Contents Digital Currency 02 Disparity in Charity 04 Brain Drain 06 Anarchy Economics 08 The Insatiable Indian 10 The Developmental Dilemma 12 Decoding Free Apps 14 The Geography of Capitalism 16 Jan Dhan Yojana 18 Military Expenditure: A Hindrance to Growth? 20 Modi’s Chutzpah 22 Public Distribution System: A Political Ponzi? 24 The Economics of the Unorganised Sector 28 Shift in Capital 30 The Umbrella Revolution 32 Mitigating the Cr(ISIS) 34 Aftermath of Western Aggression 36 EconoSpeak 38 EconoQuiz 40
Editorial Board Editor-in-Chief Pulkit Agarwal Chief-of-Production Ritvik Kar Master-in-Charge Mr. Mohammad Istemdad Ali Editors Jai Ahuja Devesh Sahai Designed by Ritvik Kar
Associate Editors Sajal Bansal Devansh Agarwal Arth Gupta Arnaav Bhavnani Chaitanya Agrawal
Correspondents Ishaan Kapoor Arjun Singh Chaitanya Kediyal Raghav Kumar
Contributors Yash Upadhyay Rahul Bhagchandani Aaryan Chhabra Harshvardhan Singh Vireshwar Sidhu Manan Pradhan Rishi Raj Deva
Editorial Thomas Carlye once very famously said, “Teach a parrot the terms supply and demand and you’ve got an economist”. When studying Economics, one can’t help but marvel at the truth of this statement, whilst also smirk at the incongruity that such a complex subject can indeed be simplified to such a simplistic scale. However, the issue of The Econocrat that you presently hold in your hands, will attempt to capture and explain some of the more esoteric concepts in Economics, all of which are highly relevant in the present geo-political scenario. If I were to identify a common thread among the wide range of articles that are printed in this issue, I would say that it hopes to explore the depths of real-world Economics, in the truest sense of the term. While doing so, various ends of the spectrum ranging from local affairs, to international ones have been dealt with in this publication. Often when one considers economics at the global scale, one tends to overlook the economic intricacies that exist at the local level. To that end, we have tried to ensure that the articles are from across both the national and international spectrum, covering various events that affect the policies of many governments. Over the last three years as I have had the privilege of being a part of the Editorial Board of this publication, I have learnt to appreciate the intricacies of Economics. I recall MIA jocularly mentioning at one point last term how we could actually use The Econocrat as a textbook for junior students at School. I don’t know if that is possible, but one thing that I can state with all certainty, is that this publication has evolved greatly, to the point that it has become one of the most widely read ones on campus. In conclusion, all that’s left to say, is that while a casual glance at this magazine is informative, a more detailed reading would reveal that Economics does indeed serve as the foundation for our existence. I hope you will all involve yourselves in reading the pages that follow closely, and we promise to welcome your critique with alacrity. Signing off, Pulkit Agarwal.
01
Digital Currency by Arjun Singh
“It is a techno tour de force.” These influential words of Bill Gates can only add to the radiance of this dynamic and rapidly developing subject that has gripped financial discussions and debates ever since its inception. Digital currency has presented itself as a revolution in the financial world, creating a new channel of trade which permits simplified and more efficient transactions. This very premise has resulted in its explosion across the business spectrum, with its acceptance rate in major economic sectors rising everyday. With expert analysts and economical pundits endorsing this currency with their praise backed by reason, and the rise in its once low acceptance rate, it is clear that digital currency is on leverage
and
dominance
on
the verge of exerting a huge
world
markets and economy
as a whole. Self-explanatory, currency
digital
is
medium
of
operates
on
platform.
It
spent, stored and invested more
electronic
essentially exchange an
a that
electronic
is identical to
hard cash in all barring the nature
or
characteristics, of
its
intangibility. It can be
conveniently than real money, as it
operates on an integrated digital platform, which is used by various other entities. This means that the owner anytime and anywhere can use the currency if they are able to connect with the entity with which they desire to exchange the currency, such as a firm. Digital currency obtained by the firm is added to an online account as credit. It can then either be redeemed in real currency or be used to make further purchases online. Everyday consumers utilize the system commonly when they shop online, with the mode of connection being the Internet. When consumers purchase a commodity online, they are essentially sending electronic credit of their money’s ownership to someone else in return for the commodity. The sellers then use these credits to deduct the money from the buyer’s account and transfer it to their own. This is all done electronically, and there is no actual movement of cash. There are various classifications of digital currency, which are categorized mainly into two 02
different types. A simple virtual currency is a digital currency, which is unregulated and serves as scrip, being accepted by a specific group of entities. Crypto-currency, a relatively newer type of digital currency, utilizes encryption and cryptographic means to secure transactions. Generally they use this method to generate new units of digital currency. This makes them safer in their usage and allows for currency
In spite of all this, digital currencies have been the subject of repeated criticism as well. The prime component of this denunciation is the nature of their security.
transaction to constantly be monitored, making fraud more difficult. Bitcoin, a recently created crypto-currency has risen to fame due to these reasons.
Digital currencies are furthermore
classified into hard and soft currency, which takes into account the reversibility of transactions made through these mediums. A hard electronic currency is one that doesn’t permit transactions to be reversed or canceled, making them a risky
for common users (e.g. Bitcoins or Klickex). A soft electronic currency, permits such cancellation; as seen with popular website Paypal various other escrow services. In spite of all this, digital currencies have been the subject of repeated criticism as well. The prime component of this denunciation is the nature of their security. Fraudulent transactions and thefts are common electronic crimes that occur during the usage of this currency, as hackers are able to penetrate the transactions, however secure they may be. Another issue is their usage in criminal activity, since they permit inconspicuous transaction of funds, which are difficult to monitor. The shutdown of Silk Road and Mt. Gox, two prominent Bitcoin exchange and storage websites has only exposed the risks and hazards of this currency medium. The volatile nature of these currencies is also a concern to businesses. It due to these reasons that digital currency has been slow in its recognition and acceptance by both the public and private sector Nevertheless, digital currency is on a rise and is being rapidly utilized across the world, and it is expected to see further development.
“If you are rich, you have to be an idiot not to stay rich. And if you are poor, you have to be really smart to get rich.” John Green (Born: Aug 24, 1977) 03
Disparity in Charity by Chaitanya Agrawal
Have you ever wondered why American farmers are so rich and own vehicles that cost millions, while on the other hand Indian farmers are some of the poorest people in the country who still farm with a pair of bullocks and a plough. The reason is that the US government gives out billions of dollars of subsidy to their farmers every year while Indian farmers get very less aid from the government. The policy that was made to protect famers during the time of recession is still in effect today even though USA has recovered from the recession and is now one of the most prominent economies. This policy has made the farmers in USA very rich and has angered people across the globe. The current policies actually worsen most of the problems they aim to solve. They are given to farmers to eliminate poverty, but the subsidies are given to commercial farms who already have average incomes of $2,00,000 and net worth’s of nearly $2 million. Therefore they end up giving more money to people who already have a lot of it. The policies intend to raise farmer’s incomes
There are so many disadvantages, so why indeed does USA follow these policies? The reason why the subsidies are still there is that they allow the US to supply food cheaply both in and outside their country.
by solving the problems of low price. Instead, they lead to overproduction which lowers the price
further.
Overproduction
also
causes
unintended environmental harms. In pursuit of subsidies, farmers often cultivate marginal farmland, where the thin soil is unable to replace depleted nutrients; therefore degradation of the land takes place. The subsidies are also intended to be consumer-friendly and taxpayer-friendly, Instead they cost Americans billions each year in higher taxes. Due to this the American government has to face the wrath of their citizens.
Subsidies also lead to inefficient consumption of resources by farmers as they don’t have to be cost conscious anymore. This leads to wastage of water, power, and other valuable resources which are very scarce and important in today’s world. There are so many disadvantages, so why indeed does USA follow these policies? The reason why the subsidies are still there is that they allow the US to supply food cheaply both in and outside their country. This is good for the consumers, but what about the producers of developing countries such as countries in Africa where producers cannot supply the commodity at such a 04
low price due to a high cost of production. Vakouma, the coordinator of C4 which is the group of the four cotton-exporting countries of Africa namely: Benin, Burkina Faso, Mali, and Chad, says that “Some 2,500 large farmers share more than $3 billion between them every year, whereas 20 to 30 million African cotton producers live in misery because the product of their hard work is not even enough to feed them.” Therefore the African farmers are unable to compete with their richer western counterparts and they have to live a life of misery. I strongly believe that these farm subsidies should be done away with for everyone’s benefit. Studies by international of US subsidies would increase the world dollars won’t mean a lot to the the world for the African There
are
cotton price by 14%. The extra 40 western farmers, but could mean farmers.
many
disadvantages of these
subsidies. They interfere
with market prices and
with
causing
harmful alterations that
affect poor farmers in
developing countries and
burden U.S. taxpayers.
