US Federal rate hike of March 2017.

Taken from our blog,”Brinks of economic thoughts”

US Federal rate hike of March 2017.

 

FOMC meet of US Federal Reserve came with much anticipated outcome this week, the expected rate hike to a range of .75-1 %.This benchmark interest rate hike of .25 % has only been the third over the past decade. The major reasons which enabled Fed to take this step was consistent fall in inflation and decline in unemployment figures to less than 5 %{ 4.7 % to be exact}.
Federal reserve policymakers are expected to increase the interest rates 3 times this year.US economy, which is one of most diversified financially driven economies of the world has seen significant changes while showing the solid progress in growth parameters. It has given indication that further rate hikes will be gradual.
Interestingly US economy affects all political and economic aspects of world. In Indian context if we make an assessment, this had been widely forecasted that US will continue to make rate hikes, one among which was done just 3 months ago. The major challenges which it posed to nearly all emerging economies were of heavy capital outflows and lower inflows.

As of now major central banks like US, UK, and ECB,have got the aim to contain the inflation mark below 2 %.Federal reserve officials were also in a position to make rate hike as of low unemployment rates over past consistent 40 + weeks.
One of the observation which were made by Janet Yellen,Governor of Fed in March 2015 was, if Fed wanted to ignore the tight labour market, inflation rate will easily surpass its 2 % assumed target. Situation at that moment will be where Fed will be forced to raise the rates sharply to bring the inflation to control, putting up the possibility on another recession, so increasing the unemployment rates. She insisted in her arguments that it will be better to increase the rates in advance.

This has many impacts on giant economies of Asia too. Although this is also expected that next Fed rate hike may be as earlier as June-July. Donald trump who has been very protectionist for US interest seems to be insisting on passing his ambitious plan of tax cuts, increased spending on infrastructure and more deregulation in markets. It becomes a cycle when ones stringent regulation are most sought which follows advocates of more and more flexibility in rules.
Immediate impact on the export driven economies is bound to be positive. Rates going up are actually an indication on the sound basics of economy and indeed it means that better performing companies from Asia will be able to sell of better in USA.In terms of pure economics, with strengthening of Dollar, Asian exports will be becoming more cheaper-so enhancing the growth rate of primarily export driven economies like China, Japan, S Korea. But if we assess the pressing upon purchasing and use of “buy American” as emphasised by Trump, then these giants may be at the receiving end too.
Chinese economy which has been facing pressures due to slowing growth ,weakening currency and compiling debt.BIS figures indicate that overall debt accumulation by China’s government ,corporate and household sectors have been a massive 26 tn $,as it stood in 2015,which easily makes it more than 250 % of GDP.A growth model which was unparalleled like China is also trying to make phased transition to an economy which is market driven, which depends more on consumer spending, rather than pumping cheap exports globally.
This had been getting forecasted as early as 2015, that rates will be hiked by 1 % or so. Janet Yallen when appointed as Fed Governor had a tough challenge .Any major event of US economy creates impact globally .Historically the unemployment rate have been at low and Fed seems keen to raise rates than to the ones who worry about low inflation. Financial markets are also booming.
Asia has to be now ready for prepared for an era where cheap money boosted stocks. With all indications of more expected rate hikes coming up, Fed moves will be watched ahead.

{Attached is the link of FOMC meet}

 

https://www.federalreserve.gov/newsevents/press/monetary/20170315a.htm

 

 

Harsh Vardhan Pathak

Budget improvements-Change to new financial year.

Taken from out blog,”Brinks of economic thoughts”

 

Budget improvements-Change to new financial year.

 

Indian budget making process is witnessing many steps to the direction of improvement in budget making process. From 2017 we have seen merger of plan and non plan expenditure and now the budget dates, the day on which annual financial statement is laid on the table of house have also been changed to 1st February. A federal nation needs to check into the aspiration of the population who are residing even to far remote areas. Concept of cooperative federalism has gained prominence and now we are witnessing a scenario when more and more competitive cooperative federalism is taking place.

 

Our financial year starts from 1st April and continues till 31st  March .It is interesting history that how we arrived at this date which replicates the same dates on which budgetary exercises were conducted in UK,when we were  among the  colonial rule of the British crown. In UK 25thMarch is observed as Lady Day. Cultural reasons played a major role for commencement of financial year from 1stApril.

East India Company when ceded the administrative powers to British crown post 1857 war of Independence, we had budget dates as 1st May. It was in 1867 the financial year was changed from 1st April to 31st March. This enabled to align Indian accounting system to the British crown accounting systems at that time.

Post Independence we had Indian Independence Act 1935, which formed the major basis of our constitution. Article 112 for centre and 202 marked a point about the Annual financial statement for president and governor respectively, by central and state governments.

 

Our entire polity studies are in dilemma about what exactly is definition of a financial year. Although article 367 {1}.General clauses Act, makes a point about commencing from 1st April.

 

Till date many commissions conducted studies concluding that 1April-31st March FY is not suited for India.

Chamberlain commission 1913, Dinshaw Wacha 1921,1stARC 1966,LK Jha 1984 ,C Rangrajan 2011 and even lately Shankar Acharya commission in Dec 2016 concluded same findings.

