Undergraduate Economist

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2012-03-02T11:06:00.000+05:30

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V K R V Rao: The Entrepreneur Economist

2010-08-17T16:55:00.001+05:30

The contents of the following post was written over a year ago for an in-house publication. Hence, the tone of the post is different from that of the rest. And since we are more enamoured by American economists these days, this is a timely post, which talks of one of the many great economists India has seen.

V K R V Rao founded Delhi School of Economics (DSE), Institute of Economic Growth (IEG) and Institute for Social and Economic Change (ISEC). These institutions were established so as to impart economics education in India, which would compete with world-famous institutes like LSE, Cambridge, etc. He was also instrumental in establishing the Indian Council of Social Science Research (ICSSR). Apart from establishing these institutes, Rao also served in various administrative positions - Planning Commission Member, Union Cabinet Minister first for Shipping and Transport and then Education and Youth Services. For the services rendered, he was awarded Padma Vibhushan in 1974.

Rao completed his Master's in economics from Bombay University, where he worked on the taxation of income in India for his Master's thesis. He then moved on to Cambridge to pursue his PhD, where he became a student of Keynes. For Rao, economics was a social science that would aid in improving the human condition. In Cambridge, he discovered that the tools of government intervention could aid in fulfilling the objective of economic as well as social betterment. And it was Colin Clark who stimulated his interest in statistical demography and national income accounting. However, as Shigeto Tsuru points out in his review of Reflections on Economic Development and Social Change: Essays in Honour of Professor V K R V Rao by C H Hanumantha Rao and P C Joshi published in 1979, Rao had insisted that “the blind application of Keynesian formulae to the problems of economic development has inflicted considerable injury on the economies of underdeveloped countries.” For Rao, economic theory was only a servant of economic policy.

There are three published works by V K R V Rao on national income- An Essay on India’s National Income 1925-29 (1936), The National Income of British India (1940) and India’s National Income 1950-80 (1983). Though V K R V Rao has published on various aspects of economics, his work on India's National Income is of special interest. This is because of a variety of reasons. Austin Robinson provides one such reason: “I myself remember Rao as the brilliant Cambridge undergraduate and research student of almost fifty years ago, who single-handed tackled the almost impossible task of estimating the Indian national income at a time when hardly a single ingredient was known and even guesses involved heroic despatch of countless questionnaires to every corner of India to establish, for example, the milk-yields of she-buffaloes or the average earnings of village barbers.” An analysis of economic growth and change is possible by studying the National Accounts Statistics (NAS), as Rao has demonstrated in his 1983 book.

Despite the limitations of NAS in India, Rao is able to meaningfully explain the changing structure of the economy through the relative shares of agriculture, industry and services in the gross domestic product (GDP). In addition, he calculates the implicit price deflator so as to understand how much of GDP increase is on account of price rise. Also, implicit price deflators are constructed for the three major sectors to find out how each sector has performed vis-a-vis the others. Savings, capital formation and consumption are also dealt with in detail. V M Dandekar has hailed his 1983 book as “a model of scholarship and objectivity particularly coming from one who, during the period, was in the thick of making and implementing policies and programmes for economic development of the country.”

Thus, V K R V Rao was a model economist – a practical man who was well aware of various theories and their limitations in applicability to India. And because he wanted to use economics for policy purposes, he was committed to extensive data collection and data analysis. Also, he was clear that, in practice, economics must interact with other social sciences, especially sociology and anthropology. This is evident from the name of the institute he founded in Bengalooru – Institute for Social and Economic Change.

Official!

2006-08-03T19:27:00.001+05:30

I have relocated my blog to wordpress. I will be blogging on economics at wordpress too. The HTML in blogspot made it difficult for me.
The blog is located @ Undergraduate Economist
I thank all the readers and friends for their support and hope that my relocation would be welcomed.
Thank you blogspot!

Dilemma

2006-08-03T12:45:00.000+05:30

I just discovered Wordpress and i am contemplating about a shift to wordpress. It is more convenient. I am in doubt as to whether i should move all my posts in my current blog or to leave it here itself. Could someone suggest a solution?

Development: A suspicious Alternative

2006-08-02T22:53:00.000+05:30

Recently, I came across an article by Jagdish Bhagwati, a renowned economist at Columbia University. After reading the article I was in a doubtful state of mind.

His main proposal to combat poverty in Africa was “If it is hard to think of aid being spent productively in Africa, why not spend elsewhere for Africa?”

He was of the view that Africa would not be able to absorb the aid efficiently. So it would be profitable and more pertinent to spend the aid for Africa in Developed countries itself, by conducting research for development of new vaccines and cures for crippling diseases afflicting African nations. I call this proposal strange. Because then Africa for ever after be dependent on these rich nations.

This would further widen the disparities in Income between developing and developed countries. It is a wise plot aimed at reducing aid to developing nations.

He goes further to state that he is against those like Jeffrey Sachs who insists that the aid ought to be spent in Africa itself.

It wouldn’t be difficult to predict the outcome. The rich nations would not have to hesitantly part with the aid, instead they would be able to invest in within their geographical territories itself.

More Podcasts and audio

2006-07-31T22:22:00.000+05:30

These are the free podcasts and videos available on the following economic and social issues.

