ECONOMY by VIVEK SINGH

2021-06-25 09:45:25 The above statement is TRUE.
Explanation:

Farmers produce food items and sell in the market and whatever they earn, they spend in food and non-food items both.
Let us assume that:
Food inflation = 8%
Non-Food Inflation = 4%
Overall/average Inflation = 6%

Since food inflation is higher, so farmers income will increase more (8% keeping other things constant) as compared to their increase in expenditure ( which will increase by overall inflation rate i.e. 6%), So farmers will be more well off and the terms of trade will be in favour of the farmers. Those people who will be working in non-food sector their growth in income will be 4% (keeping other things constant) but their overall expenditure will increase by 6%, So they will be worse off. Open / Comment

2021-06-23 15:28:11 The above is news from Indian Express. The article talks about printing of Rs. 3 lakh crore extra cash (by RBI) and giving it to Govt. which Govt. can spend in the economy to increase the purchasing power of the poor people which will ultimately increase demand in the economy and supply and will help in moving the economy. The following are some relevant points.

1) When Govt. will directly borrow from RBI then RBI will print extra cash and give it to Govt. and Govt. will have to issue/give securities/bonds to RBI. The cash which RBI prints is a liability on RBI but the Govt. securities which RBI will get, is asset for RBI. So, when RBI prints additional Rs. 3 lakh crore cash and give it to Govt. then RBI's liability (represented by cash) will increase by an amount of Rs. 3 lakh crore and RBI's assets will also increase by Rs. 3 lakh crore represented by Govt. bonds/securities.

2) This practise was prevalent before 1997 but in 1997 an Agreement was signed between Govt. of India and RBI and this practise was stopped. And this has also been included in the Fiscal Responsibility and Budget Management (FRBM) Act 2003. But FRBM Act 2003 allows direct borrowing by Govt. from RBI (printing cash) in EXCEPTIONAL circumstances. And covid is such an exceptional circumstances.

3) But economists do not favour this step as in the past successive governments have exploited this measure to spend wastefully in the economy. For example, when Govt. wanted money it asked RBI to print and took this money at less than the prevailing market interest, almost for free. When the time came to return money to RBI, then Govt. further borrowed money from RBI and this way it used to go on. This led to pumping of extra money into the economy leading to high inflation.

When Govt. borrows from the market it needs to pay market interest rate and return the money timely, so there is a pressure on govt. to spend money properly and return it with interest.

4) An argument in favour of printing cash is.............. this will not increase the market interest rate. This is true but it depends on the situation of the economy. If the economy/banks have less funds and then govt. borrows from the market and spends then it may lead to higher interest rate for the private sector (called crowding out) and it will make their business investment costly. But this may not be the situation presently, as RBI is providing enough liquidity in the economy through various tools.

5) Its good idea to provide cash to the poor to support them because of the loss of their livelihoods and to revive the economy but Govt. can use other fiscal tools for that.

The measures which have been suggested for fiscal stimulus are:

(a) Compressing pay ratios: Few Corporates sector are already doing that
(b) Wealth Tax: Earlier Govt. used to levy this tax, but 4/5 years back Central Govt. abolished wealth tax because the administration (collection) was quite difficult because of valuation of wealth is quite difficult like land, building etc. and leads to litigation
(c) Inheritance tax: It can be levied
(d) Front loading of capital expenditure: this means Govt. should spend more on capital expenditure early in the Financial Year as soon as possible.........it will help in reviving economy and Gov.t is already doing that. Open / Comment

2021-06-23 14:45:50 Open / Comment

2021-06-21 11:01:23 Recently Government launched Production Linked Incentive (PLI) Scheme on White Goods

What are 'White Goods'?
Answer: White goods are large home appliances such as refrigerators, freezers, washing machines, tumble driers, dishwashers, and air conditioners, LED. They are (large) electrical goods for the house which were traditionally available only in white. Even though you can purchase them today in a wide range of different colors, they continue being called white goods.