 

India is dependent on good monsoons. A good monsoon enhances demands for FMCG to all consumer goods, increasing tax collection.

While drought years make it difficult to enhance income and so we see low demands, food inflation, and thus tight monetary policy by RBI. This will also lower water storage at dams and multipurpose projects thus lower electricity generation. It will altogether make difficult for industries to flourish and interest rates will also be high. Expenditure will be more while the Actual receipts will be less.

 

Many experts suggested to negate impact of less monsoon it is essential to change the FY.Actually currently Budget is tabled in February and passed till June, which makes it possible to send money to government agencies by July. In case monsoon fails, agencies since receive money late are unable to built irrigation facilities. Also by next year the assessments which are made are made by data which might be as old as 6 months.

 

Now in case if altogether the FY year is changed we may have latest data. Suggested dates can be 1st Jan, which has been consented by Central Statistic Organisation at UN will not be problematic in providing data. There are many other suggestion for better dates which actually ensure that money is at hands of agencies before commencement of monsoons, Things like advance tax collection have also been kept in mind.

It is transformation from reactionary to proactive policy making.

Nations like US have FY commencing from 1st October. Many nations like Pakistan have from 1st July. Many MNCs and nations like China have year from 1st Jan.

Altogether change may be problematic, so transitional stages can be done by phased manner.

Many complex tax issues may come up, but have got to be looked after. Interestingly few studies have suggested that we have overrated impact of monsoon on agriculture.

Overall it seems that we are moving towards a phase wise transition of our FY which would take into consideration the impacts of monsoon to fiscal deficit containment .

 

Harsh Vardhan Pathak

Election Verdict of 5 states in India -2017.Is it shift of Politics away from sensitive issues to development matters in UP?

Taken from our blog,”Brinks of economic thoughts”

Election Verdict of 5 states in India -2017.Is it shift of Politics away from sensitive issues to development matters in UP?

 

Plato’s injunction:

“The punishment suffered by the wise who refuse to take part in government, is to suffer under the government of bad men”.

 

Verdict on March 11,2017 surprised the nation as well as the right wing BJP party. Although since 2014 when heavy “Modi wave “enabled BJP to single headedly form government, it was not expected that the party would emerge victorious in such grand way again, nearly replicating the vote percent as similar to one held in general elections 2014.

Leftist faction defined the victory as a communal fascist group’s consolidation on democratic and constitutional institutions. While Right wingers described as a win of aspiration of deprived masses who have seen someone in current PM as saviour, thinker and well wisher.

 

Issue remains that has this time the shift been totally to development issues.?  Unfortunately till 70 years post independence, we still do lack behind on many basic human development indicators. Although we have definitely improved our image outside India, we are seen as one of foremost destination for FIIs and FDIs, still this drawback that we are unable to trickle down the positive impacts of development to all, hurts as an Indian.

 

Nation has definitely seen many social welfare schemes which are getting recognition for their good worth, genuine intentions.

One should also not get carried away that this is a semi final to the general elections for 2019.Still many more state elections are queued up and BJP has suffered debacles at Bihar and Delhi too.

 

Are we as nation now arriving to a position where we see more and more citizen centric governments and policies? The concept of more and more cooperative federalism is an indication of the acceptance of fact that while formulating policies, it is must to keep in mind the local aspirations.

Confucius described righteousness as the foundation of good governance and peace. The art of good governance simply lies in making things right and putting them in their right place. Confucius’s prescription for good governance is ideally suited for a country like India where many of our present day players in governance do not adhere to any principle and ensure only their own interests.

So one of major issues became the declining law and order situation of the state.

PM Modi looked energetic, while UP CM Akhilesh Yadav,being promising could not sustain.

Selflessness, Integrity, Objectivity, Accountability, Openness, Honesty and Leadership are essential virtues for leading a public life for a leader.

It would also be pre early to assess this outcome which has also found significant attention in media abroad as a pre to 2019 general election. But one aspect needs to be seen, Is it a paradigm shift from populist politics to nationalistic and citizen centric development oriented politics.

 

Harsh Vardhan Pathak

European Union on Bumpy Ride

Taken from our blog,”Brink of economic thoughts”

European Union on Bumpy Ride

Introduction

World economic forum is contention about contingent possibility of European Union future. It can be possible that EU may face isolation, due to US election, Mr. Trump republican candidate enhancing each and every co-operation and treaties of US, he might be pondering not to triumph that can increase US defence expenditure, including more than 5 decades of protection ensured by the US to Europe, Trump might be reckoning these aids as groaning for US strain, which can isolate EU completely and Trump interest for Russia can ruin EU hegemony in entire Europe. This article will be penetrating on the relation of Italy with EU. The subheading 2.1 assess the political scenario of Italy and depicting instability in Italian politics, 2.2 subheading will pave Italian banking history, 2.3 will justify causes behind the banking fiasco, 2.4 will determine present status of banking sector, 2.5 will be conclusion.

