 27.1 km long $1.6 billion Orange Line of the Lahore Metro is regarded as a commercial project and does not qualify for the Exim Bank's 1.6% interest rate. It will instead be financed at a 2.4% interest rate.
The $44 million Pakistan-China Fibre Optic Project, an 820 km long fibre optic wire connecting Pakistan and China, will be constructed using concessionary loans at an interest rate of 2%, rather than the 1.6% rate applied to other projects.
China in August 2015 announced that concessionary loans for several projects in Gwadar totalling $757 million would be converted 0% interest loans. The projects which are now to finance by the 0% interest loans include: the construction of the $140 million East Bay Expressway project, installation of breakwaters in Gwadar which will cost $130 million, a $360 million coal power plant in Gwadar, a $27 million project to dredge berths in Gwadar harbour, and a $100 million 300-bed hospital in Gwadar
$15.5 billion worth of energy projects is to be constructed by joint Chinese-Pakistani firms, rather than by the governments of either China or Pakistan. The Exim Bank of China will finance those investments at 5–6% interest rates, while the government of Pakistan will be contractually obliged to purchase electricity from those firms at pre-negotiated rates
Asian development bank announced $195 million to upgrade N70 and N50 highway. UK’s Department for International development also given a loan of $72.4 million
The M-4 Motorway between Faisalabad and Multan is not to be financed by the Chinese government as part of CPEC, but will instead be the first infrastructure project partially funded by the Asian Infrastructure Investment Bank, and will be co-financed along with the Asian Development Bank for a total of approximately $275 million. Portions of the project will also be funded by a $90.7 million grant announced in October 2015 by the government of the United Kingdom towards the construction of the Gojra-Shorkot section of the M4 Motorway project.
There might be more loans taken for making of CPEC which I didn’t mention here.

Pakistan should be more conscious while taking loans.

2. Economic problem –

CPEC is proposed to give a boost to the Pakistani economy, but the way CPEC is evolving can create a problem for Pakistan’s economy in the future.

·Problem for small business in Pakistan –

CPEC is creating to boost trade between China and Pakistan, and CPEC will do it but for another half.
Pakistan has to understand that they are trying to increase trade relations with an export giant.

- In USD in 2017 (Est.)

This is a graph of both countries. It’s seen that which country will dominate the exports.
Chinese companies are relatively more advanced and more cost-efficient than their counterparts. Chinese goods can easily give a headache to small-scale industries in Pakistan.
This will be a massive problem for the upcoming years. If Pakistan opens its economy to Chinese goods then its high chances that Pakistan’s small-scale industries will not able to face competition.
Pakistani Govt. have to think twice before allowing China. Because I believe China will get a new market for their goods than Pakistan.
I think the Pakistani Govt. should prioritize the small-scale industry.

· No training to Pakistani workers –

When Pakistan visualized the path for CPEC, they thought people of Pakistan would get jobs and workers will be trained. So this will create jobs, and Pakistani goods will reach new markets, but this is not going as per the plan.
China is giving work to its citizens than Pakistan’s citizens.
China is making a Chinese only colony near Gwadar which will provide a home to 5 lakh workers.
This is bad as those 5 lakh Chinese workers will take 5 lakh jobs which meant for Pakistan’s citizen.

· More order to Chinese companies –

This is real Chinese companies are getting more projects than Pakistani companies.
The government has allocated only four projects to the local constructors under the China-Pakistan Economic Corridor (CPEC), and those too under strict conditions.
The condition, to sign a joint venture (JV) with a local partner in mega projects has also been revoked by the government for the Chinese in CPEC-related projects, despite that a 70-30 per cent JV was mandatory for foreign firms to develop the local sector, ensure technology transfer and human resource development, Sikandar Hayat Khattak, chairman, Constructors Association of Pakistan (CAP), said.
If Chinese companies are getting orders, then they will give Chinese people jobs, and this is not good for Pakistani companies its people and Economy as well.

· Resettlement problem –

There is a resettlement problem face by the people in Pakistan due to CPEC. As their lands taken for CPEC but not given proper resettlement. Due to this tension is rising within a country.

3. Strategic problem –

CPEC is also having a strategic effect within and outside Pakistan.

· Raising Chinese involvement –

As I said earlier, there is an increase in the number of Chinese workers and companies in Pakistan and after completion of CPEC China will be involved more in Pakistan.
Due to CPEC There will always some Chinese goods or people in the country, and China is also starting to prepare Chinese only homes in Pakistan this will only lead to a problem for Pakistan in the future.
Pakistan has an example of Sri Lanka that how China has taken its port.

· Chabahar port–

This CPEC will create a problem in future for India defensively as China can easily use this road for military purposes.
To counter this India have contact with Iran to use their one port near to Gwadar and relatively on more strategic position named as Chabahar port.
If India and Iran were able to start this port, then it will be a massive blow for CPEC as Chabahar port is relatively more convenient and in a strategic position.
There are various other factors also which can cause the problem to Pakistan such as there are protest against CPEC in Pakistan and people are attacking workers etc.

Conclusion –

CPEC is a good concept, but Pakistan has selected the wrong partner for it. If Pakistan is not able to repay its loan taken for CPEC, then it will be a massive problem as Pakistan have to ask for loans from IMF in the last couple of weeks and IMF have given some strict conditions for it.
India is trying to counter it by Chabahar port it will be a difficult task for Pakistan in upcoming years.

The US and China Trade war Golden opportunity for India

noreply@blogger.com (Onkar Jadhav) — Thu, 11 Oct 2018 07:03:00 +0000

The US and China are the top two economies in the world under a trade war. The US has started this due to Trade imbalance between the two countries.

The US is facing a trade deficit due to more import and less export to China. This will be harmful to The US in the long run.

Due to a trade war, the US has imposed a $200 Billion Tariff on China and in return, China has imposed a $60 Billion (Till the date)
Many of you may have a question of how this trade war will be a golden opportunity for India?

There is a gap created in both economies that India can fill by exporting its goods and services.

Let’s understand

1. The US–

The US is a big country with people with a high standard of living. Due to a trade war, Chinese goods will be more expensive than earlier. So India has to produce products to concentrate on these markets first.

Following are goods which India can take advantage.

The US imposed a tariff on Chinese goods.

· Meat & Beef —

it predicts Meat consumption in the US to be a record high in this year at 222.2 Pounds, i.e. 100.8 Kg per person and the US produce 100K per year and estimated that the US will import 59,000 metric tons in 2018 and will raise in upcoming years

World Beef exporter countries

Number	Country	2018	% of the world
1	Brazil	20,25,000	19.33
2	India	19,00,000	18.14
3	Australia	16,10,000	15.37

- USDA

They estimate it that India will raise their export in upcoming years as India is one of the least consumers of Beef and meat.

If India can able to capture this market in the US, then it can be very profitable to India.