What is PLI scheme?
https://t.me/VivekSingh_Economy/2538 Open / Comment

2021-06-19 07:56:30 The above is an article from HINDU. The following are some relevant points.

1) Punjab and Maharashtra Cooperative (PMC) Bank is an Urban Cooperative Bank also called Primary Cooperative Bank.

2) In Sept. 2019, RBI superseded the management of PMC bank because of financial irregularities and appointed an administrator. [RBI can supersede the management of the Urban Cooperative Banks (UCB), State Cooperative Banks (StCB) and District Central Cooperative Banks (DCCB) if RBI feels that the affairs of the bank are conducted in a manner detrimental to the interest of the depositors. This is done as per the Banking Regulation Act 1949]

3) Then RBI invited bids from private banks/financial companies to take over the PMC Bank. And now the "Centrum Financial Services" in joint venture with "BharatPe" have decided to take over the PMC bank.

This news is combined with one other news.

In Dec. 2019 RBI had released guidelines for "‘on tap’ Licensing of Small Finance Banks in the Private Sector". 'On tap' means any financial services or few other fintech companies were allowed to apply/convert themselves into Small Finance Banks anytime by applying to RBI (ofcouse they should meet some minimum criteria). Here 'on tap' is important because in banking sector..............no one can just apply to RBI for a license to open a bank. It is RBI who decides and then publishes a notification that RBI is in the process of giving license for banks and then someone can apply. That is why 'on tap' Licensing becomes important because in this case RBI can be approached anytime for a bank license. But this 'on tap' licensing is only for 'Small Finance Banks'.
And in the 'on tap' guideline... RBI has allowed that Urban (Primary) Cooperative banks can also apply for conversion into Small Finance Bank. Even Payment banks have also been allowed to be converted into SFB.

So, PMC bank has been acquired by "Centrum Financial Services" in joint venture with "BharatPe" and it has been converted into a "Small Finance Bank". Open / Comment

2021-06-19 07:39:22 Open / Comment

2021-06-18 06:55:53 The above is an article from Indian Express. The following are some relevant points.

1) Our Forex reserves has crossed $600 billion, with which we will be able to import our requirements of goods for the next 15 months (also called import cover) ... this is assuming that we do not get any new forex.

2) RBI is saying that $600 billion may not be sufficient as we should not judge it only by 'import cover' rather there other factors which cause external vulnerability and one important factor is "Net International Investment Position (NIIP)". [This term NIIP was discussed in Economic Survey 2019-20]

So, let us understand Net International Investment Position (NIIP)

Whatever the Govt. and other entities borrow from abroad acts as a debt/liability for our country.
And if we purchase shares of a company abroad then these shares are assets for us (our country) and liability for the other country/company. And hence all the FDI investments (it happens through shares) happening in India is a liability for the company in India and liability for the country also.

If my company has borrowed from abroad then the debt paper which the foreign bank will be holding, it is an asset for the foreign country/bank and liability for my company/country.

NIIP measures the difference between our nations (includes individual, companies, Govt.) stock of foreign assets and foreigner’s stock of our nation’s asset.
If the FDI inflow in our country is increasing then it is increasing liability on our company/country or in other way we can say that it is increasing the foreigner’s stock of our nation’s asset.

If our country has borrowed more from abroad or if FDI investment is more in our country then it is a burden for us and in future we will have to service this by paying interest/principal/dividend. And this payment/servicing of the liability/debt is in Foreign Currency.

So, if the NIIP position is deteriorating that means becoming negative [Our NIIP position is -12.9% of GDP, which means we own less foreign assets than foreigners owning our nation's assets], then we require more Forex reserves.

So, the $600 billion of forex may look sufficient in terms of import cover but its not at all enough if we look at our NIIP position. Open / Comment

2021-06-18 06:40:28 Open / Comment

2021-06-17 21:26:37 Open / Comment