Abstract:

This article impending Italian banking crisis and its root causes, it also examines the legacy of Italian banking system from the era of Great depression and after World war second, how Italian leading banks like Monte Dei Paschi Di Siena (MPS) fallen under debt crisis with cascading effect of state sovereign crisis. This article further tries to reckon futuristic existence of EU with Italy, it also impend present Italian banking crisis, at last it suggest the panacea to tackle this bewildered situations by implementing various monetary methods.

Political instability by Referendum 2.1:-

Poola Gentiloni look office after this parliamentary colleague Prime Minister Matteo Ranzi  resign due to humiliating rejection of his constitution reform a referendum on November 2016. Italy got this constitution after the World War 2nd the primary motive behind Italy constitution was to prevent rise of leader like Mussolini, Prime Minister Ranzi wanted to revamp the constitutional changes, he wanted to provide more autonomy to lower house, strengthening the central government and curbing autonomy of upper house (the senate). This is because he wanted to ease legislation bills more smoothly without less intervention by senate, he believes that with this referendum central government will quickly able to pass pertinent decisions which will further develop trust in investors and therefore it will act as a catalyst to economic growth. But unfortunately opponents’ parties like Right wing northern league and Anti establishment five star movements does not agreed with Ranzi and argued that after this referendum it will give immense powers to Prime Minister therefore it can be harmful in long run, many of his proponents agreed with Ranzi referendum. But I think Ranzi have taken referendum personally by announcing his resignation if he fails.

Italy Banking History 2.2:-

Italy not only faces instability in banking system, but also resurrection in level of unemployment with measurable gap between developmental activities in its Northern and Southern hemisphere. Before I start penetrating on various causes for Italian banking crisis I would like to retrograde Italy banking history after 1930 era including World War 2nd blot. In 1930 and after that Italy has started its economic growth, it also started the proliferation of its banking sector and banks like Monte dei Paschi and other have also started its banking activities in Italy but these banks primarily do not have profit motive, they were operated by the public bodies and help to promote the society for betterment, competition and profit motive was remaining absence. But after end of 1989 these saving banks gained licence and inspiration for profit, law called Amato Carli named after (two state strain ministers) which gave freedom to every public bank to earn profits in slew. The profit maximise competition was started with in banks and single licence system broke the boundaries for Italian banks to operate in entire Europe. In 1993 the EU has passed the Consolidation law under which EU has got the power to incubate number of Italian banks by guiding, instructing them in various monetary policy issues and even deciding the exchange rate for currency by eradicating Italian Lira. This implies Italy banking system completely dissuade by EU central bank, the Consolidation law EU again amended as DE facto law in 1998 which have legislation that private entrepreneur’s can acquire shares of various public banks, not only in Italy but in entire Europe. The situation became more alarming after 2000 when all Italy public banks were totally privatise.

 

Monte dei Paschi di Siena MPS crisis 2.3:-

Monte dei Paschi di Siena the leading bank of Italy which have more than 50 per cent share in banking sector. After 2000 the Italian Governor (Antonio Fazio) started to impede foreign invasion in banking sector by dirigisme approach, even auctioning for banks (like Banca Marche). Symptom of Italian banking crisis was not primarily subjected to only bad loans, but the connection between the local politician and Italian banker’s patronage for piling up revenue deficit catalyzed crisis.

 

As after the proliferation of De facto and consolidated law it was easier to acquire number of share in various banks.  MPS regularity were getting injection from the European central bank and the Deutsche bank of 2011 got bail for 2.5 billion, latterly in 2013 two more bail of 3.3 billion dollars were allotted by the ECB. The EC have taken this matter seriously and it investigated the crisis under leadership of EC commissioner Jaoquin Almunia his report suggested that the connection between local politicians with the major banks was primary cause of failure. This investigation further discovered that Monte dei Paschi di Siena Foundation one who has more than 50 per cent share in banking system has pave  profits to finance societal activities, financing for soccer team, hospital aids, museums and even provided the aids for lower housing cost while construction.

 

Present scenario of Italian banks 2.4:-

The government has created more than 20 billion reserved for future uncertainties mainly backing for crumbling banks, this primarily indicating decreasing trust of Italian government on banking sectors. It has been observed that after 1999 when euro was introduce the growth rate of Italy has downgraded, Italy has more than 18 per cent bad loan (None performing asset NPA) which approximately equal to 360 billion euro. This figure alarming dangerous spectre in banking sector but these uncertainty may revamped by adopting various monetary instruments. They are:-

  1. By tapering lending rate can infuse increment on loan payment and can even reduce NPAs.
  2. Italian authority can launch open market operations for ebbing extra amount of money from Italian market.
  3. Italy government can dissuade its taxpayer to pay for banking crisis.
  4. Italian government can indentify its performing assets and therefore write off all NPAs and then start allocating fresh prime loans.

 

Conclusion:- 2.5

It will be difficult for European central bank (ECB) to triumph or feed its tentacles peer to peer by every time bailing each tentacle for this failure. Therefore if Italy would have monetary policy independency he could depreciated or appreciated its currency by its own, even tinkering with its fiscal measure for balancing the crisis. For ECB it can have serious implications, increment in number of bail outs will shrink ECB strain and therefore possibility for crashing Euro may jeopardise. I think every time history tries to teach us some lesson, too much dirigisme by the government cannot not succeed for last long. How can we forget what happen to Greece while of 2011 crisis why he had to squeeze its economy even though Greece economy was creeping for stimulus, demanding liquidity injections for increase in pension payment, for improving its medical facility, for infuse its economic growth but unfortunately he had to do just opposite due to dirigisme of EU.