· Fish and Seafood—

The U.S. imports over 6 billion pounds of seafood valued at more than $21.5 billion in 2017. Imports over 90 present of the seafood the public consumes. India’s shipment of 13, 77,244 MT of seafood earned US$7.08 billion in 2017-18.

The US and South East Asia are significant importers of Indian seafood industry with a share of 32.76% and 31.59% in dollar term.

* Egg and dairy

· Vegetables, Fruits and Nuts
· Tobacco Products
· Silk and wools
· Copper, Nickel, and Aluminium
· Clocks, Furniture, and matters, etc.

Above are a few examples of goods that India can try to export to the US.

Goods are not the only thing India should focus on, The US Govt. have been forcing US companies to leave China, due to this company having factories in China is moving to other countries.

India can be a good substitute for those companies as India is closer to China and due to Make in India campaign it’s become easy for companies to run a business.

If Govt. of India tries to attract those companies, then it can create employment in the county.

2. China –

The relations between India and China is declining over the past few years. Tension is rising on the border as well as on the diplomatic level. The bad connection will not help both of the countries. As both countries are still developing, there are various factors in which both countries can help each other, and this trade war can become a starting point for improving their relations.

China imposed a tariff on the US.

· Coconuts, Cashew, and Almonds
· Pineapple, Orange and Mongo
· Wine and juice
· Stainless Steel Pipes
Above are a few examples of goods that India can try to export to the US

Why The US and China should consider India?

1. Goods are relatively cheap –

Goods manufactured in India can cost less to the US or Chinese customers than other European or developed countries.

India is still a developing country due to this wages in India is low due to this price can be controlled.

If The US or China try to fill the gap created in their market by goods imported from developed nations, then they have to pay more than they can pay to Indian rights.

India will also try to sell at a low price to raise their exports.

2. Quality of goods is better –

Indian goods may not be able to compete directly with US goods, but they can surely give close competition to Chinese products or slightly better than goods manufactured in other Asian countries.

European or The US goods can have better quality, but for it, the price of those are also high.

3. India want to export –

If you guys know I had written an article named as India is a domestic economy. In that I have mentioned that India is not concentrated on the exports their goods are utilized mostly in the country.

So India is trying to export, and the US and China are trying to fill up the gap raised by a trade war. So it will be a win-win situation for both countries.

4. Open new markets –

As India increases its exports, the US and China can increase its export to India. This will create new markets for both of the countries.

5. Strategically important –

As you know, there is a rising tension between the US and China. India is in a strategic position that can help both countries. US and China can take help of India by improving their relationships, and the first step is a trading relationship.

It’s not possible for India to capture all the market, but India should try to win at least 40-50% of the total demand.

How can India do this?

1. Select Goods –

India should select goods which they can offer to both nations, and try to manufacture those goods in large quantity.

2. Keep price competitive –

India should keep the price of their goods more attractive so that they can counter their European counterparts.

3. Quality of products –

It’s tough to match the quality of European standards (As they have Morden technology and technique), but India should do their best for improvement of quality.
India should go for quantity more their main aim should be on capturing of the market first.
By doing this not only, India will enjoy profit but also the US and China can get good products at a reasonable price.
India should be quick at making decisions as various countries in the world are also trying to take advantage of this situation.

Conclusion –

A trade war is not good for any economy. I am actively opposing this; we can always counter situation on the diplomatic level. Now it has started, so India has an opportunity so I think India should use this. This will help India to increase its Export.

The Raising Chinese investment in Australia. Reasons to worry?

noreply@blogger.com (Onkar Jadhav) — Sat, 18 Aug 2018 18:57:00 +0000

China is an emerging superpower from Asia. China has shown a significant amount of raise in GDP and development in the country. The credit to this development has given to the policies and steps taken by the Chinese Govt. in past. The expansion of their business is appreciable but nowadays these Chinese investments forced other countries to double check of their decisions to invite China into their country. We have different examples like Sri Lanka & Pakistan etc. China has invested in those countries heavily and taken their assets on a lease. This is creating a pressure on the other countries like USA and India.

China has now extended his reach to Oceania, and it seems like Australia is a hot spot for China. Australia also has given a boost to relations with China. I am not saying the relationship with China is bad for Australia, but I am saying Australia is over-dependent upon China.

To understand let's see in detail.

1. Exports and Imports –

When you talk about a prosperous country, then Export and Import will be an essential factor for a nation. Goods, as well as countries from where you are importing, is also crucial. Nowadays trades are taken very seriously as you can see in a trade war between the US and China. So in today’s world, we cannot make it on ease, and we also cannot depend on one country or a single product, If that particular country or a single product fails, then it can cause a problem to parent countries economy. For, e.g., Venezuela is suffering due to overdependence on the Oil sector, etc.

Australia is not over-dependent on China till now, but it is one of the most significant contributors to export and import of Australia.

Let’s see with the help of graph.

- US$ Billions 2017 (estimated)

As you can see in the above graph, China has almost double trades with Australia than the closest competitor. This is 29.6% of total Australia’s exports

Imports from China in Australia increased to 5759019.55 AUD THO in January from 4928366.67 AUD THO in December of 2016. Imports from China in Australia averaged 1725356.64 AUD THO from 1988 until 2017, reaching an all-time high of 6171473.54 AUD THO in November of 2015 and a record low of 52000 AUD THO in April of 1988.

From above we can see how China is rising in Australian export and import. This is because of Australia and China’s free trade agreement. Due to such a dependence on a country's relations with that country or another side of the world is like to be disturbed.

China has threatened Australia with a trade war if a foreign interference law is not being lowered.

If this happens, Australia will suffer a huge blow, due to a gap between China and other countries.

Australia should try to increase the business with other countries in the world so that the difference created in between China and other countries can be lowered and such threats from China won’t affect countries decision-making process.

2. Agricultural –

Australian agricultural is not a significant contributor to their GDP (only 3%), but it is still the gross value of Australian farm products in 2016-17 was $ 60 Million EST. And out of it about 77% they export.

- A$ Million 2016 (estimated)

As you can see in the above graph China is also top here with 19.9% of the total share of the market and the closest competitor is at 10.1%. China in here also had a double the market than Japan.

China hasn’t stopped here. China to become the most prominent foreign owner of Australian farmland.

The first register, for 2015-16, showed 14.1 percent of Australia’s 371 million hectares of agricultural land — or about 52.1 million hectares — had some level of foreign investment. More than half that foreign investment land was in Queensland and the Northern Territory.

Foreign investors were most interested in the livestock industry, which accounted for nearly 88 percent of total hectares of foreign investment in 2015-16.

Chinese nationals or companies had some investment in 1.5 million hectares of Australian agricultural land, in 2015-16. That jumped to 14.4 million hectares in 2016-17, with the actual Chinese portion at 9.1 million hectares. The rise was primarily due to the Australian Outback Beef joint venture between mining magnate Gina Rinehart and Chinese partner Shanghai Cred buying the 10 million hectare S Kidman & Co Cattle Empire.