Moreover, in some cases
trade,
agricultural
so
organizations show that total abolition
subsidies
can lead to environmental
degradation. If a farmer is program could be made, dollars to large corporations who
struggling an affordable loan instead of giving billions of clearly don’t require the money.
Today farm subsidies amount to nothing more than corporate welfare. Corporate welfare occurs when money is given to those people who need it the least. I would personally rather see the money being given to people who require it. Reducing agricultural subsidies has the potential to help developing countries, the environment and taxpayers and hopefully the US government understands this and deals with this issue in the immediate future.
“Despite a voluminous and often fervent literature on “income distribution,” the cold fact is that most income is not distributed: It is earned.” Thomas Sowell (Born: Jun 30, 1930) 05
Brain Drain by Rahul Bhagchandani
Studying abroad is the new trend in our country. Every second friend of ours is craving to apply to universities overseas, or is interested in completing his higher education in places other than India. Many of these individuals posses great intellects, and the losses of their capabilities can adversely affect the economic welfare of our country. The term “Brain Drain� is essentially defined as the migration of skilled individuals like doctors, engineers and scientists from developing countries to developed countries like the USA, UK and Germany. There are several reasons that cause brain drain to occur, like political instability in the home country, lack of adequate pay opportunities and poor standards of living. Brain drain is, in a way, equivalent to brain gain for the developed countries. This problem is further exacerbated since a majority of Indian students going abroad for studies tend not to return, as they are almost possessed by the lavish lifestyle and the lucrative jobs in the developed countries.
One of the greatest disadvantages of brain drain is that it creates a huge knowledge gap between India and other developed nations
In India itself, this problem is endemic. The first reason for it being the manifold increase in higher education in India especially after independence. The number of universities in India has grown thirty-five times and the student enrolment has increased ten fold. This is a very crucial issue as due to the increased number of students and universities, there has been a drastic decrease in
the availability of resources, adequacy of studies and in the quality of these institutions and the education imparted in them. The second reason is a lack of employment opportunities in India. There is a huge difference in the salary of people from the developing and underdeveloped countries, which triggers the people who seek better employment and salary prospects into developed nations for similar kind of work, as they would do in India. These talented individuals are also faced with a lack of opportunities and funds in India. On the other hand, the developed countries actively provide them with adequate funds and research equipment to carry out their work in a conducive environment, which does not happen in our nation. Statistics dictate that Indian students migrating abroad cost the nation a $17 billion as lost revenue annually. It is also quite astonishing to observe that even though the number of western students studying in India is almost negligible, Indian parents are willing to pay such large sums 06
of money to send their sons or daughters to study abroad. One of the greatest disadvantages of brain drain is that it creates a huge knowledge gap between India and other developed nations, which essentially results in India becoming poorer and the developed countries becoming even richer. India is incurring great financial losses because a huge amount of resources and funds for the training of its students goes to waste. This is because students give the outcomes of all the valuable training they receive, to nations like the USA, with the home nation getting neglected when it comes to returns. If, instead, students stayed in India itself, their intellectual abilities could actually contribute to the economic and social welfare of our country. It is also quite interesting to note that Brain Drain might even, in some cases, prove to be quite beneficial for India. This is because the students going abroad to study have a huge scope to send back remittances for the benefit of their own country. When they return back to India after studying, they are accomplished with an even better understanding of their profession and can flourish easily in their respective fields, if they decide to work in India. I personally feel that the main reason for the migration of Indian students abroad is the improper education system and lack of training facilities in India. The Indian education system primarily concentrates on competitive examinations, under the pressure of which the students fail to have a concrete understanding of the skills and techniques involved in their fields. The growing trent of adapting to Western systems of education is a good step to change that. Therefore, although remittances from people abroad may contribute greatly to the National Income of India, the realisation that home grown intellect must be preserved for economic development, is indeed paramount.
“Environmental degradation is an iatrogenic disease induced by economic physicians who treat the basic malady of unlimited wants by prescribing unlimited growth.... Yet one certainly does not cure a treatment-induced disease by increasing the treatment dosage.� Herman E. Daly, (Born:March 5,1982) 07
Anarchy Economics by Ishaan Kapoor
I consider it my duty to acquaint you with what anarchy economics is. The fact is I have made up the term as a general term for an economic situation, which might prevail in a political anarchy. The specific emphasis is on the term might, as there is currently
no
or precedent to concrete my stance. Hence I am placing before you
such data a
mere
hypothesis, which must be proven in order to allow this article to hold meaning. A political anarchy is any situation where there is no recognized authority. So what might be the economic situation in such a political condition? As per the present concept, there are three evident forms of economies; capitalist, socialist and mixed. A close examination of each leads to the revealing of certain impossible factors
A political anarchy is any situation where there is no recognized authority. So what might be the economic situation in such a political condition?
due to which none
of
the
will prevail in
above anarchy.
Anarchy
is
devoid of a political of policing force, which can oversee trade and regulations. Hence in anarchy there is no organization and it is popular belief that capitalists will fill in the government vacuum by providing essential services.
We already know that in anarchy there is no leader and no individual holds power. We also know that in a socialist economy the state controls productive resources and there is equitable distribution of commodities for the betterment of the general public. In the absence of a recognized power this fundamental operation that defines socialism cannot be carried out, simply as there is no one to ensure equitable distribution and there would exist private property. A capitalist economy endorses private ownership of resources, which is exactly what an anarchy situation will bring about. The reason why this system would probably not prevail in an anarchy is simply due to the characteristic feature of capitalism; competition. In anarchy there is acceptance status, when no one wishes to breach this compromise and advocate power and status. On the other hand, due to the competition in a capital market, the objective is to obtain 08
maximum profits. The reason for the desire for profit is to gain power or supremacy over others by the means of material wealth. Hence, this negates the plausibility of capitalism prevailing. Since neither absolute capitalism nor socialism is likely to reign, it is highly unlikely that the compromise of the two will prosper. Then, rises the question of a
This idea opens a doorway into an ancient system of trade, which truly is primitive and near obsolete; “the barter system”.
quasi-capitalistic system, where private ownership would prevail, while competition wouldn’t. Then again there rises the question of, “who will monitor trade?” In the absence of an authority in anarchy, there is no body, which can regulate the trade in the market or regulate the currency, which governs this trade. The primary problem of an uncontrolled currency is that there are no specific barriers as to its regulation (how much would one be able to keep on his person) and hence it has no fixed value. This idea opens a doorway into an ancient system of trade, which truly is primitive and near obsolete; “the barter system”. For what else would you call a system in which there is no control on the means of trade and there exists private ownership of land? Therefore, it is only logical for an unsophisticated scheme of trade, where goods are exchanged for goods to prevail in anarchy.
“People.. were poor not because they were stupid or lazy. They worked all day long, doing complex physical tasks. They were poor because the financial institution in the country did not help them widen their economic base.” Muhammad Yunus (Born: Jun 28, 1940) 09
The Insatiable Indian by Arth Gupta
A few days ago, I went for social service in to a local old age home, where I met an aged man, who resides there because his son had moved to the United States and couldn’t bring him along. This is about the rapid change in Indian culture and society that has taken place? The search for an answer led me to Economics, and to the rudimentary concept of consumerism in society. When economics talks of consumerism as a feature of an economically sophisticated community, sociology interprets it to be an intriguing character of society. Economics defines consumerism as the encouragement of consumer activity (i.e. the acquisition of goods and services) on a mass scale. Sociology interprets it to be an ideology, which through its linkage to individual activity affects the behavior and psychology of the consumers. India has, post independence witnessed a rise of a new brand of consumerism. During the Vedic age, Indian societies were based on the development of education and philosophy. Regardless of their religion, ancient Indian inhabitants gave knowledge in ancient Indian societies
precedence
overall
societal
activity.