 

 

Mohit Pandey

Pursuing Economics Honours  3rd year.

Doon University Dehradun. (Uttrakhand)

Gmail address: Mohitpande2@gmail.com, Mohit.doon98@gmail.com

Languishing Socialism of Venezuela

Taken from our blog,”Brinks of economic thoughts”

Languishing Socialism of Venezuela

Languishing Socialism of Venezuela

Introduction

——————————————————————–

Hugo Chuveg took office after 1998 as President of Venezuela, he started its punitive injections of socialism in entire economy, eliminating private enterprises, blocking foreign investment, converting big industries who are earning plethora of profits into government enterprises, fixing and monitoring output by government officials, redistributing wealth, tinkering with prices of commodity.Venezuela has a dominant-party system, dominated by the United Socialist Party of Venezuela.

Venezuela Present President, Nicolas Maduro government has tried to ape India’s Demonetization drive on 12 November 2016 but unfortunately it resulted unprecedented for Maduro government. Venezuela according to IMF report bears world highest inflation rate of more than 475%, this implies, Venezuelans are facing daily resurrection in food and other essential commodities price. Venezuela also blessed with the bounty of world highest crime rate also acquiring second last position on list of ease of doing business. But the question pertains, why Maduro government had chosen to scrap 100 Bolivar denomination as a panacea to track Venezuela economy.

————————————————————————————————————–

  • Smuggling on borders

Basically Venezuelans shares its boundaries with Columbia and Brazil, the primary cause to disintegrate 100 Bolivar note was due to daily smuggling of Bolivar and dollar across the country and selling it at subsidised price to smuggler for buying drugs and other illegal stuff. After the announcement on 12 November to demonetise 100 Bolivar within 10 days, Venezuela converted into chaos, every mall, every shop has looted by lynch mob, serpentine queues front of banks to exchange their 100 Bolivar, repercussion finishing life essential commodities like  medicines and important drugs became fewer, number of crime ignited over night, as compare to India situation remain under pontificate, Venezuelans are not willy-nilly supporting Maduro government, repercussion of which Maduro decided to retrograde his decision of 2ndJanuary 2017.

 

 

 

  • Currency Exchange rate System

In every country is strictly band to purchase anything from foreign currency, but in Venezuela many of the trading have started in dollars (this was showing distrust in Bolivar), due reduction in value of Bolivar as dollar (less than 15 cent of 100 Bolivar). Unanimously Venezuela has operating three standards to rate his currency, first ‘Dipro standard’ reckon by government (100 Bolivar per USD), ‘Dicom standard’ by private player (800 Bolivar per USD) and Black market value (1600 per USD).Due this multiple standards confidence in Bolivar has almost vanished, as economic student I have learned the most imperative asset in economy is Confidence, “confidence of people in government, confidence of domestic and foreign investors in government”. The fair of smugglers incumbent Venezuela central bank official to print new currency in abroad(Spain).

  • International oil prices

The reduction in oil price from 2013 resulted cascading effect on Venezuela revenue account it further negatively deviated growth numbers for Venezuela oil industry, Venezuela is blessed with bonanza of oil reserve, near 98 per cent of its economy operated on oil export. Hipper inflation caused to stop oil production because demand of food products was resurrected. Maduro government have not saved oil revenue while oil export boom before 2013, despite of this, huge amount of 300 billion dollar scam was executed by Maduro official on oil revenue. Venezuela export industry primarily based on oil export. Therefore it acquire 80 per cent of GDP from its oil industry, tapering of oil prices globally started reduction in revenue earning and increment in deficit of Maduro strain started booming up. Due to affirmation reasons Maduro government financial backbone was completely dislocated, this impinging proliferation for losses was reckoning on almost every sector of economy.

Conclusion:

As compare to India, Venezuela execution while demonetization was completely naive, but surely both the countries have different prospective. India demonetise its 500 and 1000 rupee note to curb anonymity wealth, seized funds of terrorist and curbed inflation. Maduro government has executed this to prevent its currency from smuggling and increase confidence in currency. In India large proportion of people supported government move and endure all the pain and sufferance, while engaging in little quarrels and scuffling with bank officials due to lack of cash. But Venezuelan heavily protested against the Maduro government which gradually converted into sanguine and genocide.

Mohit Pandey

Pursuing Economics Honours 3rd year.

