Raising the alarm bells for policymakers and citizens, a research report has contended that India may witness the third covid wave from August 2021. The report – COVID-19: The race to finishing line – prepared by SBI Research, claims that the covid third wave peak will arrive in the month of September 2021.
The research report says that India achieved its second wave peak on 7th May. “Going by the current data, India can experience cases around10,000 somewhere around the 2nd week of July. However, the cases can start rising by the second fortnight of August,” the report said.
These are the highlights from the report:
1. Global data shows that on average third wave peak cases are around 1.7 times the peak cases at the time of second-wave. 2. However, based on historical trends the cases can start rising by the second fortnight of Aug’21 with peak cases at least a month later. 3. India has started giving more than 40 lakh vaccination doses per day as shown by 7 DMA. 4. Overall, India has fully vaccinated 4.6% of its population, apart from 20.8% having received one dose. This is still lower than other countries including the US, the UK, Israel, Spain, France among others. 5. The decline in bank deposits in FY21 and concomitant increase in health expenditure may result in further increase in household debt to GDP in FY22. 6. States with high per capita GDP have been associated with higher Covid-19 deaths per million while low per capita GDP are associated with low Covid-19 deaths. 7. Only 4.6 per cent of the population in India is fully vaccinated, while 20.8 per cent have received one dose, much lower compared to other countries including the US (47.1 per cent), the UK (48.7 per cent), Israel (59.8 per cent), Spain (38.5 per cent), France (31.2), among others.
A bubble is an economic cycle that is characterized by the rapid escalation of market value, particularly in the price of assets. This fast inflation is followed by a quick decrease in value, or a contraction, that is sometimes referred to as a “crash” or a “bubble burst. Typically, a bubble is created by a surge in asset prices that is driven by exuberant market behavior. During a bubble, assets typically trade at a price, or within a price range, that greatly exceeds the asset’s intrinsic value (the price does not align with the fundamentals of the asset).The cause of bubbles is disputed by economists; some economists even disagree that bubbles occur at all (on the basis that asset prices frequently deviate from their intrinsic value). However, bubbles are usually only identified and studied in retrospect, after a massive drop in prices occurs.
How a Bubble Works
An economic bubble occurs any time that the price of a good rises far above the item’s real value. Bubbles are typically attributed to a change in investor behavior, although what causes this change in behavior is debated. Bubbles in equities markets and economies cause resources to be transferred to areas of rapid growth. At the end of a bubble, resources are moved again, causing prices to deflate.
The Japanese economy experienced a bubble in the 1980s after the country’s banks were partially deregulated. This caused a huge surge in the prices of real estate and stock prices. The dot-com boom, also called the dot-com bubble, was a stock market bubble in the late 1990s. It was characterized by excessive speculation in Internet-related companies. During the dot-com boom, people bought technology stocks at high prices—believing they could sell them at a higher price—until confidence was lost and a large market correction occurred.
The research of American economist Hyman P. Minsky helps to explain the development of financial instability and provides one explanation of the characteristics of financial crises. Through his research, Minsky identified five stages in a typical credit cycle. While his theories went largely under-the-radar for many decades, the subprime mortgage crisis of 2008 renewed interest in his formulations, which also help to explain some of the patterns of a bubble.
Displacement
This stage takes place when investors start to notice a new paradigm, like a new product or technology, or historically low interest rates. This can be basically anything that gets their attention.
Boom
Prices start to rise. Then, they get even more momentum as more investors enter the market. This sets up the stage for the boom. There is an overall sense of failing to jump in, causing even more people to start buying assets.
Euphoria
When euphoria hits and asset prices skyrocket, it could be said that caution on the part of investors is mostly thrown out the window.
Profit-Taking
Figuring out when the bubble will burst isn’t easy; once a bubble has burst, it will not inflate again. But anyone who can identify the early warning signs will make money by selling off positions.
Panic
Asset prices change course and drop (sometimes as rapidly as they rose). Investors want to liquidate them at any price. Asset prices decline as supply outshines demand.
Excel is typically used to organize data and perform financial analysis. It is used across all business functions and at companies from small to large. The main uses of Excel include: Data entry.