Regardless of caste, people led a chaste life with the purpose of attaining salvation, which in context was the attainment of all knowledge. This knowledge, ranging across a vast spectrum, constituted both economical principles for an organized society as well as moral values and ethics.
Regardless of their religion, ancient Indian inhabitants gave knowledge in ancient Indian societies precedence overall societal activity.
Even in the later stages of Indian history, interpersonal relationships and societal values were at the core of our value system. However, the withdrawal of British occupancy and Independence of India saw not just political and social but structural changes as well which affected these deep-rooted principles. India became an independent nation, as a result of which it had the privilege to formulate its own economic policies. The post-colonial era saw a dramatic change in the old Indian value system. Slowly and steadily, consumerism infiltrated India with the liberalization of the economy, and affected us in a way much more serious than we realize. The long-standing cultural tradition of joint families has started disappearing from the Indian society and led to the popularity of nuclear families as they are easier to economically support. This symbolic change has its roots in the ‘consumerist’ lifestyle.
10
Sociologist Zygmunt Bauman argues “consumerist culture reiterates transience and mobility rather than duration and stability, and the newness of things and reinvention of oneself over endurance.” It is a dynamic and progressive culture that expects efficiency in economic activity and values individualism and temporary communities over deep, meaningful, and lasting connection to others. It also encourages gullibility towards consumer products. We may believe that advertisement and media don’t affect our decisions and psyche, but the truth is they very notably do. As a result of consumerism, Indian culture has slowly transformed to take a more individualistic and materialistic approach to things in life, as has been the case wherever consumerism has embedded itself. When Indian society once invested in relationships, and society, it now invests in self-interest and convenience. Across all ages of Indian citizens today, selfish and materialistic goals have now taken priority over relationships and greater welfare of societies. Consumerism has implanted the ideology within a ‘status symbol’ ideology, which implies that “we are what we possess.” This is noted whenever individuals brag about their personal possessions and achievements; if today I publically identify myself as a student of a pre-eminent boarding school, I do not speak solely about my education, but implicitly state the kind of person I am, and the kind of education that I to possess, which is superior to that of others. Thus, the school is no longer a value and knowledge adding system, but a societal statement, that people like me who study in the school can make. That man I met in the old age home may be just a part of an inevitable societal change in India, and calling him a ‘victim’ will not be apt. Economists say that entrepreneurs and profit making enterprises benefit the most with the consumerist approach of society. However, reality is a function of the decisions that we take as a whole, and it’s time we truly ask ourselves, “Where, are we headed?”
“Since the 1980s, we have given the rich a bigger slice of our pie in the belief that they would create more wealth, making the pie bigger than otherwise possible in the long run. The rich got the bigger slice of the pie all right, but they have actually reduced the pace at which the pie is growing.” Ha-Joon Chang,(Birth:October 7, 1963) 11
The Developmental Dilemma by Sajal Bansal
Time and again developing nations have adopted the policy of Foreign Direct Investment. Be it South Korea (which has seen an approximate of 7 percent growth in the past five years) or China (whose growth rate needs no mention), they have all adopted the policy of FDI to escape from the vicious cycle of remaining in the realm of developing nations. Ever since my horizon of comprehension has expanded into the field of economics, I have constantly questioned FDI’s repetitive splash of ink in the newspapers. Not only has it become the controversial debate of the parliament, but also has hypnotized swarms of people to come and protests on the streets. The stock market has proved to be developing ever since the election of 2014 with BSE and Nifty achieving numbers far too great to be true. Now that India has got the attention of potential investors, in which direction should it plan to steer them off; the homogenous policy of investment which many other world markets provide or the market which promises the hen that lays the golden eggs. As far as I see, there is no rocket science to finding out the answer, however the government fails to comprehend and act. Let me narrow down the argument further, FDI in the Indian Railways has always been a dilemma for the government, a dilemma they brought upon themselves. The condition of the railways is a topic which all of us are well acquainted with. What the common man was unable to see was the reason behind this exemplified inefficiency. Excuses are quick to come with cheap ticket prices topping the list. Privatization, a proposal rejected on various grounds. FDI rejected, until the holy date of August 6, 2014 where the cabinet approved a 100 percent FDI in railways. The necessity to bring in the
FDI was realized after
the department realized the losses they incurred year
after year and that
they were now way beyond their comfort zone.
Infrastructure
in
railways needed a phenomenal upgrade from the various metro corridors to the basic sanitation. Allocation of funds was an impossible task, given the numbers, which were being added to railway’s deficit. The only
solution
left
with
the
government was Foreign Direct Investment. Recent announcement of the 12
high speed trains, although a dream come true, came with a staggering cost of about 60000 crore rupees. The well-oiled machinery of the janta was functioning smoothly until the cost of the project was revealed; which raised concerns about the necessity of high speed rails especially when the opportunity cost was touching the sky. Politics came into play and this issue was splashed almost across most of the newspapers. Controversy was something that the newly elected NDA was not looking favorably upon in its first hundred days of governance. Stuck in the horns of dilemma, since it was necessary to implement this ambitious project, appeals from various sections across country could not be ignored. The only solution left with the government was to clean the choked pipeline and let FDI flow through. Announcement of hundred percent FDI provides for the capital required towards the infrastructure of the railways. Shortly after this announcement, the PMO set up Mr. Modi’s trip to Japan, pioneers of our high-speed project, where he was to meet his counterpart Mr. Shinzo Abe. The trip was not just another stamp on the passport and turned out fruitful with Japan promising an investment of $35 billion over the next 7 years; of which a major portion will be in the railways.
What the common man was unable to see was the reason behind this exemplified inefficiency.
Xi Jinping’s arrival in India is anticipated to be yet another announcement of investment in India (railways). However as liberal as the idea of 100 per cent FDI sounds, the government has made sure to keep
the rein in their own hand. FDI is allowed in suburban corridor projects through the public private partnership (PPP) route, high-speed train systems, rolling stock including; trans sets, coaches manufacturing and maintenance facilities, railway electrification, signaling systems, freight terminals, passenger terminals and infrastructure in industrial parks like railway line and sidings. The government has also addressed issue of the foreign parties having full control by restricting the FDI in spheres of train operations and safety. Which leaves the common man in suspense and anxiety, about his future. Time has never failed mankind and continuously checked, approved and rejected the decisions made. Let us not change this immemorial ritual and let time be the judge of the FDI in Railways.
“Once you realize that trickle-down economics does not work, you will see the excessive tax cuts for the rick as what they are -- a simple upward redistribution of income, rather than a way to make all of us richer, as we were told.” Ha-Joon Chang (Birth: October 7, 1963) 13
Decoding Free Apps by Aaryan Chhabra
It is a common attitude in human beings that we want to gain more by spending the least amount possible, and this is precisely the reason that once free apps were introduced in the App Store they managed to create a wide spread sensation and with the vast use of technology that is increasing globally the future of free apps appears to be promising. If free apps are being made in such abundance then there must be a way to generate revenue, surely if they do not generate revenue then they defeat the purpose of making apps; which is to make money.
The condition of the railways is a topic which all of us are well acquainted with. What the common man was unable to see was the reason behind this exemplified inefficiency. Excuses are quick to come with cheap ticket prices topping the list
The fact of the matter is that they do make money and added to this is that fact that they earn much more money than paid apps. There are various sources for this income and my article will explore these various sources of revenue and familiarize you with the reasons that these apps end up earning millions, if not billions, of dollars. First of all these sources are the targeted advertisements. I am sure that while playing Angry Birds, or for that matter any free app, you may have come across a small box at the corner of the screen. These small boxes are the targeted ads that many if not all of the free apps use.