1) Jeffrey Sachs- The end of poverty
2) Thomas L Friedman- The world is flat
3) Friedrich Hayek- Mises Institute Lectures
4) On Inflation
5) On Income inequality
6) Charan Singh- On foreign reserves

Will come up with more as I come across them.

Podcasts in Economics

2006-07-29T13:33:00.000+05:30

For those interested in hearing about Economics, some sites have collected podcasts from renowned economists. The links are given below.

1) Productive Strategies- List of Academic Lecture Podcasts
2) Radio Economics
3) Learn out aloud.com- Economics Free Audio & Video
4) Stanford - SIEPR
5) On Inequality- Victor Fuchs

These pages have some important links to podcasts featuring Jeffrey Sachs, Jadgish Bhagwati, Thomas L Friedman, Friedrich A. Hayek, Lee C. Bollinger, etc.
To know more about the wonderful subject of economics, view these links.
Post your comments on these link and how they helped you.
I will be posting the links to podcasts on specific issues soon.

India: Management of Foreign Exchange

2006-07-28T15:07:00.000+05:30

[This is related to a JNUEE essay question of 2005.]
[Reference: Charan Singh 2005]

Trends
India followed a restrictive external sector policy until 1991, mainly designed to conserve limited FER for essential imports (petroleum goods and food grains), restrict capital mobility, and discourage entry of multinationals. The external sector strategy since 1991, though gradual in approach, has shifted from import substitution to export promotion, with sufficiency of FER as an important element. As a result of measures initiated to liberalize capital inflows, India’s FER (mainly foreign currency assets) have increased from US$6 billion at end-March 1991 to US$140 billion at end-March 2005. India ranks fifth in the world in holdings of FER in 2004.
The current account was opened in August 1994, and the capital account is cautiously, though gradually, being liberalized.

Objectives
1) To preserve the long term value of reserves in terms of purchasing power over goods and services.
2) To minimise risk and volatility in returns.(ensuring safety and liquidity)
3) To provide confidence to domestic and foreign investors in markets.

What Are the Sources of Rising Foreign Exchange Reserves?
The main sources of rising FER in India are inflows of foreign investment (more portfolio than direct) and banking capital, including deposits by non-resident Indians. Foreign portfolio investment is considered less stable than foreign direct investment but here in India most of our FER is made up of foreign portfolio investment.

How Are the Foreign Exchange Reserves Managed in India?
The Reserve Bank of India (RBI), in consultation with the Government of India, currently manages FER. The essential framework for investment is conservative and is provided by the RBI Act, 1934, which requires that investments be made in foreign government securities (with maturity not exceeding 10 years), and that deposits be placed with other central banks, international commercial banks, and the Bank for International Settlement following a multicurrency and multi-market approach. The direct financial return on holdings of foreign currency assets is low, given the low interest rates prevailing in the international markets.

Singapore model
Singapore has earned a return of 9.5 per cent a year, in US dollar terms compared to a mere 3.1 per cent India has earned.

More Details
For more details visit The Hindu Business line: Following the Singapore model.
For those interested in knowing more about Indian FER and for those preparing for JNU entrance exam, go through this paper by Charan Singh.

Monetary aggregates

2006-07-27T17:37:00.000+05:30

Money

Economists have proposed a functional definition of money, i.e. any object that is generally acceptable in facilitating the exchange of goods and services.
It took me a lot of time to come up with the meanings of the monetary aggregates in the Indian context. This post gives an idea about the composition of various monetary aggregates. These aggregates are commonly used in journals relating to economics, so these definitions will help in comprehending the data better.

What are M1 and M3?

M1 and M3 are standard measures of money supply. Other standard measures are M0 and M4. Each monetary aggregate is ranked according to the degree of liquidity it provides. Monetary aggregates measure the amount of money circulating in an economy.

M0 includes only currency in the hands of the public, banks’ statutory reserve deposits held at the central bank and banks’ cash reserves. In India it is usually referred to as reserve money. It is controlled by the central bank of the country. (Link:RBI)

Narrow money (M1) is the sum of currency in circulation and demand deposits at monetary institutions.

Monetary aggregate (M2) is defined as M1 plus post office savings, bank deposits and residents' deposits in foreign currency at deposit money banks.

M3 is defined as M2 plus other time deposits with banks. The components of M3 vary between countries. It is also called broad money.

M4 or L is referred to as very broad money. It comprises M3 plus treasury bills, negotiable bonds and pension funds.

Narrow money measures cover highly liquid forms of money (money as a means of exchange) while broad money includes the less liquid forms (money as a store of value).

Trade Related Intellectual Property Rights a.k.a TRIPS

2006-07-26T17:14:00.000+05:30

TRIPS is the commonly used acronym for Trade Related Intellectual Property Rights. When ever a meeting of the World Trade Organisation (WTO) commences, TRIPS come under the scrutiny of columnists and journalists. Why is that? What is this thing that so often stirs up a hornets nest? These are questions which every individual might ask.

According to the WTO, “Intellectual property rights are the rights given to persons over the creations of their minds. They usually give the creator an exclusive right over the use of his/her creation for a certain period of time.”
The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) was first negotiated in WTO’s 1986-94 Uruguay Round.