Doon University Dehradun. (Uttrakhand)

Gmail address: Mohitpande2@gmail.com, Mohit.doon98@gmail.com

 

 

Brexit Obsolescence Globalisation

This has been taken from our blog,”Brinks of economic thoughts”

Brexit Obsolescence Globalisati

 

On 23rd June, 2016 in United Kingdom (UK) a  referendum was passed which ignited debate, on world forum, whether to leave decision will lucrative for UKs future or not. Many economists argue to leave which can impact UK adversely and can further create a deficit or tapering of UK economy. But before being Pedant whether referendum was right or wrong, I would retrograde towards the formation of European Union. The establishment of EU was initiated in 1993 in Maastricht treaty, to foster economic growth of entire Europe while reducing all the tariffs of native countries and amalgamation of entire Europe counties under single market. But the question is why Euroscepticism and a version for EU immerged. For example, after the formation of EU, UK fishermen got the licence for fishing in European states, but gradually big fishing companies of France, Germany and Italy have acquired entire UK fishing market and home businesses for UK, including many bourgeoisies.

 

Ms. Theresa May, the new president of UK is facing two major problems while maintaining balance between Hard and Soft Brexit. As Hard Brexit advocates to revamp all the immigration rules, new tax slabs for European companies, stiff commuters from entire Europe in UK (as labour and goods), therefore soft Brexit includes relaxation of tax’s for European companies and  no tariffs on goods movement in entire UK from rest of Europe. But here came Donald Tusk (President of EU), who did not negotiate with Theresa on soft Brexit since she did not allowing free flow of labour from entire Europe to UK. Well, according to me, the migration from rest of the Europe to UK acted as a catalyst to Brexit referendum. Theresa May in her last speech spoke about Article 50, which will be implemented till 2019, which includes,  the outlines of trade with rest of the world and with entire Europe after Brexit, stirring tax slabs for European companies operating in UK and unleashing most pertinent question (Immigration policies).

 

In entire Europe, including America, Theresa May and Stephen Crabb (influential peoples of UK) were not in favour to leave, as said to leave would be a terrible belief. But the question is, how a country can resurrect its growth,  if all the economic decisions, are decided by members of different countries, by  European  council, where total  members of UK was 29 in council, as 1/15 UK  members taking decision in favour of UK. It is so true that Germany, France and Italy, were over dominant to entire European Union, which is a deadly combination, as it was observed in past after 2008 crisis, where entire Greece was left with amnesty, awarded by these three nations. But the question prevails, whether Brexit was indication of aguish caused by globalisation or whether it will be exacerbated for the UK, we will see. But after 2019 UK, will enjoy its freedom while taking its Economic and social decisions……

 

Mohit Pandey

 

Pursuing Economics Honours  3rd year.

 

Doon University Dehradun. (Uttrakhand)

 

Gmail address: Mohitpande2@gmail.com, Mohit.doon98@gmail.com

 

Ebb of monopoly for E payments giants

This has been taken from our blog,”Brinks of economic thoughts”

Ebb of monopoly for E payments giants

 

Black money not only incubates terrorism but also impinge economic growth of country. All over India and around the Globe contention for demonetization is its peak. This move has dragged each individual in queue, but still India market need huge amount of liquidity. Federal Reserve, Standard and Poor and IMF already parsing (Modi)government, expecting rupee growth and worthiness in future. However this decision will be lucrative or fiasco will observe, but till now it’s an enigma, but surely it will impact and confiscate on terrorism funding, including various separatist organizations operating in India. This incumbent decision imposed by GOI absolutely, showing his outstanding images even outside the world. But also graping plethora of criticism from various parties, due to directly hitting parties anonymity funds, which they require to utilize during elections.

 

GOI doing every possible attempt to promote e channels, even soon to launch lucky draws schemes, from its coffer for those who are regularly promote cashless payments. But the pertinent question is, we believe that cashless society have its huge benefits than cash dominant society. But then huge amount of E payment by specific private company is a serious issue. No doubt that company like Pay Tm, Momoe, Pay U Money, Mobikwik E wallets can be backbone for cashless future.

 

Imperatively it also stiff concern for Internet security, including desirable situation for monopoly by these private player. You must have not forget, few day before hole banking sector of India was under cyber take, which not only bewildered and threatened Indian top most banking officials, but also rest of the people. After that even RBI have advice people to alter their ATM passwords immediately. To switch from cash to cashless society is not so difficult, but to secure each individual account payment from robbery should be pertinent task. According to Internet sources, US along have one of the largest on line payment system and huge dependency on Internet, but it also holds curse of world largest online fraud and scam across the world, millions of fake mail arrival to US citizen every day, by the countries like Nigeria and other politically disturb nation, on line frauds in these countries is a business, which successfully generate huge amount of funds for various terrorist organizations.

 

 

We usually learn in economics, that monopoly do not preclude competitiveness, hence monopoly should only demarcated to authority, not with private entrepreneurs.

 

 

8th of November announcement by government for demonetization, PayTm has immerged as E payment giant across the nation. It is human psychology to always hunt for alternatives. Metro cities have already started swapping cards on various shops, for those do not have swapping machine are using PayTm to transfer money at slew. To have online payment is not a problem, for an example, Alipay china largest online payment gateway launched in China in 2004 by Alibaba Group and its founder Jack Ma. According to an analyst research report, Alipay had the biggest market share in China with 400 million users and control of just under half of China’s online payment market in October 2016. According to Credit Suisse, the total value of online transactions in China grew from an insignificant size in 2008 to around RMB 4 trillion (US$660 billion) in 2012. I am sceptic regarding PayTm, its size of share in market, but if he grows beyond significantly margin definitely it will impact Indian economic system and no wonder it will impinge its dependence on each individual pattern of payment. Therefore willy – nilly it will decide payment charges and acquire market completely, by restricting immerging players.