Users do not generally mind these small boxes, which is why they do not bring any discontent amongst the numerous customers. These advertisement companies pay a lot of money, which covers up the cost of production of that app. The second and relatively new marketing scheme that in recent times has caused so much of uproar is the Cost Per Install (CPI) network.. This is exactly what it sounds like: you pay for every installment you get. We often see a ‘pop-up’ in our games and apps, which tempts us to look at another game, having an option saying ‘GET IT NOW’ over there. These apps are more or less based on the app that you are currently using. 14
Another great way that these apps earn money is by introducing the system of ‘In-App’ purchases within a game; these purchases enable the users to unlock new features or buy more of something like gold in a game like Infinity Blade. When you build an app, you can set IAP (in-app purchases) to be a one-time purchase or an ongoing option, meaning you can purchase that over and over again. You can easily start racking up enormous amounts of revenue with the second, but you also need an incredible app that can create the demand for these products. Another conventional technique, which is reliable and does its trick many a times, is using sponsorships. The money is up front and you gain your brand reliability with the consumers. A simpler way to generate profits is to offer a lite version of an app for free and provide the users with an opportunity to buy a paid app version having certain features like being adfree, a chance to upgrade the app without any additional cost. As I have mentioned before this is the easiest of all the methods: one simply needs to create two apps, one free and a better one that is a paid app. Then promoting the more expensive one becomes simple by using the free app. And best of all is you can generate an interest amongst the consumers with the ‘freebie’, and then cash in on the popularity without having to aggressively market your paid app. Finally there is a method of ‘Bundling Deals’ in which some services in an app are chargeable but needless to say the app itself is free. For instance a particular company pays a huge deal of money for business data and someone access that data principally from a smart phone. That particular data is chargeable because of its excessive use. To conclude I would just like to say that these free apps, which dominate the market currently are on the brink of their rise. If some more consideration is given then there will be a time when even sky will be too low to be the limit.
“Economics is extremely useful as a form of employment for economists.” John Kenneth Galbraith (Oct 15, 1908 - Apr 29, 2006) 15
The Geography of Capitalism by Ishaan Kapoor
When the British East India Company ventured into Asia to monopolize and initiate economic trade, two economies were targeted; Indian and Chinese. Yet today we face a situation where one of them is facing drastic inflation, while the other embarks on route for economic prosperity. Even though, British colonizers entered China and India at approximately the same time, the question arises as to why one has been exploited exponentially more than its counterpart. There are several lines of thought, which can explain this biased exploitation, including abstract concepts such as poor leadership or poor planning. The line of thought that most accurately explains the cause and effect of this exploitation is the resilience that one economy portrayed, while the other was rendered helpless. This is adequately explained in the theory proposed by Wallenstein that a capitalist society is divided into two chief geographical divisions; center
and
periphery.
Both
conditions may exist in only one economy or in a global society comprising
of
several
economies. A central national economy is essentially one, which is well connected that is all sectors of the economy are interdependent and prosperity in one leads to prosperity in all others. Let’s take an example, which we can all relate with, that of China. Being a closed economy before Mao Tse Tung came into power, infiltration into its various sectors was never absolute. Hence when the British convened the ‘Opium Wars’ a ripple effect was experienced in the Chinese economy. In spite of this, prosperity in other sectors such as spice trade lead to a net improvement in the economic condition of the state. Due to this, the economy did not experience any significant fluctuation and owing to the strong bonds between the various sectors of the economy, the situation remained more or less stable. A peripheral economy on the other hand is one where the various sectors of the economy are unconnected. Hence development in one need not necessarily lead to development in all. This is the category under which India falls. When the Europeans entered, they saw an economy, 16
which was divided into fragments and empires. Sixty-seven years after independence we still fall into the same pool as those economies, where each sector exists as an independent organ. The pre-independence era saw the British invest in solitary sectors such as agriculture so that the majority of the benefits will be reaped by the economy of Britain. Investment was funneled into the production of profitable raw material, while heavy trade duties were imposed on finished goods industries. Since, these various sectors were not connected to one and other, the investment in the agricultural sector lead to no improvement in the condition of the finished goods industries which ultimately had to shut down. Reconciliation from this economic blunder has taken a significant amount of time and national investment.
A central national economy is essentially one, which is well connected that is all sectors of the economy are interdependent and prosperity in one leads to prosperity in all others.
A peripheral economy is hence vulnerable to exploitation from a rich economy. When a central economy such as USA invests in a particular industry in a third world country, a large amount of the produce from that industry is outsourced to the investors. This inherently benefits the investors as they have obtained much needed resources at minimal expenditure, hence generating large profits. The exploitation on the other hand occurs when the industry outsources most of its produce,
therefore creating a scarcity of supply within the economy. This leads to price hikes and inflation that further cause a shift in the balance of trade in favor of the investors. As without the investment, there will be a sharp decline in production. Ultimately all money invested by the center returns to the center, along with a profit. This was the disease which the Indian economy fell victim to, while the Chinese managed to evade it. Today, China is an emerging economic power with India clasping the helm of economic prosperity. Slowly, but evidently, global economic prowess has tilted slightly in favor of India and China since the depression of 2008, but the concept of the allocation of geographic patterns within a capitalist society plays a major role in governing economic trade and exploitation.
“Those responsible for our economic depression have been found irresponsible. The irresponsible are responsible!� Jarod Kint (Born:March 5,1982) 17
Jan Dhan Yojana by Harshvardhan Singh
It is archetypal of a democratic government in a developing country to woo its electoral body with populist schemes, whose success solely depends upon the economic efficacy of the Government. The recent promise made by PM Narendra Modi regarding the provision for all Indian households to have a bank account, the Jan Dhan Yojna Scheme launched on the 22nd September, raises such issues. According to the Government, we could save billions of dollars in welfare spending and help “mend strained finances”. Despite being the third largest economy in Asia, two-fifth of our citizens do not have a bank account. Interestingly, on the inaugural day, 1.5 crore personal bank accounts were opened across the country, which is the largest number of bank accounts opened on a given day anywhere in the world .The Jan Dhan Yojana aims to reach out to 7.5 crore people by the 26th of January,2015. The account holders will be provided with a zerobalance bank account with RuPay an accidental cover of 1 lakh
debit card facility. Also, it will have rupees. In addition to this, six
months within the opening
of the bank account, holders
can avail a loan of 5 lakh
rupees.
It is a positive sign that
banking
policies such as these
seek to provide support to
financially
weaker
households
savings. Direct transfer of will
ensure
dollar subsidy bill, equivalent to 2 per
insurance
with
small
funds into bank accounts
minimization
corruption which are responsible
and
in
wasteful
spending
and
for inflation and India’s 43 billion cent of India’s GDP. Promotion of good
banking habits will lead to more credit creation in the country, which is the need of the hour for inclusive economic growth and development. It will diminish the role of moneylenders and other financial institutions outside the ambit of Reserve Bank of India. Where this scheme hopes to help the Indian household at large, the possible problems arising from this cannot be neglected. The overdraft facility may end up swelling bad loans as there is no mechanism to recover the repayments or service the various account. Since the average wage of an Indian citizen is less than 2 dollars a day, it is preposterous as to how he would have the economic means to maintain balance in his account and have the ability repay the benefits 18
provided to him. According to Puneet Chopra, associate director at a financial inclusion consulting firm “MicroSave,� There is a high risk that the scheme would lead to a massive doleout-of subsidy, instead of assisting the targeted distribution of benefits. Critics of the scheme have pointed out that the Government should look at promoting greater financial inclusion,
I do not mean to say that Jan Dhan Yojna is a ponzy scheme. I have merely attempted to give a balanced view of the implications of the scheme.
keeping costs in mind. The cost of creating bank accounts is pegged at a whooping 18,000 crores. Also, RBI data has shown under the previous financial inclusion initiative launched by UPA, that more than half of the bank accounts remained dormant with unnecessary financial and social burden to maintain their account. I do not mean to say that Jan Dhan Yojna is a
ponzy scheme. I have merely attempted to give a balanced view of the implications of the scheme. I sincerely hope that the scheme turns out to be a success so that India, as a nation combats the factors that are hindering our economic progress.