Excel is a software program created by Microsoft that uses spreadsheets to organize numbers and data with formulas and functions. Excel analysis is ubiquitous around the world and used by businesses of all sizes to perform financial analysis.
The main uses of Excel include:
1 Data entry 2 Data management 3 Accounting 4 Financial analysis 5 Charting and graphing 6 Programming 7 Time management 8 Task management 9 Financial modeling 10 Customer relationship management (CRM) ** Almost anything that needs to be organized!
Excel is used extensively in finance and accounting functions. In fact, many organizations run their entire budgeting, forecasting, and accounting functions entirely out of Excel spreadsheets.
While Excel is defined as a “data” management tool, the data that is most commonly managed is financial. At CFI, we would define Excel as the ultimate financial software. While there are other pieces of financial software that are tailored toward performing specific tasks, the strongest point about Excel is its robustness and openness. Excel models are as powerful as the analyst wishes them to be.
Accountants, investment bankers, analysts, and people in all types of financial career paths rely on excel to perform their daily job functions.
And one should know how to use MS Excel. Its on of the most important skill in today’s corporate world.
In 2019, Abhijeet Bannerjee, Esther Duflo and Michael Kremer received the Nobel Prize in Economics for their experimental approach to alleviating poverty. Poverty is one of the biggest issues faced by mankind. It is associated with social problems such as malnutrition, poor education and health. Poverty alleviation is the method of systematically reducing poverty by improving peoples’ education and job opportunities and in turn drastically improve their standard of living.
Their approach was very simple. To tackle the big problem of how to remove poverty, break it down into smaller, manageable questions. Once you find those questions, try to answer each one of them with a field experiment. A field experiment is a randomized controlled trial in which participants make choices in their normal day-to-day environment. Some of these experiments were carried out to find out how exactly education plays a role in reducing poverty.
Michael Kremer rounded up a large number of schools that needed some kind of support and split them up into groups. These schools were given resources that they were not receiving before. These resources varied from textbooks to free school meals. The outcome of the resource distribution was randomised. Due to this, researchers could find a connection between the various types of resources and how it helped children learn better. Surprisingly, textbooks and free school meals proved to make no difference in the learning of the students. It was observed that lack of resources was not the major problem that the low-income schools were facing. The biggest problem was that the teaching happening in these schools was not in accordance with the students’ needs. Banerjee and Duflo analysed remedial tutoring in Mumbai and Vadodara by providing schools with teaching assistants who helped students that had special needs. They discovered that helping the weakest student was a very effective measure in increasing the quality of education.
These experiments showed us that teachers lacked incentive and accountability, which showed in a high level of absenteeism. Reforms had to be made to bring teaching in line with students’ needs and the experiments showed that extra resources are of very limited value.
After the field experiment, this is what Banerjee and Duflo had to say on education policy formation:
They believe that if the cost of schooling decreases, it would lead to a sizeable increase in school enrolment. If some financial barriers and non -financial barriers (e.g: distance to school) are removed it would certainly result in better school participation,
Awareness about the benefits of education should be spread. If the underprivileged know that there is a wage gap between the educated and uneducated, they would certainly want to be educated. Providing information about jobs would lead to an increase in education investment.
3. More attention should be paid to weaker students. Teaching assistants should be provided to make sure all students are able to cope with the level of teaching and should ensure no child is left behind.
This was how field experiments in education proved to be useful in alleviating poverty.
Baltics, also known as the Baltic States is comprised of three countries including Latvia, Lithuania, and Estonia. The three countries are situated on the eastern shores of the Baltic Sea. In 1991 the regional governments of Lithuania, Latvia, and Estonia declared independence from the Union of Soviet Socialists Republics (USSR). Three countries have a collective population of just over 6 million. The three have been one of the better examples which have been progressing well after the breakup of the USSR. Many other former Soviet republics have been suffering the disarray of corruption and political instability.
In 2002 Baltic countries applied for membership in the European Union (EU) and by May 2004 all the three countries joined the EU. They also gained membership in NATO by March 2004.