The reasons behind the need for TRIPS, given by the WTO is that “The extent of protection and enforcement of these rights varied widely around the world; and as intellectual property became more important in trade, these differences became a source of tension in international economic relations. New internationally-agreed trade rules for intellectual property rights were seen as a way to introduce more order and predictability, and for disputes to be settled more systematically.”

TRIPS has introduced the following standards of protection.

1) Copyright
2) Trademarks
3) Geographical indications
4) Industrial designs
5) Patents
6) Integrated circuits layout designs
7) Undisclosed information and trade secrets

(For more details on these measures visit the WTO web site)

(An example of an Indian Geographical indication is Basmati Rice, Darjeeling Tea, Kanchipuram Silk Saree, etc.)

These measures have been advocated so as to reward and promote creativity and innovations. How far they have rewarded creativity is debatable. These measures provide them rights over their own inventions.

My concerns
One major reason for me to be concerned is because these TRIPS agreement took place during the early Globalisation years (1986-94). This was a period of liberalisation, privatisation and market integration with the global economy for many developing nations like India, China, Argentina, etc. India became a member of WTO on January 1, 1995.This was a period where the ‘Creativity Economy’ was booming. Getting hold of patents, copyrights etc is a time consuming and tedious task, especially in the developing countries as the flow of processes and services were not very advanced and smooth. The developed nations exploited this opportunity. They protected themselves by gathering a lot of patents and copyrights, which made manufacturing and allied activities difficult for the developing countries. The rich nations enjoyed a comparative advantage over the poor ones and also widened the inequalities, in their quest to become economic and political superpowers.

Has TRIPS benefited the common man? Have they significantly improved the growth of the Indian economy?

Indian Monetary economics

2006-07-25T18:08:00.000+05:30

RBI Governor presented the First Quarter Review of Annual Statement on Monetary Policy for the Year 2006-07 today.
The following important changes have been made. I have included only those which I found relevant. You can read the others at their website.

1) Reverse Repo Rate and Repo Rate, each raised by 25 basis points to 6.00 per cent and 7.00 per cent, respectively.
2) Bank Rate and Cash Reserve Ratio kept unchanged.
3) GDP growth projection for 2006-07 retained at 7.5-8.0 per cent.
4) Real GDP growth during January-March 2006 is placed at 9.3 per cent as against 8.6 per cent in the corresponding quarter a year ago.
5) Inflation, measured by variations in the wholesale price index (WPI) on a year-on-year basis, rose from 4.1 per cent at end-March 2006 to 4.7 per cent as on July 8, 2006.
6) While petroleum, oil and lubricants (POL) import growth rose sharply to 39.0 per cent from 31.0 per cent reflecting the steep rise in international crude oil prices.
7) India’s foreign exchange reserves increased by US $ 11.0 billion over their end-March, 2006 level to US $ 162.7 billion as on July 14, 2006.
8) A large number of central banks have raised their official interest rates, inter alia: the US Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of Canada, the Reserve Bank of Australia, the People’s Bank of China, the Bank of Korea and the Banco Central de Chile.

Monetary terms simplified
Reverse Repo rate (6%) is the rate at which the RBI borrows from the Commercial Banks.
Repo rates (7%0 are the rates at which the RBI lends to Commercial banks.

My views
As far as the statement is seen, it puts forward a very good picture of the Indian Monetary System, which is true. The RBI has been efficient in this regard.

GDP growth in Real terms at 9.3 % is unbelievable. Cheers to the Government! Let the GoI wake up to the cry of the masses. In a study which recently came in Economic and Political Weekly, the percentage of people below the poverty line was about 56%. How can an individual consciously pat the Government for the present growth in GDP?

Inflation, like I mentioned in one of my earlier posts, has made life difficult for the poor and marginal households. The middle class has adjusted, though there had been some outbursts during the initial hike in Petrol and Diesel prices.

POL imports have shown an increase just as the Government promised. How much these imports have helped the common man is yet to be known. They have enabled the Government to somewhat stabilise the price hikes, at least the newspapers have reported likewise.

India, in the eyes of the global world is striding forward with its belly bulging with its precious foreign reserves. What has been done with this foreign exchange? I used to wonder why the GoI is not using this Foreign exchange for the development of infrastructure in our country. It has been invested in low yielding foreign bonds abroad. What a pity!

Those who are just concerned about the Monetary Policies cannot understand what needs to be done to have a more equal society. I am not an advocate for a perfectly equal society, which is impractical and impossible. I want to see equal opportunities given to all. I want to see the empowerment of the masses, the common people!

JNU Entrance Exam: Essays

2006-07-24T19:00:00.000+05:30

This post is meant for all those who could not get the previous question papers of JNU and for those who want to know what kind of essay questions are asked usually for the test. The examiners look for critical answers. Without some knowledge in the following mentioned areas, it would be difficult to give an opinionated answer.(You are required to answer only one essay: Marks alotted for an essay is 20)

2005
1) The need for a universal employment guarantee scheme in rural India
2) Business process outsourcing
3) Why India’s foreign exchange reserves are increasing
4) Utility possibility curves
5) The new patents regime in India
6) Competitive markets and optimality

2004
1) Why are prices for comparable good lower in poorer countries?
2) Discuss the relation between the Great Depression and Keynes’ theory
3) How does the Government of India define the poverty line? Do you agree with it? Discuss.
4) Discuss the rationale of the strategy of import substituting industrialisation in India during the 1950s and 1960s.
5) Discuss the concept of exploitation in Marx.