The economy is a wholly owned subsidiary of the environment, not the reverse.� Herman E. Daly(Born:March 5,1982) 19
Military Expenditure: A Hindrance to Growth? by Vireshwar Sidhu
As an economy, India is one of the front runners in the world at this point of time. It is an attractive destination for foreign investors to launch their ventures. Moreover, with the allowance of Foreign Direct Investment (FDI) and relaxation of economic norms throughout the country, it has also helped to open vast areas of opportunities for both domestic as well as international players. On the domestic front, the Modi effect notwithstanding, huge growth is expected in the automobile and telecommunications sector. However, given that India is not an isolated island; the
global
affected well. a
its This
reduction
on
various
recession has economy
has prompted in
spending
sectors, most
n o t a b l y
the
sector.
growth
the
The
country
as
defense in
has reduced,
which
is
reflected in the
budgets
of
recent
to
make
years
limited use of
resources. Defence is one of the major sectors of the nation. India has a well established network of navy, army, air force and paramilitary forces. Unlike other militaries of the world, the Indian one in particular faces the unique challenge of maintaining security at the 7000km border it shares with various neighbouring countries. As a result of this, a significant portion of the nation’s budget is directed towards maintaining, expanding and modernising the defense sector. However, as aforementioned, the spending on procurement of defense equipment has been cut down. In the 2013-14 financial year, the budget for defense was cut down by a massive Rs. 14,000 crore, Rs. 10,000 in the capital area and Rs. 4,000 in the revenue area. These cuts affected greatly the critical purchases of new weaponry and equipment. The deal with France for 200 fighter jets was deferred, so was the purchase of Ultra-Light Howitzers from the United States and the deployment of Anti-Tank Guided missiles on the Indo-China border. Thus, India’s immediate plans of becoming a regional military power have been dealt a blow. In the light of budget cuts on defence expenditure, an ongoing debate between policy-makers and economists is whether defence spending stimulates economic growth. The main reason for 20
positive relationship between defence spending and economic growth is military spending provides an environment suitable for investment and business organisations. The inverse relation stems from the fact that there is diversion of resources from productive works to that which is unproductive. Then again, some economists look at military spending from the perspective of it being productive, as steady economic growth is impossible in a nation which lacks security. Safe to say, this debate is endless,
From the Indian perspective, expenditure on the defence sector is considered unproductive, which may have either positive or negative effects.
also because there are different methods of developing a relation between defence spending and growth. From the Indian perspective, expenditure on the defence sector is considered unproductive, which may have either positive or negative effects. The only recognised positive aspect, other than an environment conducive to conducting business activities, is that it generates employment. On the
flipside however, it results in a spin-off between the defence and the other sectors as resources are directed away from productive purposes. Military spending also leads to reduction in the savings ratio and a huge deficit in the balance of payments. Moreover, studies show that the growth derived from military spending in India is minimal. On the whole, it can be noted that money spent on military purposes may be better utilised on educational institutions, medicinal facilities and sanitation. However, only a country with military muscle can prosper and progress. For the time being, Modi must concentrate on uplifting the economy so that the defense chiefs at least have something to spend.
“State ownership! It leads only to absurd and monstrous conclusions; state ownership means state monopoly, concentrated in the hands of one party and its adherents, and that state brings only ruin and bankruptcy to all.� Benito Mussolini (Jul 29, 1883 - Apr 28, 1945) 21
Modi’s Chutzpah by Manan Pradhan
The UPA’s dismal performance in their second term in power left the country in shambles. The ‘aam aadmi’ desperately wanted a change. It would not be wrong to say that during the General Elections in May people would have accepted any government as long as it wasn’t the congress. As it happened, the BJP managed a landmark reprisal in those elections, winning 282 seats. They rode the Modi wave that swept the country to victory, promising progress and prosperity. They achieved a majority in the Lok Sabha all by themselves and thus eliminated the need for a coalition, a feat that India has not seen in the recent past. It has been a good four months since this government has been in power and I think it’s time for a preliminary critique of their work. GDP is defined by the OECD as “an aggregate measure of production equal to the sum of the gross values added of all resident institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs).” In other words, “how much a country produces in a particular amount of time”. On Thursday the eighteenth of September, the very astute Bill Gates advised the Indian government to “take unpopular measures to achieve better growth.” Another comment he made (and also one that I particularly enjoyed) was this – “What’s the point of a mandate if you can’t do unpopular things?” I don’t know whether the government will take Mr. Gates’ advice or not, but I think the results of Mr. Modi’s work speak for themselves. Modi inherited a national GDP growth of 4.9%, inflation of 8.59% and an INR to USD ratio of 59.76 and an industrial output growth of 0.4% from the previous government. The current growth rate of our GDP is 5.7%, the current rate of inflation is 7.26% and the rate of inflation is 0.3%. In a short period of time they have ramped up local investment, increased the incentive for commercial
banks to lend money, provided
benefits to the infrastructure sector and have fast tracked development projects. In four months, they have achieved various short term goals as far as the GDP is concerned, and expect it to rise to a 6% till March 2015. The ‘Modi sarkaar’ has indeed achieved a lot. The question though, is how? The
first
reason
of
course,
is
the
implementation of new economic policies. 22
Modi was, to an extent, expected to replicate his success in Gujarat by trying to end the policy paralysis that was a hallmark of the previous government. He was able to do this as a result of the BJP’s 282 seat mandate. Some of the issues that the government tackled were the stringent land acquisition laws, the chaotic tax regime and the rigid labor rules. Moreover, the government has taken steps to encourage investments and increase consumer demand, which has caused a revival in the manufacturing and mining sectors. Added to that is the government’s general pro-development stance, as advocated by Modi and other party members in various speeches during their campaign. The government currently aims to create a conducive investment
The ‘aam aadmi’ desperately wanted a change.
environment, which will help rejuvenate the ailing economy by pumping in more money, preferably through foreign exchange. The government is also looking to separate the debt management function from the RBI, as it conflicts with the RBI’s monetary policy stance. An RBI panel also advised
the government to target consumer price inflation and make a committee responsible for monetary policy, not just the RBI governor.. The government also seeks to increase privatization by selling its stakes in state run companies to increase revenue. The UPA planned to raise $9.62 billion through these sales and if the Modi government continues with these plans there will be a marked decrease in fiscal deficit and a definite increase in GDP. Adding to all this is the new budget, which deserves an article of its own. The budget signifies Modi’s “bitter medicine” for the economy through smart taxes and subsidies to incentivized production and increase the revenue, all of which contribute to the increase in GDP. In conclusion, it can be said that it is the data itself, which creates this illusion of our ever increasing GDP, putting percentage and other relative figures aside, the truth is that the UPA government left the GDP with a figure so low that even a very small change turns out to be greater percentage figure. Though the actual “value” of growth may not be so large, mathematics and percentage figures lead us to believe that they are. However, the fact that the Modi government has definitely done substantial and credible work for the Indian economy cannot be denied. All these factors put together give the ‘aam aadmi’ an idea about what the government has in mind for the Indian economy. To end, all I can say is that the results of this examination certainly bode well for the country’s future.