Downtown Tallinn
Baltic independence in 1991
It’s truly astounding how the three countries have developed since 1991. None of them were independent since 1940. The three countries had large Russian minorities and many Soviet soldiers were still stationed there. There were no major national institutions and banking infrastructure with a crumbling economy. There was a growing homegrown national moment against the ruling government since the 1980s. The homegrown fronts won the republican parliamentary election against the ruling party in early 1990 and were allowed to govern but with limited power. The Russian president at that time, Boris Yeltsin had not contested their newly declared independence in 1991. The Baltic also witnessed no violence when the three governments had declared their independence.
The three nations also had almost no natural resources, unlike USSR which was resource-rich. They were still in a very vulnerable situation with a small population and no military of their own. Even though the countries were linguistically distinct with different languages, but people in all three countries had a united drive to strive for a better future. The three had implemented reforms with a shared vision. The governments of the three shared many policies, ideas, and experiences. The Baltic States also valued their new independence with a lot of enthusiasm and didn’t take it for granted. The other ex- USSR countries often had to ask for assistance from Russian Federation and also formed new alliances with the Russian government. Baltic countries on the other hand tried to stay away from joining the post-Soviet Commonwealth of Independent States. In the subsequent years, all the three countries adopted radical economic policies and Estonia was the first mover and Latvia and Lithuania would follow suit. In 1994 Estonia introduced a flat income tax at just 24 percent and the other two also implemented the policies. Currently, Lithuania has a tax rate of just 15 percent which is one of the lowest. With early and fast deregulation and privatization, the Baltic countries were able to capture a large amount of foreign direct investment. Estonia also radically transformed its public sector with various digitalization implementations and less reliance on paperwork. Latvian and Lithuania’s transformation in this area was not as drastic but after some time both of them followed Estonia’s footsteps. Transparency International ranks Estonia No. 17, Lithuania 37, and Latvia 42 out of 175 countries on its Corruption Perception Index for 2020. This is a commendable ranking considering they all the three are a relatively new entrant to the EU and many other EU countries have lower ranks than the three.
Success attributions
The success can also be attributed to the generous support that the three countries received from the international community and funds granted by the EU, World Bank, and the IMF. In 2008 Baltic suffered from the global economic crisis. The three soon adopted the Euro as their currency to avoid any future liquidity freeze issues that they experienced at that time. The economies al the Baltic rebounded quickly and due to good monetary measures, the three have a very low public debt. Baltic governments have also made swift progress in the Education sector and the three have attained commendable rankings in the Program for International Student Assessment (PISA) of the Organization for Economic Cooperation and Development (OECD). Estonia has done a very commendable task in this area with top 10 rankings in many assessments. But the Baltics also face many challenges with population loss due to low birth rate and emigration. Proximity and hostility with Russia still is a challenge that the tiny nations have to endure.
Globalization is the process of interaction and integration among people, companies, and governments worldwide. It is used to describe the growing interdependence of world’s economies, cultures, and populations, brought about by cross-border trade in goods and services, technology, flow of investment, people, and information. Countries have built economic partnerships to facilitate these movements over many centuries and years. Globalization has accelerated since the 18th century due to advances in transportation and communication technology. The term gained popularity after the Cold War in the early 1990s, precisely after the fall of the Soviet Union, as these cooperative arrangements shaped the modern daily life.
Importance
This increase in global interactions has caused a growth in international trade and the exchange of ideas, beliefs, and culture. The wide-ranging effects of globalization are complex and politically charged. Economically, globalization involves goods, services, data, technology, and the economic resources of capital. Advances in transportation, like the steam locomotion, steamship, jet engine, and container ships, and developments in telecommunication infrastructure, like the telegraph, Internet, and mobile phones, have been major factors in globalization and have generated further interdependence of economic and cultural activities around the globe. Globalizing processes affect and are affected by business and work organization, economics, socio-cultural resources, and the natural environment. Academic literature commonly divides globalization into three major areas: economic globalization, cultural globalization, and political globalization
Negative Effects
Despite its benefits, the economic growth driven by globalization has not been done without awakening criticism. The consequences of globalization are far from homogeneous: income inequalities, disproportional wealth and trades that benefit parties differently. In the end, one of the criticisms is that some actors (countries, companies, individuals) benefit more from the phenomena of globalization, while others are sometimes perceived as the losers of globalization.