2003
1) The idea of Sustainable Development
2) The public distribution system in India
3) Causes of Unemployment in India
4) The impact of trade in Agriculture on Indian Agriculture
5) Parliamentary Democracy

2002(These are not the exact questions)

1) A note on Poverty ratio, Poverty indicators and poverty alleviations programmes.
2) Second 5 year plan.
3) Green revolution

2001(Most of them are not exact questions)
1) Food grain stocks.
2) ‘A Pareto optimal state may be perfectly disgusting.’ Comment
3) Opposition to big dams
4) Combination of scholarship/loans better than subsidised educational system
5) Is reduction in fiscal deficit necessary for high growth?
6) Need to redistribute land to the tiller in India.
7) Full employment is incompatible with the functioning of a capitalist economy.
8) Why is log-normal distribution the preferred distribution function for personal incomes?
9) What is meant by “Crowding out of private investment”?

All the best to those who are preparing for the entrance next year! Please provide your view points on these topics, after quoting the question, so that interested students can get information on these topics. Please post your comments. They are important to all!

Irrational exuberance

2006-07-23T22:20:00.001+05:30

I had come across the term ‘irrational exuberance’ many a times in newspapers and magazines in recent times. Today I decided to look up what it means.
The Oxford dictionary defines “irrational” as ‘without reason’ and “exuberance” as ‘full of high spirits or growing profusely.’

Origin of the term
The term "irrational exuberance" derives from some words that Alan Greenspan, former chairman of the Federal Reserve Board in Washington, used in a black-tie dinner speech entitled "The Challenge of Central Banking in a Democratic Society" before the American Enterprise Institute at the Washington Hilton Hotel December 5, 1996.
Fourteen pages into this long speech, which was televised live on C-SPAN, he posed a rhetorical question: "But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?" He added that "We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs and price stability."
Immediately after he said this, the stock market in Tokyo, which was open as he gave this speech, fell sharply, and closed down 3%. Hong Kong fell 3%. Then markets in Frankfurt and London fell 4%. The stock market in the US fell 2% at the open of trade. The strong reaction of the markets to Greenspan's seemingly harmless question was widely noted, and made the term irrational exuberance famous.

In the limelight
In the year 2000, Robert J. Shiller authored a book titled “Irrational exuberance”. It was about the society’s obsession with the stock market and how it fuelled volatility in the financial markets. He said the people were infatuated with the stock markets and had forgotten about the potential of real assets, such as income from our livelihoods and homes.
In recent times, the newspapers and magazines have repeatedly been using this term when writing about the stock markets, especially regarding its volatility. I have seen it in The Hindu Business Line and Frontline in recent years.

Is it significant?
I feel it’s the apt word for the recent volatility in the stock markets. It tells us the reason for the increased presence of volatility in the markets and it’s not because of important changes in the economy or the company that the share prices fluctuate. Market news and sentiments of the people affect the market too. Neither should a market with strong fundamentals nor investors who have fundamentals resort to irrational behaviour.

What is the HDI?

2006-07-16T22:50:00.000+05:30

In the previous posts, I had talked about GDP, Inflation and the stock market. These are all indicators of an economy, but if all these are growing at high rates but the Human Development Index (HDI) is low, then the over all well being of that nation is also low. Along with economic growth we need an improvement of the well being of the people too. Human capabilities need to be improved through measures taken by the government. The government should provide sufficient and easily accessible opportunities to facilitate human capabilities and freedom.
The human development index (HDI) is a composite index that measures the average achievements in a country in three basic dimensions of human development: a long and healthy life, as measured by life expectancy at birth; knowledge, as measured by the adult literacy rate and the combined gross enrolment ratio for primary, secondary and tertiary schools; and a decent standard of living, as measured by GDP per capita in purchasing power parity (PPP) US dollars.

Importance
HDI serves the following purposes.
• To capture the attention of policy makers, media and NGOs and to draw their attention away from the more usual economic statistics to focus instead on human outcomes. The HDI was created to re-emphasize that people and their capabilities should be the ultimate criteria for assessing the development of a country, not economic growth.
• To question national policy choices - asking how two countries with the same level of income per person can end up with such different human development outcomes (HDI levels). For example, Viet Nam and Pakistan have similar levels of income per person, but life expectancy and literacy differ greatly between the two countries, with Viet Nam having a much higher HDI value than Pakistan. These striking contrasts immediately stimulate debate on government policies on health and education, asking why what is achieved in one country is far from the reach of another.
• To highlight wide differences within countries, between provinces or states, across gender, ethnicity, and other socioeconomic groupings. Highlighting internal disparities along these lines has raised national debate in many countries.

Drawbacks
The HDI does not reflect political participation or gender inequalities. The HDI and the other composite indices can only offer a broad proxy on some of the key the issues of human development, gender disparity, and human poverty.

HD Report 2005
The US has been given the 10th rank, China 85th and India 127th rank. China and India falls in the category of medium human development while US in high human development.