The Australian Tax Office's second annual update to the Federal Government's register of foreign-owned farmland shows Chinese investment has risen from about 1.5 million hectares to almost 14.5 million hectares.

3. Manufacturing –

Chinese investment in Australia Growth occurred in mining and energy, with a 448% increase in finance, healthcare (20%), transport (2%) and smaller areas such as services and manufacture (38%).

Industry	Value (A$M)	% of 2017	Change from 2016	% Change
Manufacturing	155	1	155	-
Transport	400	3	9	2
Mining	4,598	35	3,759	448
Health care	1,630	12	276	20

- DFAT

Mining was the most significant sector for Chinese investment in 2017 with 35% of total ODI, followed by real estate (33%), healthcare (12%), food & agribusiness (8%) and infrastructure (4%).

The mining sector saw 12 deals announced in 2017 totaling AUD 4.6 billion, a rise of 448% from 2016. This substantial increase was mostly driven by the AUD 3.4 billion acquisition of Rio Tinto’s thermal coal assets by Yancoal.

Chinese capital was again focused in NSW in 2017 with AUD 5.6 billion or 42% of total investment value. Victoria experienced uplift from 25% of total investment in 2016 to 36% in 2017. Western Australia received AUD 1.9 billion in Chinese investment or 14% of total inflows, up from AUD 1.1 billion in 2016. Queensland attracted AUD 667 million of investment, 57% of which was healthcare related. While South Australia attracted AUD 455 million or 3% of the investment, into infrastructure, energy and food & agribusiness deal.

Chinese investment in Australia is declining as compared to earlier years.

4. Service –

The linkages between China and Australia in education spending tell a similar story. Average education spending from 2006/07 to 2016/17 rose from A$16,225 to A$26,350 by Chinese students (just behind India in percentage increase), although average spending across all countries in Australia has also increased, unlike for tourism, by about 58% (versus China’s 62%). The number of students from China has risen by 340% since 2006/07, accounting for over 53% of the increase in foreign students, now totaling over 182,000 for 2016/17.

5. Real estate –

30th June 2017 Authorities said to have A$38.8 Billion is invested by the Chinese investors. Australian commercial real estate was second only to mining in popularity for Chinese buyers, attracting one-third of all Chinese investment in Australia, worth $4.4b, or 11.5 percent of China’s total spending on real estate globally.

“Australian real estate remains a key destination for Chinese capital. The macroeconomic framework is supportive, while the market is attractive from a global perspective – economic fundamentals are robust, population growth is solid, market transparency is high, and returns are broadly higher relative to comparable markets globally,” said Michael Zhang, head of JLL’s China Desk in Australia.

Mr. Zhang said demand for “trophy assets and larger acquisitions” gave way to investments in the $5m to $49m range, making up 63 percent of transactions in 2017.

Rank in 2017	Economy	2015	2016	2017	% of total	5-year trend % growth
1	USA	876.4	853.2	896.6	27.5	6.9
2	UK	481.4	520.7	481.4	14.7	4.2
3	Belgium	247.1	270.1	305.3	9.3	9.6
4	Japan	201.6	215.7	219.2	6.7	7.6
6	Singapore	98.7	91.2	82.0	2.5	5.6
9	China	75.4	84.1	65.0	2.0	21.6

- DFAT

As you can see China has the most % growth in the country mentioned above.

Above are some of the factors from my perspective that are showing the increase of Chinese investment in Australia. So why I said this can be a reason to worry?

Let’s see why I said it.

China has threatened Australia with a trade war if growing lack of trust is continuous and Australia is attempting to bring in laws to stop foreign donations. It seems China is having a problem with this.

Many of said that China is interfering with Australia’s policies. One of the examples is China had forced Australia to leave Quad group which is made for naval exercise.

This is one known example worldwide; it is a chance of many still hidden to us.

China can use this against Australia and can manipulate them in upcoming years.

This all is happening with Australia due to dependence on China as you have seen above. There are not only these things.

As you can see here China also topped in foreign investment in Australia so due to all above factors Australia has to listen to China’s opinions, and this will lead to poor relations with other countries, and this creates a circle of these decisions.

Just imagine if China one day rejects to continue the same business with Australia then it can become a severe problem in Australia.

I am not saying that relation with China is going to hurt Australia in the long run. I am just saying Australia should stop depending on China there are various countries in the world. This can help the Australian economy to reach more customers.

Australia has taken steps to counter this situation, and there are many other steps which are going to be made by them.

Conclusion –

Australia has known the effects of depending on China. So now it’s time for Australia to move forward and connect with other countries also. China will be forcing them in upcoming years as Trade war, and the South China Sea’s topic will be on rising aside. So finally answer to my question is it a reason to worry?

I would say

"Yes."

How can Venezuela counter Hyperinflation?

noreply@blogger.com (Onkar Jadhav) — Mon, 06 Aug 2018 17:51:00 +0000

How can Venezuela counter Hyperinflation?

In my last blog I have discussed Venezuela’s hyperinflation, and what are the reasons for it, now I am going to talk about how Venezuela can counter this. These are my personal thoughts. Many of you can have a contrasting view than me.

Countering inflation is not easy it and steps taken to control it will not show its effects on economy quickly.

To counter the situation, I divided this into two parts. The first thing the Govt. should stop spreading inflation and after that hyperinflation can be lowered.

1. How to stop spreading of Inflation –

The first aim of the Govt. is to stop spreading inflation more than a current percentage. It is an essential step as when an increase in the inflation rate will get lower; the situation will start to come under control. It’s always been a challenge to control inflation, but we are talking about hyperinflation which will be harder. So following are some steps that I am thinking will help to stop spreading inflation.

· Reduction in money supply –

As I said earlier in my blog increased money supply in an economy act as petrol in a fire, and this led to increases in inflation. So if the increase in money supply caused rise then, a reduction in money supply can be counted for that situation. Basically, Inflation occurs when people have disposable income, so we have to cut it down, many of you will say Venezuela’s people are already impoverished, and you are suggesting to a reduction in the supply of money how this can work?

I am saying reduce money supply which is raised in the country and limit the money so that the money which in the hands of people will start gaining worth, same the rule of demand and supply when supply is more prices is less and vice versa.

Venezuela’s Govt. is said to raise money supply by 14% in Dec. 17 and they keep printing money.

Banco Central de Venezuela

As you can see in the above graph how the money supply is increased, Due to this currency in the hands of people start losing its value, and now we can see inflation. So by reducing the quantity of money can help to stop rising of inflation.