Disinvestment is the action of an organization or government selling or liquidating an asset or subsidiary. Absent the sale of an asset, disinvestment also refers to capitalexpenditure (CapEx) reductions, which can facilitate the re-allocation of resources to more productive areas within an organization or government-funded project.
The government undertakes disinvestment to reduce the fiscal burden on the exchequer, or to raise money for meeting specific needs, such as to bridge the revenue shortfall from other regular sources. In some cases, disinvestment may be done to privatise assets. However, not all disinvestment is privatisation. Some of the benefits of disinvestment are that it can be helpful in the long-term growth of the country; it allows the government and even the company to reduce debt. Disinvestment allows a larger share of PSU ownership in the open market, which in turn allows for the development of a strong capital market in India.
Are disinvestment and privatisation related?
The government, whenever it so desires, may sell a whole enterprise, or a majority stake in it, to private investors. In such cases, it is known as privatisation, in which the resulting ownership and control of the organisation does not rest with the government. The government usually avoids doing this. The government mostly retains more than half of the stake in the public sector enterprise so that the control remains in its hands. But when it doesn’t, then the ownership is transferred to the private sector, which results in privatisation. It is also known as majority disinvestment or complete privatisation wherein 100 per cent control goes to the private sector.
Impact of Disinvestment on Indian Economy
Public sector undertakings were established in India as a part of mixed economy with the objective of providing necessary infrastructure for the fast growth of economy & to safeguard against monopoly of industrialist community. However, the entire mechanism did not turn out as efficient as it ought to be, all thanks to the prevailing hierarchy and bureaucracy.
To illustrate the trailing scenario, the average return on capital employed (ROCE) by PSUs have been way too low as compared to the cost of borrowing. For instance, between 1940 and 2002, the average ROCE was 3.4% as against 8.6% average cost of borrowing. PSE survey by NCAER shows that PAT has never exceeded 5% of sales for or 6% of capital employed. The government pays a higher interest though, by at least 3 percentage points.
As per an NCAER study report the cost structure of PSEs is much more than the private sector (the following table shows a comparative scale) :
Lack of autonomy, political interference, nepotism & corruption has further deteriorated the situation. For instance, the head of a PSU is appointed by the Government, who in turn appoints all employees who play major roles in the organization. So directly or indirectly the Government itself controls the appointment of all manpower in these organizations. It is not the business of the Government to do business, i.e. it is best controlled by experts and professional managers.
To address operational inefficiencies in PSEs without comprising on their social objectives, disinvestment policy is often used. However, there are concerns regarding the extent of impact on firm performance since disinvestment may involve transfer of ownership but not control. Analysing data from 1991-2010 on all manufacturing PSEs owned by the central government, this column shows that the average annual efficiency score of disinvested enterprises rose by almost 20%.
Public sector enterprises (PSEs) have an indistinct mandate of meeting objectives beyond the narrow paradigm of profit maximisation. Generating employment, investing in projects that have long gestation periods, setting up operations in certain locations, and regulating prices of some of their products, are some of the objectives that may fall under the social ambit of PSEs. When this multidimensional mandate is combined with an environment free of competitive pressure, PSEs may suffer from operational inefficiencies. To address this inefficiency without compromising on the social objectives that PSEs are expected to achieve, minor disinvestment may be a useful remedial policy.
Implications of Disinvestment on Indian Economy
Disinvestment will be extremely positive for the Indian equity markets and the economy. It will draw lot of foreign and domestic money into the markets. It will allow PSU to raise capital to fund their expansion plans and improve resource allocation in the economy. It will allow the government to stimulate the economy while resorting to less debt market borrowing. Private borrowers won’t be crowded out of the markets by the government and will have to pay less to borrow from the open market. Disinvestment will allow government to have much better control over the market economy without upsetting norms of market behavior.
In future disinvestment will assume the role of a major instrument of policy intervention by government as 48 PSUs listed on BSE as of February 8, 2010, account for close to the 30% of the total market cap of the exchange. This is significant as a total of 4,880 odd companies were listed on the exchange. As of February 8, 2010, the BSE PSU index had a total market cap of Rs 17,14,466.96 crore.