Conclusion & suggestions
We have a long way to go in the path of human development. With more than 50% of population poor, we really have a long path. The government needs to put in more funds for developing backward areas and it has to seek the help of the private sector in this development process. Only a development process with public private partnership will be successful. India needs to reform its education sector mainly requires more qualified teachers who have to be given adequate remuneration. The current wages for teachers need to be revised. Education is an important tool for enhancing growth in a country and also the most efficient way.
For sustenance we need proper health care centres and good hospitals and medical colleges. We need to have efficient and innovative pharmaceutical companies who should be willing to reduce the exorbitant rates of medicines.
To enable connectivity, proper transport must be readily and cheaply available. Roads must be well laid and rural connectivity must be specifically implemented with haste.
The central, state and the local self governments need to work together to achieve high rates of human development and growth!

References
HDR 2005

For the High School Student – A Career in Economics?

2006-07-16T21:08:00.000+05:30

What are you going to do after studying economics? This is a common refrain. One does not ask this question to someone who is studying Medicine or Engineering. Why? – Because the answer is obvious – one becomes a Doctor or Engineer! Well after studying Economics, one can certainly become an Economist, but the truth is that the vast majority of students, who join for the BA Economics, do not pursue a career in Economics. Many serious students view the degree only as a stepping stone to the Civil Services. Like in other spheres of education, after a basic degree, one can specialize in various branches of economics too. The options include monetary economics, fiscal economics, international economics, development economics, labour economics and so on and so forth. With a degree in Economics one could become an actuary, financial analyst, investment banking analyst or labor relations specialist. Various employment opportunities exist in international organizations such as IMF, IBRD (World Bank), UN, etc. However my personal feeling is that none of these jobs give as much satisfaction as being a pure economist pursuing research.

What is there to study in economics? (A common question which all those who study economics at school level have!). From my exposure to Economics at school, I thought that this involved only a lot of theory. I was really surprised to find that I was terribly wrong, for I soon came to know that the subject is in fact all about mathematics! So if you have a deep hearted liking for Economics make sure that you like math or start liking it before it’s too late. I have come across students who were desirous of studying Economics, but then changed to other subjects, due to their lack of knowledge or apathy toward math. One reason for this is that in school we have no clue to as to why a lot of set theory, binomial theorems, calculus, and coordinate geometry are taught! Actually these topics are used quite extensively in Economics too. There is a lot of statistics involved too. Generally the teaching of economic theory at the Plus II level is sufficient, but there is inadequate emphasis on Math as applied to Economics. As you progress in Economic studies there is a substantial increase in math. Therefore keep in mind to take up as many quantitative math papers as possible during your Undergraduate degree course in Economics. This will ultimately help you in your quest for the highest degree in economics, namely a Doctorate degree. The alternative is to take a Bachelor’s degree in mathematics or statistics, and then proceed to an MA/MSc Economics degree before a Doctorate in Economics.

Even in the present day, the trend among most students in South India, is to try for a seat in either Engineering or Medicine. Hence there is a clamour for seats in the science stream at the Plus II level. Consequently there is great pressure to obtain a high percentage of marks in the Class X, Final exam so as to obtain admission to the Science stream. Generally admissions to the non science do not require such high marks. Therefore it is usually the students with relatively less marks (which can by no means be equated with less ‘brilliant’) who opt for the Arts and Commerce streams. This is the dismal reality! I for one would like to see more toppers in the School finals opting for Economics!

Indian Stock market: The basics

2006-07-15T15:29:00.000+05:30

I am writing this post because two of my friends wanted me to. I will be just dealing with the Secondary market in general and the BSE or SENSEX in particular.
The Financial market in India is broadly divided into
1) Money market- for short term money
2) Capital market- for long term money
Money market consists of the Treasury bills, the call money market etc. I won’t be going more into it. Coming to the capital market, it’s further classified into
1) Primary market
2) Secondary market
The primary market deals with the Initial public offerings (IPO) or sales of shares by companies to the public for the first time. The recent IPO’s that took place in BSE can be viewed here. Once the IPO’s are completed all further transactions of the sold shares take place in the secondary market, more commonly known as stock markets or as bourses (jargon in finance). The major stock exchanges in India are the BSE and the NSE.

The National Stock Exchange or NSE was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country. The NSE’s index is known as S&P CNX Nifty which is a 50 stock index which covers almost 25 sectors of the economy.
Bombay Stock Exchange Limited is the oldest stock exchange in Asia. The Exchange has a nation-wide reach with a presence in 417 cities and towns of India. The BSE’s index is the SENSEX which is a 30 stock index. The SENSEX is an acronym for Sensitive index of the BSE.

Current scenario
The price of shares/scrips is fixed in the market by the invisible forces of demand and supply. When the purchase price is more than the selling price, the prices of share rise i.e. if A wants to sell a TCS share at Rs 40 but B is willing to buy the share at Rs 45, then automatically the transaction is carried out by the computer, and the price of the share increases.
The regulator of the Indian capital market is the Securities and exchange board of India (SEBI). It makes sure that the small investors are not cheated and ensures transparency of the transactions.
Recently, our markets witnessed a drastic fall, owing to the pull out of the foreign institutional investors (FII). The recent Mumbai blasts have also affected it.