At last I thing authority should intervene, to sustain competitiveness in on line payment market and should promote its own online payment portal like “SBI buddy” as compare to PayTm or any third private player. And try to amalgamate all the advance features and modernization required to compete with private giants.

 

 

Mohit Pandey

 

Pursuing Economics Honours  3rd year.

 

Doon University Dehradun. (Uttrakhand)

 

Gmail address: Mohitpande2@gmail.com, Mohit.doon98@gmail.com

One of biggest conducted exercises in India in recent times-Scrapping of old notes, Demonetization

This has been taken from our blog,”Brinks of economic thoughts”

One of biggest conducted exercises in India in recent times-Scrapping of old notes, Demonetization

With the advent of new year we remembered previous year as one which saw a major initiative being taken by the government to end the use of old notes of 500 and 1000.Being a student of economics, many knew that in a way to curtail unchecked flow of black parallel economy it is essential to end up the use of notes with higher denomination. But it also depended on the courage of the leader as peoples in government always knew where the problem lay.

Few have forgotten the times when Mr P Chidambaram had taken a step in his general budget during UPA 1 regime to levy taxes whenever there is any cheque transaction more than 25,000 INR.

It was a step which had not gone well that time with opposition, [which is now ruling government] opposing the step severely. Finance minister that time had insisted that this is all major exercise to bring all the monetary transaction into cheque transactions or cheque economy..

This may have been a surprise but owing to  a fact that tax evasion is a very major problem in the nation and also it is difficult to know for which purpose the money has been getting used from various rangers of unlawful activities to anti nation activities, it was crucial to take some kind of a drastic and unexpected measure.

We had seen an anti draft campaign carried in the nation during UPA 2 regime, seeking Lokpal acts and seeking more and more transparency in the public life. Even with the new regime we had been watching that the government had been pretty concerned about raising the issue of disclosing the names of people who have stashed illegally  huge amount of money into safe tax heavens .At various international summits issues of money laundering had been gaining attention. This issue had been getting reciprocated by major financial powers at major summits also like G-20,etc.

The issues related to the execution could have been discussed, for the matter, but how could then this be ensured that secrecy of matter would remain. India has shown at instances that if we wish we can surely conduct secretive exercise.We have not forgotten the time of Pokhran Nuclear test 1998,where best of satellites of USA  could not find a clue that India would be conducting nuclear test.

Global financial giants like Goldman Sachs , Ernst & Young have come with the forecast of slowing down of economy for a quarters or so. But gradually they have all, assumed that the in totality this exercise will have fruitful impact on whole. The best positive out of this exercise will be the broadening of tax base, which earlier was very minimal, Our nation had very less numbers of peoples who had been paying taxes, and now the rest will have to disclose their income.

Given the kind of deficits the economy had been facing and also that we are trying to implement various social welfare schemes it was necessary that majority of people who are not paying taxes must pay and the whole nation must grow in totality.

With advent of thing like digital transactions and cashless economy, it is vital that data breach must be checked along with availability of strong broadband connectivity. As we are planning to completely digitalise the economy ,it is also vital that the peoples who are illiterate or have less idea of use of new digital transactions , must be taught about the use of modern IT uses. Some far areas still lack in it, and we have seen sincere steps by governments over past years to ensure that many of villages are connected with internet connectivity.

Questions can be raised about timings, or about the execution, or about the problem faced by masses, but intent does not seem wrong, We saw a good amount of money already disclosed under Income disclosure scheme.

Strangely many nations in past have conducted similar exercise, like Myanmar did in 1990,,or even Russia, Even lately we have seen Venezuela doing similar exercise.

Hoping for the transparency and now availability of huge funds back into banking system we can expect low interest rates and availability of huge money for important infrastructural projects or loans.

This will remain very controversial exercise but hoping that it gives good results.IMF and WB have also indicated that for long run  benefits certain pains can be taken and economic activities are bound to regain their pace with passage of time.

 

Harsh Vardhan Pathak

Msc Economics

 

Eurozone Financial Crisis-An anatomy of the crisis

This has been taken from our blog”Brinks of economic thoughts”

 

Eurozone financial crisis-An Anatomy of the Crisis

[This was one of assessment of eurozone financial crisis and it was also used by my then instructor MR Siba Sankar Mohanty in his website Lok katha. Although it was the times of Greek bailout and given that last year we saw unexpected BREXIT,this article is little irrelevant. But this was among the old blogs which I had written.]

 

 

 

Euro as a common currency was introduced in 1999.Unified interest rates post euro’s introduction allowed members to borrow heavily .Bonds which were issued by southern countries were considered to be equally safe as the ones issued by nation like Germany. Nations like Greece, Italy & Spain lie in southern Europe.

We can relate crisis of US sub –prime mortgage market which further got transmitted to European nations. Easy availability of money encouraged a debt –fuelled boom in PIGS nation which witnessed real estate growth on unprecedented scale.