“The industrial mind is a mind without compunction; it simply accepts that people, ultimately, will be treated as things and that things, ultimately, will be treated as garbage.” Wendell Berry (Born: Aug 05, 1934) 23
Public Distribution System: A Political Ponzi? b y Ya s h U p a d h y a y
The single conflict that all major authoritative and governmental set-ups have faced is the one between welfare and competition, both of an internal nature. Theoretically it is imperative for governments in democratic structures to implement various social and economic welfare programs. Such programs usually consist of subsidized supply of necessities and aim to create greater economic opportunities for backward classes. However, this is definitely not where the conflict actually arises. The roots of this conflict are the most fundamental questions of how much, until when, to whom and most importantly the economic viability of these programs. It is these questions that the government must answer for self-introspection (while policymaking) and more importantly they must provide reason for their selective approach to the masses under the democratic system of reviewing. This conflict is where the citizens of a nation question their government. Most of the criticism arises on these very grounds, that is, if the government provides enough socio-economic welfare; and since the absolute implementation of these programs has nearly always been a practical failure, critics and opposition parties find it relatively easier to point fingers at the authorities. Especially in the case of India, this duty of the government is both extensive and critical— keeping in mind the vast diversity that exists here and the class disparity that often gives rise to organized communal tension. That is where the political domain and the economic domain of the country merge resulting in a similar phenomenon in government policies. Economic policy-making in India has been heavily influenced by its social repercussions, which is ironically more than the economic viability of the reform. Also, it is evident from the timing of implementation that the introduction of such reforms in the country is generally planned
Especially in the case of India, this duty of the government is both extensive and critical—keeping in mind the vast diversity that exists here
in accordance with the electoral calendar. Political parties bring out particular programs only when they are most needed and are in line with their political propaganda. Well, even if we keep these practical assumptions aside, there are many other factors relating to the reforms that are fundamentally flawed. No economic authority can ever make up for the high economic costs of these schemes under the primordial shade of social welfare. It is important for governmental organizations to understand 24
the basic principle of dominance. I’m not promoting any anti-humanitarian ideology here, but the fact is that the underprivileged need to be provided with opportunities and incentives using only the most efficient methods. This could include the diversification of concepts like Corporate Social Responsibility (CSR). It is not the duty of the regulatory bodies to provide for the facility of provisions. The government does not need to implement programs that simply involve the extension of services to the underprivileged masses; rather it is important to come up with more schemes like the MNREGA and the Food for Work Program (FWP). However, this does not in any way mean that the government should not provide social security to its citizens or stop Minimum Price Legislation; rather they should work on self-sustaining empowerment. The Public Distribution System (PDS) in India refers to a national food security system. The PDS is set-up under the Ministry of Consumer Affairs, Food and Public Distribution. However, it is maintained and regulated by the Food Corporation of India (FCI), which is a state-owned entity. The Indian food distribution network is the most extensive in the world. The government spends more than $13.6 billion annually on crop production in the country, yet the produce is not enough to the cover the extra 21% undernourished population, ironically dominated by citizens living closest to the Farms. This does not necessarily show a lack in quantity of the produce. There are other factors such as spoilage of the grains, malpractices and lack of efficient mechanism and infrastructure for the proper channelization of the produce. The lack of effective framework of implementation is a hurdle faced by the Indian PDS, which only adds to the problem. Effective Implementation is a major determinant of the success of any social welfare program. In a country like India, the problem of effective implementation gets exponentially magnified. Many parts of India lack proper infrastructure for the provision “If only one person were perfectly informed there could never be a general crisis. But the only perfectly informed person is God, and he does not play the stock market.� Robert Skidelsky (Born: Apr 25, 1939) 25
of economic facilities or even basic transactions. Enacting schemes such as the PDS in India is extremely ambitious for these very reasons. To resolve this situation, the workload of implementation is divided between the Central and the State governments. The procurement, transportation and storage of food grains is entrusted upon the Central government while the State governments are entrusted with the task of distribution. State governments are also responsible for allocation and identification of the households that live below the poverty line (BPL) and the issuing of ration cards. The distribution takes place through the various Fair Price Shops (FPS) that are set-up by the government. As of now, there are about 4.62 lakh such fair price shops that carry out the distribution of various subsidized food and non-food items—based on the ration card the particular consumer holds. The PDS has always been heavily criticized for its urban bias, lack of transparency and negligible coverage in states that have the highest proportions of the poor rural population. Failure of this highly ambitious poverty alleviation scheme is not a result of absence of impressive
The urban bias in the system was very evident. This was so, mainly because of the lack of a simple mechanism to make ends meet.
numbers but rather because it has failed to accomplish its basic aim; provide subsidized food to the poor. The urban bias in the system was very evident. This was so, mainly because of the lack of a simple mechanism to make ends meet. Apart from failed strategizing, this exposes the intent political parties held while implementing the scheme. Yes, we needed a distribution system that would promote social welfare by providing equal opportunities, but the real question was if we could afford one or have enough infrastructure to implement it.
These
implementation
processes
are more important for political parties to understand rather than just trying to analyze the favorable political outcomes of the scheme. The Indian government however came up with another rather ambitious solution. In June 1997, it implemented the Targeted Public Distribution System (TPDS), which included the distribution of only basic food commodities like rice and wheat. The monthly allocation for BPL families (after many increments), is currently set at 35 kg per family while for the Above Poverty Line (APL) families, the allocated amount is 15 kg. 26
The PDS has been a major burden to the central exchequer. It is a scheme that has immensely added to the visible social welfare briefcase of the government but has had repercussions bluntly visible to economists. With a Pan-Indian subsidy bill of more than $ 20 billion, the PDS not only lies behind its rather quintessential goal but also acts as a mechanism that allows for and makes black marketing of food items even more lucrative. The PDS is in fact a political Ponzi scheme as parties build up their vote bank and election propaganda by implementing it in the name of their duty of ‘social welfare’; not scrutinizing its economic and functional viability and using the lack of the same as an excuse of its failure when it inevitably happens.
The Indian government however came up with another rather ambitious solution.
Here are two things that the system needs to get right. Firstly, any authoritative set-up must not implement short-term welfare programs by out rightly providing the required facilitates. Rather, a long-term stabilization strategy needs to be adopted that would empower the underprivileged classes and not just provide them with ‘privileges’ that are unaccounted for. These schemes must build capacity and human capital for the economy rather than being a burden on the economy itself. They need to invoke competition and not over-dependence. Secondly, Indian political parties must learn that with the rise of the ‘knowledge economy’ the socio-political domain will appreciate stable and productive long-term measures such as the recently introduced ‘Make in India.’. The Indian society now recognizes specialist opinions and in the coming future, it will be such details that will determine the election results and not income or community based vote bank politics.
“There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.” Warren Buffett (Born:August 30, 1930) 27
Economics of the Unorganised Sector by Arnaav Bhavanani
“Dad, I want to hear a bedtime story.” “You’re 17 years old, son.” “Something educational, then.” “Alright.” Once upon a time, innumerable years away, I woke up in the morning to the sound of this: “Bhaaji le lo!” “Tamatar le lo!” “Aloo le lo!” and so on. It was my quintessential alarm clock, and I often told my mother that with the din they made each morning, she really needn’t wake me up. So yes, they were important to me, but for reasons vastly different to what they mean to me now. From being the reason I always made it on time to school, they’ve come to define my view of Indian economics, especially since I’m a student of the same. As I grew up, several facts became clearer to me than ever before. Concepts such as the importance of elected leadership, of corporate governance and the power of the written word entered my impressionable mind, and enlarged my world view. It was in this expansion of horizons, however, that i discovered something about my roots. This was the true importance of the bhaajiwalas. Last year, I wrote an article for The Econocrat about the drawbacks of FDI in Retail. While I wrote this from the standpoint of the unorganized sector, I realize now upon reading it, a year later, that there is so much more to ‘the unorganized sector’ than just the bhaajiwala community. It dawned upon me that this country doesn’t really take 92% of this country’s workforce seriously enough to include it in the government’s programmes, and that that is where our economic power, albeit, weakness, lies. Narrative Newsflash: According to IARIW statistics, the formal sector’s share in India’s economy is 12-14%. The share of the informal one, on the other hand, is hovering above 30%. And if this statistic isn’t clear enough, eat this: The formal sector in the USA comprises 70% of its economy. So the question is why is the unorganized, informal, often ignored section of The Great Indian Economic Machine so large? The simplest answer to that would be: diversity and population explosion (but of course). Back in 1999-2000, there were close to 370 million workers subsisting on this sector. Be it in labour, or business, or even in middlemen, the untaxed economy of India is large, and burgeoning. It contributes more than 60% in NDP, and is perhaps the largest known (dis)organization in the post colonial era. It is, to be honest, the sole reason India is what it is today; 92% of its workforce slaves under uncertain wages, no social security or benefits, and no government protection that is promised to the 8% who work under government 28
jurisdiction. The importance of this sector, then, cannot be underscored enough. Its significance in the country, and as such the world, is not only statistically proven, which is evident to even the most casual observer. Walk down a market street in Delhi, and what do you see? Not a single person managing any of those stores/stalls receives due from the government. They don’t pay taxes either, because the government does not
So the question is why is the unorganized, informal, often ignored section of The Great Indian Economic Machine so large?