My views
The investors in these markets form consortiums among themselves such that, a group of these investors are able to make changes in the overall market indices. FII’s are one such group. When they think, the time has come to book profits; they take up a selling position. This causes the market to fall and when the market falls, these groups again buy the shares; thus making profits again out of their buying back the shares. This phenomenon is possible only if the group’s transactions can exercise a considerable influence in the concerned market.
Market sentiments play an increasingly important role in the fixing of share prices. News such as decrease in interest rates, good rainfall, etc promotes investment thereby raising the price of the indices in the process. But bad news such as a bomb blast or an earthquake quake the investors see, thereby lowering the indices. The reasons for the markets showing a buoyant face during good news in understood clearly. A reduction in interest rates, promotes cheaper borrowing, thus facilitating more investment. While a good rainfall increases agricultural production, which has an impact on the various industries which make use of agricultural inputs. But, during a bomb blast, what I believe happens is that, investors (very much attached to their money) tend to sell. Game theory helps in explaining how the investors react. The typical example of game theory is that of the prisoner’s dilemma. When an investor hears a bad news, he thinks that other investors will pull out their investment owing to increased need of contingency funds. When all the investors think alike, a large scale selling occurs. I classify it as a typical group phenomenon, arising out of an individualistic tendency.

Some related information
There are other financial instruments in the market known as the Mutual Fund (MF). They are specialised institutional investors who mobilise funds from the public and invest in the capital markets. The people consider investing in such MF’s less risk than shares. It is a booming market but has not utilised its full potential. MF’s are a good option for those investors who do not have time to make a detailed analysis about the economics of the capital market.
Recently investment gurus have been stressing the importance of commodity markets. They are gaining importance in the Indian market.
Some economists and finance analysts believe that when an industry is overvalued, a correction takes place. Say, if the asset prices are increasing but the intrinsic value has remained almost the same, then a bubble is said to occur, which is sure to burst in the near future. Likewise, some believe that the Indian markets were overvalued and the recent crash which occurred was just a correction.

Indicator?
In the previous months, we might all have come across the headline that Indian economy is booming with the stock market touching its record peak of 12,000. The market indices are just indicators of the investor’s confidence levels and the business enthusiasm levels. We should not view the markets in isolation and say that the economy is doing well.

Jargons used
Bear- a selling spree where the prices are falling
Bull-a buying trend with rising prices
short & long position-you can view it here
Bourses-stock market

Hope this post has been of use to my friends and others. If you have liked it, please do let me know in my comments. If you have any questions or clarifications, do let me know.

Inflation: Is WPI fallible?

2006-07-13T16:54:00.000+05:30

The textbooks define Inflation as a situation where too much money chases too few goods i.e. the purchasing power of money has decreased. Actually, only an increase in the general price level for a considerable period of time is called as Inflation in Economics. The 2 major causes are Demand pull factors and Cost push factors. The present reason for inflation to increase is owing to the increase in the global prices of oil which comes under cost push factors.

What is the WPI?
Wholesale price index or WPI is the measure for inflation in India. The government comes out with WPI inflation figures every Friday. The WPI presently consists of 435 items and it is dominated by manufactured goods which make up 63.75% of the index.

Current scenario
In 2005-06 inflation has been experiencing a free fall in spite of escalating crude prices.
Currently the inflation rate is about 4.6% which is clearly undervalued as when compared to the increases in the prices of goods and services. The prices of pulses, transportation has all increased considerably but the WPI does not seem affected much.

Components of WPI
In the computation of WPI, the 3 major variables are Primary articles (weight 22.0), Fuel, power, light and lubricants (weight 14.2) and manufactured products (weight 63.7). Manufactured products have always enjoyed more weight in the calculation of WPI.

Cause of worry
One reason is that, the prices of commodities are increasing due to the increased costs, mainly in transportation. But there has been no corresponding increase in wages. The people who are poor will find it difficult to live as they were living before the price hike.
The second is that, the retailers take advantage of this situation by hoarding up commodities, further fuelling inflation. And the third reason is that, services do not form a part of the WPI though its share in the GDP is 52%. Surprisingly, the WPI inflation rates are just hovering between 4.5% and 5%, which tells us not to worry. History has told us to take inflation rates seriously only if the rate crosses 8%.

Government reaction
The government has decided to reduce customs duties on imports of wheat and sugar in order to increase the domestic supply. The government wants to reduce inflationary pressures by mopping up the excess demand in the economy.

A paradox
Like mentioned in the beginning of this article, the current cause of inflation is an increase in the global oil prices which is a cost push factor. How can the government be so blind in not seeing this? Instead it has gone to the extent of giving duty free imports to reduce excess demand in the economy, when there has been no excess demand!

Remedy
The immediate step to take will be the reconstruction of the WPI so that it indicates the genuine level of inflation. Like our outdated poverty line, which tells that only about 26% of the Indian population is poor, the current WPI is also outdated.

References
1)http:/indiabudget.nic.in
2)http://economictimes.indiatimes.com/articleshow/1502544.cms
3)http://www.flonnet.com/stories/20060714001704800.htm

Is India on the path of Development?

2006-07-11T16:35:00.000+05:30

India is shining with 7% GDP, SENSEX at 10684.30, Inflation at about 4.6 and foreign exchange reserves have crossed $150 billion. What an acievement! It can be seen in the indian media both electronic and print. The governement and the Indians deserve to be applauded. And that is exactly what the media is doing. The people(middle and upper class) are happy and the media is happy too. What a rosy picture!
But is the whole country rejoicing? NO!