The bandwagon effect is a psychological phenomenon in which people do something primarily because other people are doing it, regardless of their own beliefs, which they may ignore or override. This tendency of people to align their beliefs and behaviors with those of a group is also called a herd mentality. The term “bandwagon effect” originates from politics but has wide implications commonly seen in consumer behavior and investment activities. This phenomenon can be seen during bull markets and the growth of asset bubbles.
Understanding the Bandwagon Effect
The bandwagon effect arises from psychological, sociological, and, to some extent, economic factors. People like to be on the winning team and they like to signal their social identity. Economically, some amount of bandwagon effect can make sense, in that it allows people to economize on the costs of gathering information by relying on the knowledge and opinions of others. The bandwagon effect permeates many aspects of life, from stock markets to clothing trends to sports fandom.
Politics
In politics, the bandwagon effect might cause citizens to vote for the person who appears to have more popular support because they want to belong to the majority. The term “bandwagon” refers to a wagon that carries a band through a parade. During the 19th century, an entertainer named Dan Rice traveled the country campaigning for President Zachary Taylor. Rice’s bandwagon was the centerpiece of his campaign events, and he encouraged those in the crowd to “jump on the bandwagon” and support Taylor. By the early 20th century, bandwagons were commonplace in political campaigns, and “jump on the bandwagon” had become a derogatory term used to describe the social phenomenon of wanting to be part of the majority, even when it means going against one’s principles or beliefs.
Consumer Behavior
Consumers often economize on the cost of gathering information and evaluating the quality of consumer goods by relying on the opinions and purchasing behavior of other consumers. To some extent, this is a beneficial and useful tendency; if other people’s preferences are similar, their consumption decisions are rational, and they have accurate information about the relative quality of available consumer goods, then it makes perfect sense to follow their lead and effectively outsource the cost of gathering information to someone else.
However, this kind of bandwagon effect can create a problem in that it gives every consumer an incentive to free ride on the information and preferences of other consumers. To the extent that it leads to a situation where information regarding consumer products might be underproduced, or produced solely or mostly by marketers, it can be criticized. For example, people might buy a new electronic item because of its popularity, regardless of whether they need it, can afford it, or even really want it.
Bandwagon effects in consumption can also be related to conspicuous consumption, where consumers buy expensive products as a signal of economic status.
Investment and Finance
Investing and financial markets can be especially vulnerable to bandwagon effects because not only will the same kind of social, psychological, and information-economizing factors occur, but additionally the prices of assets tend to rise as more people jump on the bandwagon. This can create a positive feedback loop of rising prices and increased demand for an asset, related to George Soros’ concept of reflexivity.
For example, during the dotcom bubble of the late 1990s, dozens of tech startups emerged that had no viable business plans, no products or services ready to bring to market, and in many cases, nothing more than a name (usually something tech-sounding with “.com” or “.net” as a suffix). Despite lacking in vision and scope, these companies attracted millions of investment dollars in large part due to the bandwagon effect.
In an ideal world, people would always make optimal decisions that provide them with the greatest benefit and satisfaction. In economics, rational choice theory states that when humans are presented with various options under the conditions of scarcity , they would choose the option that maximizes their individual satisfaction. This theory assumes that people, given their preferences and constraints, are capable of making rational decisions by effectively weighing the costs and benefits of each option available to them. The final decision made will be the best choice for the individual. The rational person has self-control and is unmoved by emotions and external factors and, hence, knows what is best for himself. Alas behavioral economics explains that humans are not rational and are incapable of making good decisions.
Behavioral Economics is the study of psychology as it relates to the economic decision-making processes of individuals and institutions. Behavioral economics draws on psychology and economics to explore why people sometimes make irrational decisions, and why and how their behavior does not follow the predictions of economic models. Decisions such as how much to pay for a cup of coffee, whether to go to graduate school, whether to pursue a healthy lifestyle, how much to contribute towards retirement, etc. are the sorts of decisions that most people make at some point in their lives. Behavioral economics seeks to explain why an individual decided to go for choice A, instead of choice B.