 

 

US housing prices peaked in late 2006, whereas   European housing prices did peak a year later.

We all are aware of the manner in which financial crisis  did  strike  US  from  later part of 2007 & start of 2008 when Bear Sterns ,Fannie Mae were taken over by US government.

 

Later in month of September, we saw Lehmann Brothers filing for bankruptcy, which triggered financial crisis globally. Sub-prime debt obligations made in US held around the world caused global financial shock & worldwide housing bubble bursted in UK, Spain, Ireland as well as US.

 

American International Group required 180 billion $ bailout to cover CDS[Credit Default Swaps],insurance against bond defaults underwritten without reserves. Stress on banks around the world led to shrinkage in availability of credit.US government however released bailout packages of 700 billion $,then 800 billion $ & then 847 billion $,There was a significant  decline in exports of nations worldwide as US imports dropped.

 

It was conceived that Euro as a currency  would compete effectively with American $ and Chinese Yuan [RMB].However this aura of invincibility did not sustain.

 

Before formation of Euro , European leaders agreed to limit borrowings to just 3 % of their economies total output. This was expected that at least nations in Eurozone will not be accumulating too much debt..However in later years [Euro was formed in 1999], nations did not stick to the rule.

 

Germany, Italy & France , these nations started breaking rule of 3 %.IF we compare nations struck with crisis ,we will find that Spain’s government had smallest debts relative to size of its economy.

 

Greece had its own  wayward  ways on which it moved. Role of rating agencies such as Goldman Sachs did come under heavy scrutiny after the revelation that it artificially manipulated financial status of Greek  government  &  presented a nice image of Greek economy. Goldman Sachs had been deeply involved in covering up the Greek government’s mismanagement of its state budget & finances .IN 2001, after induction of Greece to European union  , Goldman Sachs helped the government quietly borrow billions.

 

Fact remain that birth of Euro came with an original  sin . Nation like Greece entered monetary union with bigger deficits than the ones permitted under the treaty that permitted common currency. Greek government is  blamed  as rather reducing spending ,it artificially reduced its deficits with derivatives.

 

Germany must have been under immense trouble as of its reckless borrowings , however that did not turn out to be the case. Germany had transformed its economy into an export power–house. It was exporting more to the rest of world than imports. And it had an excess of cash on its exports .Germany has been considered safe market ,with investors willing to lend even at historically low level[Germany 10 years bonds yield is merely 1.5%,,whereas as of now yield on Spainish bonds has been often crossing 7 %,,,which is considered unbearable level for a government to repay].This is not same with rest of European nations.

 

In late 2009, new Greek government found that its predecessor lied about its borrowing,& were running under huge debts. This revelation provoked  a drastic loss in investor’s confidence, spreading nervousness,, who started pulling their money out of the country 7 demanded punitive interest rates on its debt.

There were serious threats of sovereigns debt-default,& to avoid  it EU-IMF approved a 3 year emergency 146 billion $ credit line to Athens in May 2010.Investors had started turning to economies of Portugal, & Spain, but even losses as of bursting up of housing bubble saw nations like Ireland, Portugal & Spain seeking bailout packages.

 

EFSF [European Financial Stability Facility] was constituted in May,2010,intending to provide loans to countries in financial difficulties,& financial recapitalisation of financial institutions through loans to government. EFSF had a capacity to lend 440 billion euro.

 

This was supposed to be increased but then major nations of Europe saw a bifurcation of opinion among masses , like in Germany as majority of it would be provided by Germany & German masses were reluctant to allow German government to pay for it.

 

European financial institutions were under stress.,

 

  • BNP-Paribas was forced to close funds in August 2007.

 

  • German banks IKB ,West LB,& Saschen LB were bailed out by the government.

 

 

  • Irish banks were given government deposit guarantees.

 

European central Bank injected liquidity into European banks,& did not lower interest rates  until October 2008, as of it’s focus to curb on inflation.

EU approved additional 157 billion $ package in July,& parliament adopted strict austerity measures. Now Greece’s debt/GDP ratio had reached 115% in 2009.Greece’s government found itself in dilemma after it received bailout package .Greek government had to increase sales taxes ,reduce public sector salaries ,pensions ,elimination of bonuses ,reduction in minimum wages, liberalisation of labour laws which allows employers to increase working hours.

 

These strict measures have led to a deep contraction in growth , which has only further undermined confidence. Country received a second bailout of 130 billion euro from EU & IMF last  year. There were possibilities of Greece even exiting from Euro. Greece received 130 billion euro from IMF & other eurozone members , but it had to abide a condition that it will reach a deal with it’s existing private  sectors lenders to reduce it’s debts. This would be done through a swap of old bonds with newly issued bonds that would be worth a lot less & pay less interest. Private owners will take 53.5% nominal loss on Greek debt which will work out to be 74%.This way Greece will be able to wipe half of it’s debt of 485 billion euro.  Total aims are to reduce Greek government total indebtedness from 160% of GDP now to 120.5% by 2020.

WE can however learn few things from it about Euro.