While going through the current issue of Economic and political weekly, some facts surprised me.
In India, the prevailing poverty line is Rs 368 and Rs 559 per person per month for rural and urban areas.(Could any individual live a decent life with this money??)

Malnutrition is another problem faced by Indians.Around one in four indians are malnourished.
Presently 47% of Indian children below the age of 5 are underweight for their age.(Malnourishment hinders developmentand capacity to learn.)

Only 20% of Indians are covered by public health care.( Due to the bad condition of public hospitals, no one prefers going there even though the costs are less.)

At least one in three Indians does not get the basic daily water requirement.

Presently, about 57% of Indian households do not have electricity.( I wonder if about 10% of the ducated in India knows this fact.)

Education is a fundamental right. 71.16% of the people in the 15-19 year age group had not completed a secondary education-a 2001 survey. (Unimaginable! and what ahve the priveleged been doing about it, nothing!)

According to the article in EPW, Redefining Poverty: A new poverty line for a new India, the poverty line in India should be about Rs 840 per capita per month. "At this expenditure level nearly 69% of India's population is below the povert line which is over two and a half times the present official poverty rate of 26.1%.

Related links:
http://nanonomics.blogspot.com/( A Friend's view on india shining)
http://www.thehindubusinessline.com/2006/07/11/stories/2006071101391100.htm(On the economic progress made)

Economics links

2006-07-09T19:14:00.000+05:30

I thought i would post some resources on economics on the internet. here they are:

Indian institutes (for masters in economics)
IGIDR:www.igidr.ac.in
ISI:www.isical.ac.in
DSE:www.econdse.org
JNU:www.jnu.ac.in
MSE:www.mse.ac.in

For other economics related sites visit
Economics Departments, Institutes and Research Centers in the World:http://edirc.repec.org/india.html

I find it disheartening to see most of our intellectuals going abroad and working in search of money and better working conditions. It is important that India devotes more of its money to education, research, improving infrastructure or colleges than for defence! India needs more skilled engineers, doctors, historians, economists, sociologists, etc. We need all these people because they cannot be substituted!

Books

2006-07-04T17:35:00.000+05:30

Books i read:
People of the Lie By M Scott Peck on Psychiatry and Exorcism
Grip of Change By P.Sivakami on the life of Dalits-fiction
Dollar Bahu By Sudha Murthy on the evils of dollar-fiction
Five point someone By Chetan Bhagat on life at IIT-fiction
Night By Elie Wiesel on torture of Jews

Books to read:
Capitalism By Ayn Rand
The Argumentative Indian By Amartya Sen
The price of Onions By Ashok V Desai
The roaring Nineties By Joseph Stiglitz
The algebra of infinite justice By Arundhati Roy
From Socrates to Sarte By T Z Lavine

Economics Honours

2006-07-04T16:55:00.000+05:30

After my 12th boards i knew Economics was what i wanted to do and preferably in the best college in the country. I realised economics could never bore me and it was the most interesting and dynamic subject that i had ever learnt. So i pursued it at Loyola College, Chennai, India.
Well, there i realised that most of my class mates were there either out of compulsion from their parents or just for studying in Loyola or because they did not get B.Com. I felt weird. I was eager to meet people who were as interested in economics as me. I felt disheartened.
Here i am, after three years of my undergrad, and still enjoying economics as i have never before. Yesterday, i happened to view a programme on NDTV, we the people, about getting 90% and still not getting into economics honours at St Stephens. I was happy and sad to see that the most sought after course was economics honours. I was happy to know that the youngsters of today were so interested in economics as a subject and sad because a lot many chose it because of compulsion and because it was the sought after course.
Here, in my hometown of Kerala, the most sought after course is Medicine and Engineering. Chartered Accountancy is cathching up. But humanities are looked down upon. What a pitiable condition.
What is it that the students of this generation look for? Is it more and more money or knowledge?

Delhi School of Economics

2006-05-28T16:11:00.001+05:30

Most DU colleges dont have an MA degree of their own, actually no college has one. So even if we enrol in these colleges, all the lectures will be in the DSE. These are the colleges under DU. DSE is given top priority by students and the remaining can get themselves enrolled in other colleges.

www.econdse.org
Admission Rules and Procedures (for admission to M.A Economics, 2006-2007)
Students seeking admission to M.A Economics at the University of Delhi are required to first register themselves with the Department of Economics at the Delhi School of Economics, for appearing in the Entrance Examination. After being selected for the M.A. Economics Course, students may enroll themselves either in the Department of Economics at the Delhi School of Economics or in any of the colleges of the University of Delhi listed below:
Deshbandhu College
Hindu College
Indraprastha College*
Janaki Devi Mahavidyalaya*
Kirori Mal College
Lady Shri Ram College*
Miranda House*
Ramjas College
Shri Ram College of Commerce
St. Stephen’s College
Zakir Hussain College
Colleges marked * are for women students only.
Note that all lectures are delivered in the Department of Economics, Delhi School of Economics.

This can be read from the DSE hand book. So it does not matter which college you are admitted in.