Because humans are emotional and easily distracted beings, they make decisions that are not in their self-interest. For example, according to the rational choice theory, if Charles wants to lose weight and is equipped with information about the number of calories available in each edible product, he will opt only for the food products with minimal calories. Behavioral economics states that even if Charles wants to lose weight and sets his mind on eating healthy food going forward, his end behavior will be subject to cognitive bias, emotions, and social influences. If a commercial on TV advertises a brand of ice cream at an attractive price and quotes that all human beings need 2,000 calories a day to function effectively after all, the mouth-watering ice cream image, price, and seemingly valid statistics may lead Charles to fall into the sweet temptation and fall off of the weight loss bandwagon, showing his lack of self-control.
A commercial bank is that financial institution which accepts deposits from the people and offers loans for the purpose of consumption or investment.
The rate if interest charged by the commercial banks(for the loans the offer) is higher the the rate of interest paid by them (for the deposits the accept ).The difference between two rates is called ‘spread’, which is the source of profit for the banks.
BASIC FUNCTION OF COMMERCIAL BANKS
Commercial banks perform two basic function:
1.Aceepting deposits
2. Advancing loans.
CREDIT CREATION PROCESS OF COMMERCIAL BANKS
Commercial banks create credit on the basics of their cash reserve .
Let assume all banks in the economy receive cash deposit of RS.10000. The banks are guided by their historical experience that all the depositors never withdraw their deposits at a single time. Thus, the bank find it safe to keep cash reserve of only 10% of their demand deposit. That is RS. 10000.
Now , the banks can safely advance loans of RS.9000 and earned profit. The banks never offer loan on cash so the loan amount again returned back to banking system of an economy. Now the total deposit of bank is RS.10000+RS.9000= RS.19000.
By keeping 10%of secondary deposit that is RS.9000 of 9000 he again lend RS.8100 and this process is going to continue until all cash balance are not going to exhaust.
With the help of credit multiplier a bank can know maximum of credit creation .
Globalization is the word used to describe the growing interdependence of the world’s economies, cultures, and populations, brought about by cross-border trade in goods and services, technology, and flows of investment, people, and information.
Globalization is driven by the convergence of political, cultural and economic systems that ultimately promote — and often necessitate — increased interaction, integration and dependency amongst nations.
The more that disparate regions of the world become intertwined politically, culturally and economically, the more globalized the world becomes.
These international interactions and dependencies are enabled and accelerated by advances in technology, especially in transportation and telecommunications. In general, money, technology, materials and even people flow more swiftly across national boundaries today than they ever have in the past. The flow of knowledge, ideas and cultures is expediated through Internet communications.
There are three types of globalization:
1. Economic globalization. This type focuses on the unification and integration of international financial markets, as well as multinational corporations that have a significant influence on international markets. 2. Political globalization. This type deals mainly with policies designed to facilitate international trade and commerce. It also deals with the institutions that implement these policies, which can include national governments as well as international institutions, such as the International Monetary Fund and the World Trade Organization. 3. Cultural globalization. This type focuses on the social factors that cause cultures to converge — such as increased ease of communication and transportation, brought about by technology.
FDI stands for “Foreign Direct Investment”. It is an investment by foreign individual(s) or company(ies) into business, capital markets or production in the host country. FDI plays an important role in the economic development of a country. The capital inflow of foreign investors allows strengthening infrastructure, increasing productivity and creating employment opportunities in the Host country.
Foreign Direct Investment in India
Foreign direct investment policy in India is regulated under the Foreign Exchange Management Act (FEMA) 2000 administered by the Reserve Bank of India (RBI). India is one of the top five attractive location for investment. Japan bank of international cooperation continues to rate India as topmost promising country for overseas business operations.
The Government has put in place a policy framework on FDI which is transparent, Predictable, and easily comprehensible. The framework is embodied in circular which may be update.
How FDI works?
Foreign direct investments are commonly made in open economies that offer a skilled workforce and above average growth prospects for the investor, as opposed to tightly regulated economies. Foreign direct investment frequently involves more than just a capital investment. It may include provisions of management or technology as well. The key feature of foreign direct investment is that it establishes either effective control of or at least substantial influence over the decision-making of a foreign business.
Who can invest in India?