recognize the legitimacy of their businesses. The government, in essence, conveniently forgets/ ignores one third of its per capita production, and its yearly figures and projections are based not on a holistic consideration of the economy, but two thirds of it. And then we blame the economists for not being
able to predict crashes and rises. Now the very concept of the unorganized sector is flawed. What truly constitutes it? And how often does this sector come to have a majority bearing in economics? The answers are simple, though contradictory to the point of an ‘educational’ narrative. Nobody knows. And nobody knows because we haven’t classified this sector. We haven’t paid enough attention to it, and in this, we’re beginning to lean towards corporate governance. And if you understand what that entails, it is a dangerous situation. The age old maxim of ‘ignorance is bliss’ simply does not apply to the real world anymore, because knowledge itself holds the key to true power and prosperity. The knowledge and acceptance of 98% of the country’s workforce as a legitimate entity can not only add some nitrous to the Great Indian Economic Machine, but lend a hand to its exponential growth, something our dear politicos have been blatantly promising since the first Five Year Plan. Not to say we haven’t done a lot, but the there’s a lot more to be done if we’re going to jump up the ladder. And we’re capable of it- it isn’t as though recognition of the unorganized sector is impossible. Hard, not impossible. “Let’s get to work, then!” “Go to sleep now. We’ll talk more tomorrow.” “Goodnight.” “Night, son.” “For most, economic growth is a spectator sport.” Paul Krugman (Born: February 28, 1953) 29
Shift in Capital by Sajal Bansal
The validity of BRICS has always been questioned on the basis of its financial accountability. Initially founded in 2006 by Brazil, Russia, India and China, joined by South Africa in 2010, the BRICS has always been accused of being nothing more than an addition to the array of ‘acronyms’ that exist in our world. Given the economic insufficiency within the organization, the BRICS has failed to achieve its purpose of being an organization that was created on the basis of economic orientation. However; the announcement of the new BRICS bank, a New Development Bank, comes as a clarion call to all those who have questioned the existence of this organization. It is an attempt to elevate the group’s economic position in the eyes of the global community. With the announcement, taking place in the Brazilian city of Fortaleza, an initial capital of $50 billion and a Contingent Reserve Arrangement of $100 billion, (the amount yet to be approved by each country’s parliament) was declared. This bank aims at providing funds for improving financial infrastructure and endorsing sustainable development projects. The initial capital offered is of $50 billion and is to be equally contributed towards by the five countries. Without any doubt, the NDB is a startup, which aims at becoming an adversary of the World Bank as well as the International Monetary Fund. The NDB has not appeared out of thin air, but is actually a result long expected from the BRICS. China, whose economy is only second to the United States, has fewer votes in the World Bank than the Benelux Countries. Grants of funds to these countries by the IMF have time and again been accompanied by imposition of restrictions on their Bank
economic activities. The World and
the IMF,(organizations who find their
backbone in the Unites
States of America), have always
created
friction
with
in sync with those of USA.
countries whose foreign policies are not Russia and its annexation of Crimea will
surely exemplify this stand. In short, BRICS, which comprises of approximately one-fifth of the global economy wields only about 11 percent of the votes at the IMF.
30
The capital base with the NDB, which is initially to be used for the member countries will later also allow low and middle-income countries to join and apply for funds. While an initial capital of $100 billion may sound colossal, it will yet be insufficient to meet up with most of the world’s developing infrastructure. The World Bank estimates that South Asia alone requires $2.5 trillion over the next ten years. Seeing the need for massive amounts of money in development of infrastructure, China’s plea to pool in more money in the NDB has been rejected by other nations. The reason, which was crystal clear, is to prevent China to dominate this newly founded bank and become what the
The proposal of the NBD was about to get rejected because of the dispute between member nations regarding the location of this bank as well as the presidency.
United States is in this present day. Another reason for this is the economic disparity with South Africa, which is only being able to afford $10 billion. This is just the beginning of the politics at hand. The proposal of the NBD was about to get rejected because of the dispute between member nations regarding the location of this bank as well as the presidency. The member nations reached to a consensus agreeing on Shanghai and an Indian president. However, the
chair of board of Directors is to be a Brazilian and the chair of board of governors a Russian. The future tug of war between implementation and actions of policies is not opaque considering the different directions these positions have been allocated to. Last but not the least, a point of conflict which one hopes is never touched upon is that the democratic (India, South Africa, Brazil), oligarchic (Russia), as well as the Communist(China) regimes do not occupy themselves in allocation of funds for infrastructure based on their respective ideologies. These differences lead to confusion regarding the allocation and approval of funds and the criteria based of which the funds are to be allocated. The New Development Bank is a golden opportunity for the developing nations however the opportunity is extremely sublime and has to be encased. In the end, The Bretton Woods institution took decades to sort out everything with the result being – Like-minded democracies taking control over everything.
“The industrial mind is a mind without compunction; it simply accepts that people, ultimately, will be treated as things and that things, ultimately, will be treated as garbage.” Wendell Berry (Born: Aug 05, 1934) 31
The Umbrella Revolution by Rishi Raj Deva
As the growing unrest in Hong Kong grips China, the question arises in most, how does the fate of Hong Kong affect the rest of the country? It is no doubt that Hong Kong is less important to China than it has been in the past and it’s GDP has shrunk from 16% of China’s in 1997, the year it was returned to Chinese control, to 3% today. However, H o n g
Kong and China continue to have significant economic ties and it has long served as a strong link between China and the rest of the world, hence integrating it with the global economy through continuous trade and investment. Over the past decade, Hong Kong has proved to be more economically feasible than the mainland itself. Since 2013,
Chinese
companies
have
managed to rise over $43 billion in the Hong Kong market in initial public offerings. Moreover, Hong Kong serves as an indispensable gateway for the Chinese mainland providing it with access to global capital markets for bond and loan financing. Last year itself Hong Kong was responsible for over two thirds of the foreign direct investment in China, it serves as a platform for most foreign companies as it offers one thing that most cities in China cannot, that is, a stable investment environment well-protected by a strong and well established rule of law. The current status of Hong Kong, however, with the ongoing protests and riots already has and will continue to adversely affect
Over the past decade, Hong Kong has proved to be more economically feasible than the mainland itself.
China’s economy.. The protests are primarily regarding China’s decision in late August to have a 1,200 member committee laden with party loyalists vet candidates for the 2017 election of Hong Kong’s next chief executive. The protesters feel that in doing so China is effectively trying to prevent any pro-democracy candidates from taking part in the elections and hence, the protest began due to the evident lack of democracy which has spread discontent amongst the people. Already, 32
the protests have led to the shutdown of many banks and schools. The Hong Kong stock market, which in the past has been ever rising and reliable, was also down by almost 3% in the first couple of days of trading after the protests began. The unrest has already affected the profit margin of the ‘Golden Week’, a period in China during which a large number of Chinese tourists visit Hong Kong in order to buy various items. The more China witnesses the growing instability in Hong Kong, the more rattled its economy gets and an escalation of the protests could effectively reduce U.S. investment in China, further
Over the past decade, Hong Kong has proved to be more economically feasible than the mainland itself. Since 2013, Chinese companies have managed to rise over $43 billion in the Hong Kong market in initial public offerings.
hindering China’s economic growth and sending ripples across the global economy. Presently, China is doing its level best to censor most if not all of the happenings in Hong Kong by blocking popular means of communication such as Instagram and other such digital platforms. Thus, to this day, Hong Kong remains the key to China’s economic growth. Not only does it facilitate global economic integration but also exports invaluable goods, half of which, end up in China itself. Presently, Beijing is faced with two options, that is, to accede to the protester’s demands for democracy or to strengthen security
in Hong Kong by sending in Chinese troops, hence provoking trade sanctions from other countries and risking disheveling the special relationship they share with Hong Kong. No doubt, if China were to take serious action against Hong Kong, they would suffer, but China too would have to face harsh consequences. However, without a political resolution in sight, action must be taken promptly as there remains the imminent danger of the unrest spilling over into mainland China.