· Reduction in public expenditure –

Reduction in public expenditure can help to stop rising inflation, As Public spending is utilized to boost the economy to get out of recession so if reduce the federal spending it can help to reduce inflation. As Venezuela’s Govt. spends almost 40% of their GDP on public expenditure so if public expenditure is lowered increase will also get reduced for, e.g., when Govt. devote money in public goods people use them and spend more and that circulate money in the economy and we have to slow down these process of spending. So reducing public expenditure can help reduction in inflation.

2. Counter Hyperinflation –

Since inflation is not rising anymore it’s time to counter it and take your economy back on track, it is also equally important Govt. will start to make some more serious steps.

· Ask for bailout packages –

This is most commonly used tool in the world when any country or any company is stuck in a situation where it is hard for them to recover by their self and in urgent need for external help to improve from their position. Many companies and countries don’t need this, but when it is a severe problem, then it became a need. You can ask help of The World Bank and IMF etc. which provides loans some of the cash-rich countries also help by giving loans but usually they have a hidden intention while providing loans so selecting of loans provider is also important when you take credit. As I said, The World Bank and IMF will be a more reliable source for bailout packages.

· Increase numbers of private companies –

Increase in the number of private companies can help to reduce inflation let me discuss how it will affect. When a private company is started in the country it provides jobs to the people, and it is liable to pay taxes to Govt. so people and Govt. gets income and that firm also earns profit due to business and if that firm start international business then it can help the country more. Many small industries even start, and many people also have a family business, etc. and when some companies are starting raising competition is also raised, and people will get excellent products at a reasonable price. Due to private companies Govt. get taxes and that will help to inject money into the economy. The private sector also contributes heavily to the income of a country. Many people are also work in a private firm and when there are an individual and public firm a healthy competition is started in the economy.

· Invest heavily in PDVSA –

When you have a state-owned company like PDVSA, you have to utilize it. The oil industry needs investments and improvement on a daily basis. Oil resources in Venezuela are buried in the earth’s crust than usual, so it needs more cost to compare to another country to produce it, and oil prices are fluctuating, so investing in new technology is necessary to do so it needs to invest in PDVSA. As PDVSA is earning you income so investment in it is required and it usually exports oil so due to this income also can be generated and help to reduce inflation. Many of you will say how to invest in PDVSA?

Govt. can sell Bonds to people and also can take loans for this.

· Improving international relations –

Many of you will ask how improving international relations will effect a reduction in inflation. I would say when international ties get better countries will also get flexible in payments and import and export taxes. Better relation led to increase in demand and repeat purchases and due to demand jobs will be created and foreign exchange reserve also increases.

· Selling of Govt. bonds –

Selling Govt. bonds to people will reduce money in the hands of people and Govt. also gets money in exchange of a paper and when people buy bonds that amount of money will be removed from the economy and that reduce cash will lower the inflation. Govt. also sell it to banks, and that will also reduce the credit making ability of bank due to this loan availability will also get lowered. This money can be utilized to invest in PDVSA etc.

· Increase in Value of Bolivar –

After investment in PDVSA and selling bonds country will start gaining international currency and with the help of those currencies Govt. can manipulate the value of Bolivar. Private companies and international relations will also help the Govt. to increase global currencies. When Bolivar’s value rises, inflation will also get lowered.

· Improve other sectors –

This also a significant factor as you guys read in my earlier blog how Venezuela is heavily dependent on the Oil sector, so when other areas like the Agricultural and Manufacturing sector start contributing to the GDP country will have a strong economy and factors, like reduce at the price of oil, will not affect the economy that hard. Improving other sectors is not an easy task it needs planning, time and money, etc. but I am pretty sure that this can help reduction in inflation.

Above are some factors from my point of view can help Venezuela to reduce its hyperinflation, there are many other factors also that can help Venezuela. These are my personal thoughts many of you can oppose this.

Conclusion –

Countering Hyperinflation is not easy it needs a lot of work and time as you know you cannot reach Mars by next morning. Same it will be a non-stop continuous work for at least 5 years to counter this under preferred circumstances. This can be more than I expected, but as I said earlier nothing is impossible, and Venezuela can get back on track.

Venezuela’s Hyperinflation

noreply@blogger.com (Onkar Jadhav) — Thu, 02 Aug 2018 17:10:00 +0000

This is one of the most trending topics in the world, the country like Venezuela who said to have most significant oil resources in the world have this condition, and you already know the importance of oil in the economy, so why? A country like this is going through hyperinflation we are going to discuss this.

So before we start let’s see what hyperinflation is.

According to Oxford Dictionaries

‘Monetary inflation occurring at a very high rate.’

Hyperinflation is a situation when there is a rapid and often uncontrollable currency devaluation causing the prices of goods and services to rise by a rocket speed in a short amount of time.

In simple words, it is a situation where the prices of goods and services rise more than 50% a month, and Venezuela’s inflation has crossed 25,000% in May 2018.

So how Venezuela did got trapped in this situation?

The main problem from my point of view is Venezuela’s economy which started to depend upon oil export, and that began to create problems for them as oil prices began falling in 2014.

Let’s look at Venezuela’s economy.

As I said earlier Venezuela’s economy is over-dependent upon the Oil sector, as the manufacturing sector was only contributing about 15% of total GDP in 2009, and the Agricultural sector is contributing 3% of GDP. So due to these factors, the income source of the country is mainly an oil sector, and this situation is dangerous because if that particular sector collapses, the country’s economy will also collapse, and this has happened with Venezuela which is still continuing.

When you talk about a country facing the problem, there can’t be a single reason like the economy there are many numerous factors as I am mentioning few.

1. Falling of PDVSA –

Petróleos de Venezuela S.A. is the Venezuelan state-owned oil and natural gas company working from 1^st Jan.1976 and soon after became the world’s 5^th largest oil exporter company. At his peak company had produced 3.5 Million barrel of oil per day in 1998 and production fell in 2013 by 1 Million barrel per day to 2.5 Million barrel per day, and currently have approx. 90 Billion US$ in debt.

Paraguaná Refinery Complex is the world’s 3^rd most massive refinery complex which is said to work on its 15% capacity.

One of the Plant managers said that ‘There is no maintenance; they sucked everything they could from PDVSA without investing, there’s nothing left to squeeze.’

They also employed unskilled and inexperienced people, causes the downfall of the company.

Million barrels per/day

2. Falling oil productions –

When you are an oil-centric economy, then you should keep on pressure on the peddle of oil production, but it seems reverse situation in Venezuela. Oil production has seen a decline in production and estimated that it is up to 1.8 million barrel per day which is half in comparison to starting productions.

Million per barrel

As you can see in the above diagram production of oil which has kept on dropping and this becomes a significant factor of Venezuela’s Hyperinflation.

3. International relations –

When you are an oil-based economy, good relations with other nations is essential as ties affect the demand and supply for goods, and there are many unions and groups of countries, and if any country has a bad relationship with the state, the whole group can abolish buying from that particular country. For, e.g., Venezuela's relations with the US have been contentious for much of the last 20 years Due to this India also thinks twice when Venezuela offer them oil at 30% discount than market price (There are many reasons for not accepting this, but you cannot neglect the USA’s aspect.)