A non-resident can invest in India subject to FDI policy except in those sectors which are prohibited. An FII or FPI may invest in the capital of an Indian economy under the portfolio investment schemes which limits the individual holding FII or FPI below 10% of the capital of the Company. The aggregate limit of investment is 24% of the capital of the company. The aggregate limit can be increased to the sectorial cap as applicable by Indian company concerned through a resolution by its bord of director followed by special resolution to that effect and subject to prior intimation to RBI. However, a citizen of Bangladesh or an entity established in Bangladesh can invest only under government route.
* Recent amendments in FDI policy.
1. The amendments in FDI policy is to discourage opportunistic investment in Indian companies by neighbouring countries like china during the COVID-19 pandemic. 2. Recent China’s central bank has increased stake to 1.01% in HDFC bank via automatic route. 3. Revised FDI policy – Any entity of a country which shares land borders with India or where the beneficial owner of investment into India is Situated or is citizen of any such country can invest only under a Government Route.
Why Do We Need FDI?
1. Helps in balancing international payment:- FDI is the major source of foreign exchange inflow in the country. It offers a supreme benefit to country’s external borrowings as the government needs to repay the international debt with the interest over a particular period of time.
2. FDI boosts development in various fields:- For the development of an economy, it is important to have new technology, proper management and new skills. FDI allows bridging of the technology gap between foreign and domestic firms to boost the scale of production which is beneficial for the betterment of Indian economy.
3. FDI & Employment:- FDI allows foreign enterprises to establish their business in India. The establishment of these enterprises in the country generates employment opportunities for the people of India. Thus, the government facilitates foreign companies to set up their business entities in the country to empower Indian youth with new and improved skills.
4. FDI promotes exports from host country:- Foreign companies carry a broad international marketing network and marketing information which helps in promoting domestic products across the globe. Hence, FDI promotes the export-oriented activities that improve export performance of the country.
The Indian government has initiated steps to promote FDI as they set an investor-friendly policy where most of the sectors are open for FDI under the automatic route (meaning no need to take prior approval for investment by the Government or the Reserve Bank of India). The FDI policy is reviewed on a continuous basis with the purpose that India remains an investor-friendly and attractive FDI destination. FDI covers various sectors such as Defence, Pharmaceuticals, Asset Reconstruction Companies, Broadcasting, Trading, Civil Aviation, Construction and Retail, etc.
we can say that FDI plays a crucial role in the growth of Indian economy as it helps to bring new technologies, employment generation and improvement in business operations, etc.
The word ‘business environment’ indicates the aggregate total of all people, organisations and other forces that are outside the power of industry but that may affect its production.
Business environment is an aggregate of all conditions, events and influences that surround and affect it. It is broad and ever changing as its separate elements interact. A single firm’s environment is narrow in scope than the total environment of business. It is complicated and continuously changing.” —Professor Keith Davis.
No business can exist in a vacuum. The rapidly changing business environment might shorten the life of a given strategy. The external changes might influence the activities and quality of decisions of both the firm and its competitors. George Salk says, “If you’re not faster than your competitor, you’re in a tenuous position, and if you’re only half as fast, you’re terminal.”
Hence, as Kenich Ohmae says that “environmental analysis is the critical starting point of strategic thinking.” Charles Darwin has said, “It is not the strongest of the species that survive nor the most intelligent, but the one most responsive to change.”
We live in a dynamic environment that changes all the time. Businesses must understand the changes in the environment and how these changes affect their performance. The process of thinking strategically requires that managers understand how the structure and competitive dynamics of their industry affect the performance and profitability of their companies. Armed with an appreciation of the forces in their industry that give rise to opportunities and threats, managers should be able to make better strategic decisions.
Successful managers must recognize opportunities and threats in their firm’s external environment. Regardless of the industry, the external environment is critical to a firm’s survival and success. A host of external factors influence a firm’s choice of direction and action.
The 2019 Nobel Prize in Economic Sciences was awarded to Abhijit Banerjee and Esther Duflo, who currently work at the Massachusetts Institute of Technology, and Michael Kremer of Harvard University. The Prize committee noted that these economists “introduced a new approach to obtaining reliable answers about the best ways to fight global poverty.” The new Nobel laureates are considered to be instrumental in using randomised controlled trials to test the effectiveness of various policy interventions to alleviate poverty.
So what is randomised control trial?