 

European governments did try to act together , but did not successfully implement it. There was a limited impact of falling exports due to extensive internal trade relationships. And Greece as of now is facing difficult adjustment problems ,as European are avoiding losses on Greek bonds.

 

 

 

 

[SOURCE,,THIS WAS WRITTEN BY ME IN 2012 LAST PARTS,,LAST MONTHS,,,THIS HAS BEEN USED IN MY TEACHERS WEBSITE MR.SIBA SANKAR MOHANTY WEBSITE ”LOK KATHA”WITH NAME OF ‘’AN ANATOMY OF GREEK CRISIS’’..I AM USING ONLY THAT ARTICLE WHICH ACTUALLY HAD BEEN ASKED TO SUBMIT AS AN SUBJECT ASSIGNMENT WHEN WE WERE STUDYING PUBLIC ECONOMICS..DURING 3RD SEMESTER WHEN WE WERE STUDYING PUBLIC FINANCE]

I HAD USED NEWS FROM ONLINE AS MAJOR SOURCE,,,AND THEN ARTICLES FROM MAGAZINES,,,TRYING TO ENSURE THAT I CAN WRITE INCIDENCES PROPERLY,,,]

 

THANKS,]

harsh vardhan pathak

doon university

 

Short note on Securitisation

This has been taken from our blog”Brinks of economic thoughts”

 

Short note on securitisation,

 

THIS IS ONE OF THE EXAMPLES OF NEW FINANCIAL INNOVATIONS WHICH HAVE TAKEN PLACE WORLDWIDE IN FINANCIAL MARKETS[EG;- FINANCIAL INNOVATIONS LIKE CREDIT DEFAULT SWAPS,,WHICH ALSO DO SHOW ONE OF CASES OF ASSET TRANSFORMATION,,MEANS MINIMISING OR SHARING  THE RISK,AND WERE ALSO CONSIDERED AR WEAPONS WHICH CAN BRING ABOUR FINANCIAL CATASTROPHE IN GLOBAL ECONOMY BY WARREN BUFFET]

SECURITISATION IS SIMPLY ‘’TURNING SOMETHING INTO SECURITY’’.EG,,TAKING A NUMBER OF MORTAGES AND COMBINING THEM TO MAKE A FINANCIAL PRODUCTS,WHICH THEN CAN BE TRADED .INVESTORS WHO BUY THESE SECURITIES RECEIVE INCOME WHEN THE ORIGINAL HOME BUYERS MAKE THEIR MORTGAZE PAYMENTS.

 

NOW WITH IMPROVEMENT OF INFORMATION AND COMPUTER TECHNOLOGY, FINANCIAL INSTITUTIONS FIND THAT THEY CAN CHEAPLY BUNDLE TOGETHER A BUNDLE OF PORTFOLIOS OF LOANS [SUCH AS MORTGAGES] WITH VARYING SMALL DENOMINATIONS ,COLLECT THE INTEREST AND PRINCIPAL PAYMENTS ON MORTGAGES IN BUNDLE AND THEN PASS THEM THROUGH TO THIRD PARTIES.

 

THE STANDARDISED AMOUNTS OF THESE SECURITISED LOANS MAKE THEM LIQUID SECURITIES .AND THE FACT THAT THEY ARE MADE UP OF BUNDLE OF LOANS HELPS DIVERSIFY RISKS,MAKING THEM MORE DESIRABLE.INSTITUTIONS SELLING THESE SECURITISED LOANS MAKES PROFITS BY SERVICING THE LOANS AND CHARGING THE THIRD PARTY FOR SERVICE.

 

SECURITISATION CAN PROVIDE MANY ADVANTAGES,LIKE LESSES COST OF CAPITAL,ENHANCED LIQUIDITY AND DIVERSIFICATION FOR INVESTORS.

 

ITS HISTORY DATES BACK TO 18TH CENTURY,,BUT PROMINENTLY CAME TO BE USED IN USA FROM 1970S,

BY THE SECOND QUARTER OF 2008[WHEN CRUDE PRICES WERE SKYROCKETING AT 147 $/BARREL,,HIGHEST UPTILL SO FAR IN HISTORY],,,SECURITISATION STOOD AT 10 TRILLION IN USA,.

 

THERE ARE TYPES OF SECURITISATION..NAMELY

 

-MASTE TRUST.

-ISSUANCE TRUST.

-OWNER TRUST.

-GRANTOR TRUST.

 

SECURITISATION ALSO COME WITH RISKS INVOLVED LIKE

 

-DEFAULT RISK

-CURRENCY FLUCTUATIONS RISK

-MORAL HAZARD

 

-SERVICER RISK

 

 

 

 

SOURCES

 

 

BBC WORD GLOSSARY FOR ECONOMICS

MISHKINS /EAKINS CH 18 ON COMMERCIAL BANKING INDUSTRY ;STRUCTURE AND COMPETITION[SECURITISATION]

WIKIPEDIA.FOR TYPES OF SECURITISATION AND RISKS INVOLVED

 

BY,

HARSH VARDHAN PATHAK

SSE-I-09

MSC INTEGRATED ECONOMICS

SUBJECT; FINANCIAL INSTITUTIONS AND MARKETS