4. Decreasing in the foreign reserves and also the decreasing value of Bolívar –

Foreign reserves are significant to any country as they can influence the exchange prices etc. So having the foreign reserve in the country’s central bank is beneficial for the nation but Venezuela also lacks in this aspect. Many economists said that Venezuela’s foreign reserves have dropped $10 Billion.

USD Million

This directly affects the value of a currency, and it has shown a direct impact on the amount of Bolivar. Value is declining day by day, and it is now fragile compared to other foreign currency.

The average exchange rate with USD

5. Printing of money and currency collapse and debt problem –

To counter devaluation of currency Venezuela’s Govt. starts printing money which creates more problems and liquid money act as a petrol in the fire and inflation turns into Hyperinflation. Venezuela’s central bank issued 6 new bills in Dec.15 worth between 500 and 2,000 bolivars, which is 200 times more than the most significant measure of 100.

Due to this Inflation in Venezuela is expected to rise to nearly 500% this year and to a whopping 1,660% in 2017, according to the International Monetary Fund. And now it is said to hit 10.00.000% in future.

To understand more let’s see how it affected regular prices in Venezuela

· 1 Litre milk Bs 1,63,069

· 12 eggs large Bs 3,03,427

· 1 Kg Tomato Bs 2,49,185

· 1 Kg Potato Bs 1,90,319

· 1 Kg Apple Bs 5,68,359

Things do not stop here Venezuela has a debt problem also Venezuela has about $60 Billion (£46bn) in outstanding bonds. That includes debt issued by the Venezuelan government as well as bonds issued by the companies such as the state oil company PDVSA.

But that is not all Venezuela owes. Its total external debt, which also includes loans from countries like Russia and China, is thought to be as much as $140 Billion.

Due to its crisis, many firms and country are starting to ask for repayment of their debt, and this is an additional problem faced by Venezuela.

Above are some critical factors which led Venezuela into Hyper Inflation. So Venezuela has to look after them, but the problems are not only those, there are also various problems facing by Venezuela, Following are few:-

· Venezuela’s unemployment rate is forecasted to 33.35% till Dec 2018 and 44.31% till Dec. 2023.

· Caracas is a capital city of Venezuela and ranked worlds 2^nd dangers city with murder rate.

· Approx. 87% of the population is poor, and 60% of those live in extreme poverty.

What · In 2017 more than 27 protect per day is registered.

· Since 2015 approx. more than 8,000 people died protesting.

Above issues also have to be faced by Venezuela’s Govt.

To counter this situation Venezuela’s Govt. used Crypto-currency named as Petro to increase the investment in their economy and they backed 1 Petro with 1 Barrel of Oil, but Trump banned this currency in his country, and Venezuela’s opposition declare it illegal. Many of European Nations also criticized the currency. Most of the economist said that it is a trap and the last step taken by Venezuela’s Govt. to push on some more days.

Conclusion –

Venezuela is in deep trouble as this hyperinflation needs more bailout packages than ever before but due to weak international relation its seems hard and as per my predictions it will need more than 5 years to completely washout this effects and regularise their economy the time period can be increased than I anticipated. But as you know nothing is impossible Venezuela can fight back if they utilized their resources well and take the proper decisions.

If you want to get more information reagrding this topic read my book.

Venezuela's Hyperinflation & how to counter it & can Petro become a game changer

Paperback
https://www.amazon.com/Venezuelas-Hyperinflation-counter-become-changer/dp/109544204X/ref=sr_1_fkmrnull_2?keywords=Venezuela%27s+hyperinflation&qid=1556178246&s=gateway&sr=8-2-fkmrnull

Ebook
https://www.amazon.com/gp/product/B07R1S2WMC?pf_rd_p=2d1ab404-3b11-4c97-b3db-48081e145e35&pf_rd_r=CPEZ66NVXSNT37PTY8YM

Australian House bubble

noreply@blogger.com (Onkar Jadhav) — Sun, 29 Jul 2018 14:05:00 +0000

Australia holds a crown for a no crisis economy from past many years, Australia is also ranked in fewer unemployment rates, and ranked 10^th at world’s happiest country.

As you know about a housing bubble which was burst in the USA in 2007 and it causes the world for the great recession. So why and how Australia is going to face this same scenario in upcoming years and does it going to be as bad as like the USA or going to be a smooth landing? I am going to talk about this on this blog.

To understand this let’s first see what a housing bubble is.

In simple words, the property value is raising, and at a point, it is reached where the average income of a person is less than 1/3^rd of property prices in a year, till 1/3^rd there is no problem, but when prices rise above this, then it is a huge problem.

It is a situation when an increase in supply tops the demand for houses, and many owners have bought more loan than the worth of their home.

The biggest example is the USA’S house bubble in 2007-08, basically, it is stared in 2006 when the prices were at the top and after it started declining and the same thing is happening with Australia

So why I am talking Australia is going to face this crisis? Let’s discuss

1. Raising the price of houses in a country –

The Australian house prices first see the steady increase in prices in the 1970’s with just 3% annually, but since 1990’s price rise to 6% annually, and seen a strong rise in price from 1998, Sydney and Melbourne have seen the largest increase in price comparatively other parts of the country at with 105% and 93.5% respectively from 2009.

The same scenario is happened with the USA, from 1996 prices is started rising till it bubble burst.

2. Banking system –

As you guys now USA’s property bubble is made with the help of banking system, As banks started giving loan to people at much fewer rates than earlier so due to this everybody is can afford to take loans so due to this demand and ultimately prices also raised of housing In the USA and this same scenario is happening with Australia as Banks of Australia is also have a low interest rates since 2008 and due to this borrowing also raised. In addition to this Reserve bank of Australia is also maintained a low cash interest rate policy. Interest-only loans also raised in Australia that gives chance to many people to buy the houses.

3. Investments in housing –

Price can rise if there is a demand, and this also helps for a bubble In the USA many investors invest in housing industries as that time return to their investment is much higher than investment in shares or bonds etc. In Australia in December 2008 Federal Govt. relaxed rules for foreign buys to buy property in Australia, and due to this in August 2009 foreign investment had raised in by 30% year to the date. The main aim of these investors is to get maximum returns not for residential purpose so most of these houses left empty and the people who really need those houses have to find another house so basically it creates an artificial demand and these raise the price, but the good thing is that Australian govt. have seen this and make some necessary changes like FIRB have to determine if they allowed to buy property and Forced to sell the property when they leave Australia etc.

Above are some indicators of upcoming House Bubble in Australia. So now let’s see is it going to be bad as USA’s or it is going to be a smooth landing?

I would say it is not going to be as bad as USA’s as the Australian economy is already known effects and how to handle this situation from USA’s experience and the Australian economy is not a pole economy like the USA, so it is not bad.