A randomised controlled trial is an experiment that is designed to isolate the influence that a certain intervention or variable has on an outcome or event. A social science researcher who wants to find the effect that employing more teachers in schools has on children’s learning outcomes, for instance, can conduct a randomised controlled trial to find the answer. The use of randomised controlled trials as a research tool was largely limited to fields such as biomedical sciences where the effectiveness of various drugs was gauged using this technique. Mr. Banerjee, Ms. Duflo and Mr. Kremer, however, applied RCT to the field of economics beginning in the 1990s. Mr. Kremer first used the technique to study the impact that free meals and books had on learning in Kenyan schools. Mr. Banerjee and Ms. Duflo later conducted similar experiments in India.
Why is randomised controlled trial so popular?
At any point in time, there are multiple factors that work in tandem to influence various social events. RCTs allow economists and other social science researchers to isolate the individual impact that a certain factor alone has on the overall event. For instance, to measure the impact that hiring more teachers can have on children’s learning, researchers must control for the effect that other factors such as intelligence, nutrition, climate, economic and social status etc., which may also influence learning outcomes to various degrees, have on the final event.Randomised controlled trials promise to overcome this problem through the use of randomly picked samples. Using these random samples researchers can then conduct experiments by carefully varying appropriate variables to find out the impact of these individual variables on the final event.
What are some criticisms of randomised controlled trials?
A popular critic of randomised controlled trials is economist Angus Deaton, who won the economics Nobel Prize in 2015. Mr. Deaton has contended in his works, including a paper titled “Understanding and misunderstanding randomised control trials” that simply choosing samples for an RCT experiment in a random manner does not really make these samples identical in their many characteristics.
While two randomly chosen samples might turn out to be similar in some cases, he argued, there are greater chances that most samples are not really similar to each other. Other economists have also contended that randomised controlled trials are more suited for research in the physical sciences where it may be easier to carry out controlled experiments. They argue that social science research, including research in the field of development economics, may be inherently unsuited for such controlled research since it may be humanly impossible to control for multiple factors that may influence social events.
Over the past five years or so the issue of climate change has moved from a peripheral concern of scientists and environmentalists to being a central issue in global policy making. It was the realization that the way our economy operates is causing pollution on a scale that threatens our very survival that first motivated the development of a green approach to the economy. We are in an era of declining oil supplies and increased competition for those that remain. This raises concerns about the future of an economy that is entirely dependent on oil and a wider recognition of the importance of using our limited resources wisely. This was the other motivation for the development of green economics. In addition, green economists have been concerned about the way an economic system based on competition has led to widening inequalities between rich and poor on a global as well as a national scale, and the inevitable tension and conflict this inequality generates.
Green economics is a methodology of economics that supports the harmonious interaction between humans and nature and attempts to meet the needs of both simultaneously. Green economic theories encompass a wide range of ideas all dealing with the interconnected relationship between people and the environment. Green economists assert that the basis for all economic decisions should be in some way tied to the ecosystem, and that natural capital, such as water, gold, natural gas, silver, or oil, etc. and ecological services have economic value.
The term green economics is a broad one but it encompasses any theory that views the economy as a component of the environment in which it is based. The United Nations Environment Program(UNEP) defines a green economy as “low carbon, resource efficient, and socially inclusive.” As such, green economists generally take a broad and holistic approach to understanding and modeling economies, paying as much attention to the natural resources that fuel the economy as they do to the way the economy itself functions.
While the idea of an equitable economy powered by renewable energy sources is alluring, green economics has its share of critics. They claim that green economics’ attempts to decouple economic growth from environmental destruction have not been very successful. Most economic growth has occurred on the back of non-renewable technologies and energy sources. Weaning the world, especially developing economies, from them requires effort and has not been an entirely successful endeavor. The emphasis on green jobs as a social justice solution is also fallacious, according to some. The raw material for green energy in several cases comes from rare earth minerals mined in inhospitable conditions by workers who are paid cheaply. An example of this is electric car maker Tesla, whose car batteries are made using raw materials mined from Congo, a region wracked by civil war. Another criticism of green economics is that it is focused on a technological approach to solutions and, consequently, its market is dominated by companies with access to the technology.
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