“If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has.” John Maynard Keynes (Jun 05, 1883 - Apr 21, 1946) 33
Mitigating the Cr(ISIS) by Arnaav Bhavanani
Since its introduction by President Bush in the aftermath of 9/11, the ‘War on Terror’ has come to encompass and more importantly, justify fighting in Iraq, Afghanistan, and other such areas of conflict. The cost to human life over the past century has been unprecedented, even more so because of the two World Wars. However, it is the monetary drain on the world economy that has proven to be the true bane of growing governments and their economic systems . Amy Belasco, a Specialist in US Defense Policy and Budget, claims that a total of 1.28 trillion dollars have been assigned by the US government to fight the war on terror, be it in terms of military operations, base security, or veteran’s healthcare . This promise of the USA to lead the fight has shown the economic repercussions of violence containment, and how our utopian ideals have led to a degradation in a number of societies. A point to be noted at this stage is an age old maxim: Change is the only constant . Keeping this in mind, we see an unlikely trend that the US has been following since their rise to power in the 1940s. It seems as though at each opportunity that is presented, the initiative must be taken by them. I’m not saying this is a bad thing: it is noble and fitting for a world leader as such. However, it is imperative to take note of the world economy and how it benefits or does not benefit from such actions. I have often spoken of this phenomenon, and I shall speak of it again: globalization. With the integration of the world’s economies into the world economy, one has seen a sharp rise in interdependency. This does, however, come at a cost, for when one country is in trouble, others must either help it out of it or drown. Seeing such a vulnerability in this new system we have adopted, it becomes absolutely essential to work together to achieve a common good: the eradication of terrorism. Recently, a new terrorist outfit, or rather, a spin-off of the older one, appeared in the terrorstruck Iraqi and Syrian landscapes. The ISIS, as it is widely known, rose to media prominence after their recordings of the beheading of a couple of important people made it to the news . Their ferocity and drive to finish what they have started remains a huge bone of contention with Western powers, and has proved to the world that the ISIS is more than a terrorist organization in name- it is so by the blood of their victims. And the USA wishes to counter them. According to TrackingTerrorism.com, “The ISIS has extensive financial resources (mostly derived from alleged organized crime activities in areas of control as well as diaspora funds and unidentified financial sponsors from within Gulf states) as 34
well as human capital that enable operations in various locations.” And the US, on the other hand, is shifting funds out of Iraq and into Afghanistan. Imagine the economic fallout of a war with an enemy as equipped as the ISIS. Seeing earlier wars, and how well they’ve turned out, it becomes obvious that US intervention is not only expected, but maybe even valued, for further fighting will only lead to more economic repercussions and a drain to the US exchequer. Lets forget the US exchequer for a minute. The global estimated cost of violence containment, according to a research on the same presented by the IEP, or the Institute for Economics and
I have often spoken of this phenomenon, and I shall speak of it again: globalization.
Peace, is close to ten trillion US dollars. It curtly states, that if world spending on violence containment were to decrease by 15%, the world would save $1.4 trillion. If you want some more mind-blowing figures, digest this: the combined global cost of agriculture, tourism and the airline
industry is not as much the world spending on containing organizations like the ISIS and AlQaeda. The truth is not that we’re not doing enough to prevent the bloodshed we so desperately wish to avoid. It’s only in allocation and implementation where the problems arise. Due to inefficient distribution and allocation of these resources worth trillions of dollars, were not only wasting a lot of money, but we often don’t even know what we’re wasting it on, and that is a flaw that seems impossible to correct. Our integrated economies are not showing a downward shift because of economist’s incompetence, but because we’re spending so much that we can’t keep track of it, and in the process we tend to lose all we work to build. The ISIS may behead a couple of journalists. It may kill a couple more people to propagate its ideas and spread its word. The US may react, and even increase spending in Iraq. But what is the conclusive end? Lots of blood, increase in corruption, inefficient allocation of resources, and a war situation in the Middle East that threatens to explode any moment. Worth it? I don’t think so. Because if history has taught us anything, it is that change might be a constant, but we, being the stubborn ones, are inclined to disregard this, and make the same mistakes, again and again and again. Until there’s nothing left. We need to look for more effective solutions for dealing with violence or we might as well descend into anarchy.
“Most of us try to do too much because we are secretly afraid we will not be able to do anything at all.” Rick Aster (May 25, 1940 - Feb. 16, 2012) 35
Aftermath of Western Aggression by Arjun Singh
With the recent escalation of the Ukraine Crisis, the sanctions imposed by the United States and European on accusations of Moscow’s support for separatists have hit the Russian Economy hard. Despite the unperturbed behaviour of the average Russian on assurances from the finance ministry, western sanctions have crippled Russia’s economy- leading to a 2% rise in inflation and record losses by Russian multinational energy companies, including those of President Vladimir Putin’s close affiliates. Russia, despite its vehement denial of any allegations, has been forced to act against the west with retaliatory sanctions. The effect of these sanctions on western countries, though substantial, is slowly growing and is beginning to affect US & EU economic interests. The ban of food imports from the European Union, United States, Canada, Australia, New Zealand and Norway has been a prime factor in causing discomfort within the agricultural sector of these countries. Fresh commodities such as beef, pork, vegetables, frozen foods and other wheat goods from Europe have disappeared from Russian grocery shelves and the situation will remain for an initial one year. With exports to Russia totalling 11 Billion Euros, European and American farmers are discontented by the recent ban on their products as it the ban has problems of deflation and overproduction in store for them; problems that will have to be borne by the economies of the west. To meet its annual food demands, Russia has instead turned to its eastern allies in the BRICS Bloc for food exports that were originally supplied by the west, which also supports the blocs current ‘Look East Policy’.
The move has also
increased Russian Trade with China, which is something that the
West has been trying
to avoid. In spite of all this, the more profound effect on
western economies
will be the oil and natural gas embargos placed by
the US and the EU
on Russian. Natural gas and oil imports from
Russia are crucial to the European Union as it meets seventysix percent of its energy
demands
annually. The United States,
in
sanctions
its against
Russian Companies,
Oil has 36
come close to crushing multi-billion dollar deals signed between western giants ExxonMobil and British Petroleum and Russian oil oligopolists Rosneft and Gazprom. The move is will surely stir up powerful oil lobbyists in Washington and may affect the political goals set by President Obama, prompting him to act cautiously in this matter. With rising oil prices due to security threat by factions such as ISIS in the middle-east, the west cannot afford to block exports from Russia that are valuable to sustain its astronomical demands for fuel.
Natural gas and oil imports from Russia are crucial to the European Union as it meets seventy-six percent of its energy demands annually.
Furthermore, the west’s strategic goals internationally are threatened by these crippling sanctions. The current geo-political landscape is donned with numerous international crises around the world in which western interests to settle them are at stake The imposing of sanctions by the west has greatly strained diplomatic ties with Russia and its allies-
causing more harm to its interests in other situations across the globe. Russia, along with China, has strengthened its resolve to continue blocking UN Resolutions on the Security Council which has resulted in a paralysis by countries to effectively respond to these crises. Russia has also continued to promote trade relations with the Syrian Government led by Bashar al-Assad in its fight against the western-backed Opposition and voice anti-Semitic rhetoric against Israel in its ongoing fight against Hamas Militants from the Gaza Strip. Unless the west can win Russia’s support, undoubtedly by lifting sanctions, they will be unable to act in order to resolve these conflicts which have threatened geo-economic stability and diplomatic relationships between countries. To conclude, the desired impact of western sanctions has been felt by the west itself, with it now facing problems in its economic and strategic interests. Even so, with President Putin’s approval rating still surging at record levels, and with no sign of Russia backing down, the sanctions have clearly not had their anticipated effect. It’s high time that United States and the European Union find a way to properly apply pressure to Russia without a backlash; else they will face a stalemate in the resolution of this crisis that shall only cause continued harm to both sides of this ongoing and volatile conflict.
“Intellectual property has the shelf life of a banana.” Bill Gates (Born: Oct 28, 1955) 37
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E
What’s on your mind?
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EconoQuiz 1. Apple recently forged an alliance with which company to create application for the app store? 2. What is the Sveriges Riksbank Prize in Economic Sciences better known as? 3. Which country boasts of the highest inflation rate standing at 60.9%? 4. Which country has the worlds highest per capita income? 5. Which country sued the Swiss bank in 2009 and over what were they sued? 6. Name three bodies which imposed economic sanctions against Russia in 2014. 7. Plastic notes of what value have been release by RBI in select cities? 8. Who was recently appointed CEO for Nokia? 9. Who is the head of Google Android Project?
Down (1) First American to win a Nobel Prize (2) The state of near Nash Equilibrium (3) The theory of strategic decision making (4) Richest Country in terms of GDP per Capita (6) The world’s richest public company (8) The Economist who gave the theory of the “invisible hands” Across (5) An Economic System where resources are largely privately owned (7)The kind of money issued by the state government (9)The first Indian Economist to win a Nobel (10)The law that states that aggregate production necessarily creates an equal quantity of aggregate demand. 40
Who is he and which major e-commerce company is he associated with?
Who is this recently appointed multi-national CEO?
Who is he and which group is he the President of?
Which is this third biggest stock exchange in the world?
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An Accounts, Commerce and Economics Department Publication (C) The Doon School, 2014 The Econocrat