It is not going to be wrong means it does not go to hurt at all, it will affect the Australian economy.

Many of Australian experts said it will be a smooth landing, but it will not as per my opinion let’s see how?

Australian property prices could crash by 50% in the upcoming crisis according to doomsayer.

Australian house prices rose sharply during late 1990’s and early 2000’s relative to income and rents but from 2003 to 2012 cost to income ratio and rate to rent ratio remains steady but from 2012 prices once again raise strongly relative to income and rent.

IMF has reported that house prices in several developed countries and Australia had the third highest house price – to – income ratio in the world.

Australia was experiencing a real estate bubble like other comparable counties, and those similar countries have faced a property crash.

It is going to be dangerous as the massive increase in house prices coincide with record low wages growth, record low interest rates and record household debt equity to 130% of GDP.

Many of people in housing industries going to lose their jobs, the stock market will get affected, and Economic growth will be slow down.

As we see in above points, it is not going to be a smooth landing.

So after watching this Australian property won’t crash soon due to some following reasons.

· Population growth

· Healthy economy

· Sound banking system

· Raising business

· Consumer confidence is been raising

This is my views due to which Australian economy can survive for the upcoming days.

As I said, earlier the Australian economy has an experience of USA’s crash so they can take steps according to it, and many steps also seized from them.

Conclusion -

Australian economy had done well so far, and it is expected to do same in future. Also, Housing bubble is started in Australia we just have to see how the Australian economy and Reserve bank of Australia will adopt policies according to this.

The housing bubble is created in the Australian economy, and it will burst on one day so now Australia has to figure it out how to deflate slowly to minimize the fall.

It is started to decline prices of property compared to last year, so I think it will start.

Many economists predicted this will happen in this year or starting of next year I am also supporting this though that this will happen soon in future.

I will keep posting an update on this when there will be a new update.

India becomes 6th largest Economy Did we really overtake France?

noreply@blogger.com (Onkar Jadhav) — Mon, 16 Jul 2018 09:56:00 +0000

India becomes the 6^th largest economy (Regarding Nominal GDP) in the world. This news is on the headline in the last couple of days, but we really did it? Let’s talk about this on this blog.

This news is first declared by IMF in April, and now World Bank also declared it. India’s GDP is $2,597 Trillion compare to France’s GDP is $2,582 Trillion.

So statically India is in front by a minimal amount, but there is no reason to celebrate this as in many other terms we are still way behind France and other Super Powers to understand this we will talk about different aspect of the indicators

1. Per Capita Income

Per capita income measures the average revenue earned per person in a given area. Per capita income shows peoples earnings. In this India is way back compared to France let’s see by a table

All figures are in $

As you can see we are way back from France in term per capita income, people of France are earning much more money compared to Indian that’s why we can say that ‘India is Rich but Indians are poor.’ We can say this is happening due to population in India, India has a population of 1300 million whereas France have just 67 million, due to this goods is divided into more people that’s why our per capita Income is low, but if we stay like this then we will not able to move towards high-income countries. But this income is estimated to keep on rising in upcoming years, but till that day we are way back from France regarding per capita income.

2. Exports

Exports are an essential sector to any country as it helps the country to develop and value of its currency also raises as demand for their money also increases, for example, China exports is the main reason for chines economy to grow fast. India is not a good export country it is more likely a domestic base economy I will make a blog on this in the upcoming days, to understand it lets see a chart

Number	Country	Exports in $ (EST.)
1	China	$2.157,000,000,000
3	USA	$1,156,000,000,000
7	France	$551,800,000,000
21	India	$299,300,000,000

As you can see India’s exports are almost half of France and it will take time to overtake other countries as you can see in number also India is not in the top 10. It shows how the economy is doing on the world stage, as I said earlier India domestic base economy most of their business is in the country, If India raises their exports it will help their economy.

There are also factors like population, size of the economy, Low-cost economy, Low-value currency economy, etc. is not considered the only GDP is taken into consideration that’s why India is the 6^th largest economy.

Some stats are on the side of India also like PPP (Purchasing Power Priority).

· PPP

PPP is an exchange rate system under which the exchange rates of different currencies are determined by their relative purchasing power in respective countries. Under this system the real value of money is considered in this system value of rupee is way higher than the exchange rate in the market. If we consider PPP, then India’s GDP is around $ 9.45 Trillion, and India is a 3^rd largest economy in the world after China and USA.

This is also not true as we not consider population and India is low middle-income country.

· You guys will say why I am saying community a lot and if we think this, then India’s global rank will be over 140. That’s why the population is such an important factor. But there always be a light in the darkest cave if we are considering population this much then let’s talk about the African Union. Which have equal population to India, i.e., 1.3 billion and African Unions GDP is $2.2 trillion, and the GDP growth rate is 3.2% with population increase is 2.52% due to which GDP per capita growth will be 0.68%? This is way behind than India, GDP growth of India projects 7.5% population growth 1.1% and GDP per capita growth is 6.4% (Highest in the world)

Conclusion

After considering the above data Indian economy is showing potential to grow more than it is now many of economists expect that it will overtake the UK at the end of 2018 or starting of 2019. India is not working on its full potential there are various sectors. India can consider growing more in the future, India will be in the top 5 or Top 3, but it will take a decade for it, In my perspective, it is very shocking that a low middle-income country and domestic economy can get in top 10 large economies. As I say earlier India have potentials to go further in rank we just have seen how Indian economy will perform in future

I will keep updating my blogs as I get new information.

How Roads help the Economic Development

noreply@blogger.com (Onkar Jadhav) — Tue, 10 Jul 2018 10:49:00 +0000

Roads are everyday things nowadays but how such a common thing can actually affect the Economic Development? And how it affects our Financial Economics? These questions we are going to discuss in this blog.

“US doesn’t have good roads because it’s rich but rich because it has good roads.”

- Henry Ford

As Henry Ford says, the road is used as a median for economic development. Good drives can lead towards Economic Growth. That’s why while studying economics many books focus on public expenditure and deficit budget. Government deficit budget has importance in developing country.

So how can we achieve economic development by just developing roads?

We will divide it into two parts

i. Business use

ii. Normal use

i. Business use

For understanding it, we will look about commercial use of the road. Road quality can reduce time spending on travel and minimize loss of good during transportation. To understand it lets take an example. Let’s imagine you produce raw products in Bangalore, and this raw material is used to create a final well in Mumbai. So I have to transport my goods from Bangalore to Mumbai and in the minimum time possible so that price can be minimized and it will affect the number of last goods and vice versa. It's not only happening while producing but also while selling of products from one state to another for. e.g., Assam is stated which produce more Tea and if I have to sell than in any other part of the country. I have to use roads as it uses minimum price per km I travel but if goods take 1 day to go from Assam to Mumbai all the price of petrol and transportation vehicle will be added to products and it will keep on rising as time raise and vice versa.

How time affects the production to show it following the numerical example:-

Our close economic competitor and neighbor China

To travel from Beijing to Shanghai, it takes 12.5 hours, and distance is 1213 KM

To move from Delhi to Mumbai, it takes 22.5 hours, and the range is 1414 KM

Average speed is also 100 km/hr and 60km/hr respectively

10 hours delay is not a small time period let take an example if china’s cost for that travel is X then India’s will be X+10 and that 10 will contain the figures of per hour cost, i.e., petrol, toll and vehicle expanse

So in this example, we can say that China is producing goods 10 hours before India and that too because of the conditions of roads, a straightforward thing is helping China.

ii. Normal use

In this type ordinary people use roads for their day to day uses, they use it for up down from office to home, etc.

By development of road we can reduce pressure on our existing cities like Mumbai, Delhi, etc. as more people work in this cities and try to live inside it so that they can reach their destination on time and that makes a massive pressure on towns as due to our population more and more people attract towards cities. So to tackle this, we can build the roads in and outside cities so that they can live outside the city and can travel when you want without delay.

For, e.g., Mumbai is now overpopulated and people are ready to live in small houses and travel in overpopulated trains which can be changed if we make roads and shift these peoples from Mumbai to New Mumbai ( New city to reduce pressure on the central town) which is 25-30 km away.

In common words, we can say that if we have roads we can use land which was not in use earlier, we have a significant amount of unused land in our country that can utilize. As we make a road in the undeveloped sector then companies can use it, and that sector also be developed for, e.g., New Mumbai was an area which helps to reduce pressure on Mumbai and nowadays this area is used by many companies, BKC in Mumbai is also an area which is developed by developing roads.

What is an actual problem of Indian roads?

So why not we take the initiative and do something to reduce this time we have NH ( National Highway ) in our country but they are not up to the mark there are various problems with the Indian roads

Quality of roads is poor:-

We have the roads but may be material which we are using is poor that’s why we can often see potholes on the road, If we can see it in big cities then just imagine conditions of the rural road

Insufficient Expressway:-

Expressway can be used to reduce timing as there are many restrictions on a motorcycle and average speed of vehicle also rises for, e.g., Mumbai – Pune expressway minimizes the time from 7-8 hours to 2-3 hours.

Expansion of roads:-

In India we often can see two-lane roads where it needs four lanes or more, due to this we can see traffic conductions on most roads

Slow road making process:-

It is very shocking that there is a named NHDP which started in 1998 it was not completed yet.

Bharatmala Project:-

To make new roads Government of India has make a new project called Bharatmala Project which can help to make new roads

Few highlights of the project

SL No.	Components	Length - Km	Outlay – Rs crore
a.	Expressways	800	40,000
b.	Inter-Corridor & feeder roads	6,000	80,000
c.	Economic corridors development	9,000	1,20,000
d.	Coastal & port connectivity roads	2,000	20,000
e.	National corridors Efficiency improvement	5,000	1,00,000
f.	Border & International connectivity roads	2,000	25,000
	Total	24,800	3,85,000
	Balance road works under NHDP	10,000	1,50,000

In this projects, 34,800 km of roads will be constructed.

Bharatmala project will lower logistic costs to 6% from 18%

- Nitin Gadkari

Minister of Road Transport and Highways of India

India now has logistic expenses costs at 16-18% compared to China which is 8-10%

Bharatmala project will increase vehicle traveling speed by around 20-25%

It is estimated that this project will make 22 million jobs.

This is one huge step taken by the govt. Of India, we just have seen whether it get complete in time or not, because India has horrible track records on completing projects on time.

Conclusion:-

Roads are not everyday things nowadays it can make a significant impact on the economic development and Government of India. Is seems to it seriously and making the effort of it like Bharatmala projects etc. and it will make a difference in upcoming years as India head towards development. It takes some time for us to see the outcome but it will surely help India to be on the path of economic growth.

Impact of GST on Service Sector of India

noreply@blogger.com (Onkar Jadhav) — Sun, 08 Jul 2018 09:21:00 +0000

In an earlier blog we discuss the manufacturing sector, and how it's performing under GST now in this blog, we will talk about the Service sector.
As we discuss earlier service sector is contributing almost 50% of GDP nowadays, and it's been the most successful sector after LPG and its been predicting that it will continue to rise shortly.
Indirect taxes have always been contributing more than direct fees to Govt. revenue. Service solely added a significant contribution in charge also.
Service sector not only dominate in GDP but also attracts foreign investment in the economy, Service sector also provided a significant amount of employment in the country.
The GST council has decided in its 22nd meeting that presently, anyone making inter-state taxable supplies except inter-state job worker is compulsorily required to register irrespective of turnover. It has now been decided to exempt those service providers whose annual aggregate turnover is less than Rs. 20 Lakh ( Rs. 10 Lakh in particular category states except for J&K ) from obtaining registration even if they are making inter-state taxable supplies of service. This measure is expected to significantly reduce the compliance cost of small service providers.
A GST council has changed the rates on services in a 22nd meeting held on 6th October 2017 which include changes in the function below.
for understanding following decisions are taken bu GST Council under Chairmanship of Union Finance Minister Shri Arun Jaitley on 6th Oct. GST rates on job work service is being rationalized as follows

S. No.	Description of Service	Rate
1	Job work services about all products falling in Chapter 71 (including imitation jewelry)	5%
2	Job work service about food and food products falling under Chapters 1 to 22 of the HS code ( except packing of processed milk into packets )	5%
3	Job work service about products falling under Chapters 23 of the HS code except dog and cat food put up for retail sale	5%
4	Job work about the manufacture of umbrella	12%
5	Job work about the production of clay bricks falling under	5%
6	Service by way of printing on job work basis or on goods belonging to others about the printing of all products falling under chapter 48 or 49	5%
7	Service by way of printing on job work basis or on goods belonging to others about the printing of all goods falling under chapter 48 or 49	12%
8	Service by way of printing on job work basis or on assets belonging to others about the printing of all products falling under chapter 48 or 49 other than those which cover under 6 & 7	18%
9	Service by way of printing on job work basis or on goods belonging to others about the printing of all products falling under chapter 48 or 49 which attract GST 5% or nil, the paper used for printing belong to printer	12%
10	Service by way of printing on job work basis or on goods belonging to others about page of all products falling under chapter 48 or 49 which attract GST 12 %, the paper used for printing belong to printer	12%
11	Service by way of printing on job work basis or on goods belonging to others about the page of all products falling under chapter 48 or 49 which attract GST 18% paper used for printing belong to printer	18%
12	To issue a clarification about the classification of printing products

In the previous tax regime, service tax was applicable at the rate of 15% on service rendered which include 0.5% for swatch Bharat cess and 0.5% for Krishi Kalyan cess.

It has been extended at 18% doing the service and works contracts costlier.

Revenue sector also mentioned the level of taxation has been increased in the last GST structure

In the previous tax system both central and state govt. had right to collect the tax according to their rights but with the introduction of GST regime, the double taxation effects due to disputed goods and service in the previous tax system have been eliminated

Conclusion :-
GST is a bit complicated for small business as there are a different type of services charge at different rates as we saw earlier in chart, as every coin has two sides it will be more clear for people as well as business in near future, in early stages business and people will suffer problems related to it. Soon as the GST and new tax rate will get regulated in the market, it will become easy to deal with it than now.

Impact of GST on Manufacturing sector in India

noreply@blogger.com (Onkar Jadhav) — Fri, 06 Jul 2018 13:25:00 +0000

As we know the Indian Economy is divided into three parts i.e.

1. Agricultural

2. Service

3.Manufacturing

In this blog, we are going to discuss the impact of GST on the manufacturing sector.

In early stages, the agricultural sector was the most contributor for the economy, but this scenario is soon got changes as the Narasimha committee presented the LPG in India in 1990 ( Liberalization, Privatization, Globalization ). This creates a new boom in the Indian economy and soon after we saw the results as service sector started holding the grip on the economy. This is going great for the service sector, but the manufacturing industry is not responding as per the expectations. There is little noticeable difference, but it surely surpasses the agricultural industry, but it's not up to the mark many times government try to help this sector via globalization, reduction in tax and creating specific zones.

It is a theoretical part but still, we can see the service sector is contributing 50% in total GDP, and with this scenario, we actually over depending on one industry and cause our GDP is not reaching its potentials. We can achieve more growth if our manufacturing sector starts also performing for this PM Narendra Modi began to 'Make in India' campaign with the aim to be the 5th largest manufacturing country in the world by 2020.

Following are some points on the effects of GST on the Manufacturing sector

* GST will remove the Cascading effects of the tax. There will be only one tax so people will not have to pay different charges to the govt.

* GST gives a single registration process as there will be a no different type of registrations for manufacturing of goods

* Main point is that now more manufacturing industries will come under the tax regime

* GST will remove different prices of goods in a different part of the country as single tax will be levied all over the country

To understand it better I am giving you diagram.

· Indian manufacturing sector’s gross value added at basic prices based on 2011-12 price series was the US $ 350.4 billion in 2016-17

The · Manufacturing sector grew at a CAGR of 9.87% between FY 12 and FY 17

· The industry rose 9.33% in FY 17.

Manufacturing Sector performing with the other sector

· Indian manufacturing sector recorded the highest gross capital formation behind real estate at US$ 102.96 billion in 2015-16

· The sector’s contribution to the Indian Gross Domestic Product was 16.51% in 2016

As we see above our manufacturing sector is giving the positive response to new tax system but talking about anything about the results will not do justice with the new system as we cannot reach Mars by next morning it will take time, but as we see now, it had shown us the positive response. I will keep updating my blogs as I get new data.

Financial Economics

Does New Delhi support a new Union Territory?

Does New Delhi support a new Union Territory?

Upliftment of Jammu & Kashmir

India is facing Inflation during Recession?

The Indian economy is facing Inflation during the Recession?

Inflation at 6.93% even at GDP record -23.9%

Recession definition

Panic buy –

Uncertainty of lockdown –

Holding on –

Reduction in Imports –

Conclusion

Economic recovery after COVID-19 crisis

1. “V” shaped of recovery –

Why we might see “V” shaped of recovery

2. “W” shaped of recovery –

3. “U” shaped of recovery –

4. “Swoosh” shaped of recovery –

5. “Reverse Square Root” shaped of recovery–

Conclusion

Helicopter Money

Helicopter Money

Now let’s understand how helicopter money can help the economy.

Raising liquidity–

Raising Spending–

Why should we consider Helicopter money in crisis COVID-19?

Why we should not consider Helicopter money in crisis COVID-19?

Conclusion –

How is India proliferating its Foreign Exchange Reserve?

How is India proliferating its Foreign Exchange Reserve?

IMF defines Forex reserves as

According to the Oxford Reference, Foreign Exchange Reserve means

1. Lowering the oil import bill –

2. Upraising Pharmaceutical export –

3. Depleting Imports –

So what next?

Conclusion –

"Bad Bank" proposal for India and bad bank list

"Bad Bank" proposal for India and bad bank list

Why India should not create it.

Let’s understand a Bad Bank

Why do we need Bad Bank in COVID-19 crisis?

If Bad Bank is that good then why am I saying India should not create it?

Let’s understand it with an example –

List of Bad Banks:-

1. Mellon Bank:-

2. Swedish banks in 1992:-

3. Finland:-

Conclusion –

COVID-19 & Decreasing Oil Prices

COVID-19

Restrictions on Automobiles:-

Restrictions on Firms:-

Restrictions on Airline Industry:-

Restrictions on Shipping Industry:-

Conclusion –

COVID – 19 & the World Economy

why is the Australian economy slowing down

why is the Australian economy slowing down

1. The decline in earning from coal –

2. Consumer spending –

3. Falling of House prices –

4. High household debt and stagnant wages –

Conclusion –

Globalization in India Part 1

Meaning of Globalization in Cambridge Dictionary –

Meaning of Globalization –

Devaluating Yuan A Masterstroke by China

Devaluating Yuan A Masterstroke by China

Devaluation of currency –

In this situation, Govt. of a country is purposefully lower the value of their currency for some strategic reasons. This is relatively stable.

Deprecation of currency –

In this situation, the value of currency gets lower due to demand and supply of money. This is relatively imbalanced. 1. So by this, we know that Chinese Govt. is devaluating Yuan so now let’s see how they can do it?

Using other International currencies –

Using gold reserve –

The gold reserve of the country has a significant impact on the value of the currency, and a land which has a massive amount of Gold in their reserves can stabilize their money and can manipulate it. China is in 7th place when you calculate total Gold reserve. Let’s understand it in detail.

2. How devaluating Yuan helping exporters –

3. How China devaluation helped China to grow fast –

- www.wikipedia.com As you can see China Export less and Import more this gives China a boost and helped to become an exporting superpower.

In this situation, the value of currency gets lower due to demand and supply of money. This is relatively imbalanced.

1. So by this, we know that Chinese Govt. is devaluating Yuan so now let’s see how they can do it?

The gold reserve of the country has a significant impact on the value of the currency, and a land which has a massive amount of Gold in their reserves can stabilize their money and can manipulate it.

China is in 7th place when you calculate total Gold reserve.

Let’s understand it in detail.

- www.wikipedia.com

As you can see China Export less and Import more this gives China a boost and helped to become an exporting superpower.

By devaluing Yuan China gives an edge to their producers in the international market, due to this Chinese goods are available at a much lower rate than competitors.

In the end, I would say it was a masterstroke by China.