NOTICE: This blog is not active anymore. Kindly visit MA Economics page at www.alexmthomas.com

Nobel Laureates in Economics

2006-05-24T18:54:00.000+05:30

It is important that, we, as students of Economics have an idea about the Nobel Prize winners in Economic Sciences. The following economists have been awarded the prize in each year:

2005 Thomas Schelling 1921- American

Robert J. Aumann 1930- Israeli and American

2004 Edward C. Prescott 1940- American

Finn E. Kydland 1943- Norwegian

2003 Clive W.J. Granger 1934- British

Robert F. Engle 1942- American

2002 Vernon L. Smith 1927- American

Daniel Kahneman 1934- Israeli

2001 George A. Akerlof 1940- American

A. Michael Spence 1943- American

Joseph E. Stiglitz 1943- American

2000 James J. Heckman 1944- American

Daniel L. McFadden 1937- American

1999 Robert A. Mundell 1932- Canadian

1998 Amartya Sen 1933- Indian

1997 Robert C. Merton 1944- American

Myron S. Scholes 1941- American

1996 James A. Mirrlees 1936- British

William S. Vickrey 1914-1996 American

1995 Robert E. Lucas, Jr. 1937- American

1994 John C. Harsanyi 1920-2000 American (born Hungary)

John F. Nash 1928- American

Reinhard Selten 1930- German

1993 Robert W. Fogel 1926- American

Douglass C. North 1920- American

1992 Gary S. Becker 1930- American

1991 Ronald H. Coase 1910- American (British-born)

1990 Harry M. Markowitz 1927- American

Merton H. Miller 1923-2000 American

William F. Sharpe 1938- American

1989 Trygve Haavelmo 1911-1999 Norwegian

1988 Maurice Allais 1912- French

1987 Robert M. Solow 1924- American

1986 James M. Buchanan, Jr. 1919- American

1985 Franco Modigliani 1918-2003 American (born Italy)

1984 Sir Richard Stone 1913-1991 British

1983 Gerard Debreu 1921- American (born France)

1982 George J. Stigler 1911-1991 American

1981 James Tobin 1918-2002 American

1980 Lawrence R. Klein 1920- American

1979 Theodore W. Schultz 1902- American

Sir Arthur Lewis 1915-1991 West Indian

1978 Herbert A. Simon 1916-2001 American

1977 James E. Meade 1907-1995 British

Bertil Ohlin 1899-1979 Swedish

1976 Milton Friedman 1912- American

1975 Leonid V. Kantorovich 1912-1986 Russian

Tjalling C. Koopmans 1910-1985 American (born Netherlands)

1974 Gunnar Myrdal 1898-1987 Swedish

Friedrich A. von Hayek 1899-1992 British (born Austria)

1973 Wassily Leontief 1906-1999 American (Russian-born)

1972 Kenneth J. Arrow 1921- American

John R. Hicks 1904-1989 British

1971 Simon Kuznets 1901-1985 American (Russian-born)

1970 Paul A. Samuelson 1915- American

1969 Ragnar Frisch 1895-1973 Norwegian

Jan Tinbergen 1903-1994 Dutch

DSE Entrance- Option B

2006-05-22T19:57:00.000+05:30

Since so many of the students were asking about the entrance to DSE, i thought i will give some useful information regarding the tests, as the test in during the last week of june.
http://www.econdse.org This site gives the details.
The test can be taken up by economics students or non economic students who have taken up mathematics or statistics. Because i have a copy of the paper, i thought i will pen down the various topics covered in option B of the test.

The 2003 paper included
Euclidean matric-convergence
Functions-mapping
Vectors-linear dependence
Matrices-idempotent, symmetric
Joint density function- marginal pdf, interpretation
Probability-advanced(obviously)
Hypothesis testing
Maximum likelihod ratio estimate
Sequence-convergence

I did my undergraduation in Economics so i dont understand much of math, i have written what i felt was important. Hope it proves helpful to those who are taking up the test.

Language constraint

2006-05-10T16:03:00.000+05:30

I have always wondered why the so called 'trickle down effect' seems to have a very small effect or actually no effect at all in India.
I understand that for all development process, it is essential that the needs be communicated from the have-nots to the government but this communication is not taking place mainly due to what i call the Language Constraint.
What is this language constraint? India is a nation comprising diverse languages and cultures. This diversity seems to have a negative impact on the economic growth and development. It is only during the 1990's , due to Globalizaton that people understood the need for English-the language of the world economy! But after this, the orignal language of the masses tend not to be learnt; as the populace feels, it does not help them in their future. This language has divided and subdivided the Indian Economy into many bits and pieces which otherwise could have been a boon for the economy as a whole and it could have enjoyed the economies of scale.
For example, the US has got Hollywood but India has Bollywood, Kollywood and so on and so forth. This is a strain on the resources.
I am looking for more literature on Income Inequalities and other inequalities. Will write more on it once i get more ideas.

Post Grad in Economics

2006-03-09T19:07:00.000+05:30

I have been getting a lot of queries regarding the admission procedures in DSE, JNU and IGIDR so i thought of putting all the details i know into this post.
Starting with IGIDR, The last date for sending the completed application forms is March 17. There will be a written test comprising verbal ability and mathematics. Candidates should have taken Math during 12th standard. Those who pass the test are called for an interview. Only about 30 seats are available. It is an institution of repute concentrating on environmental economics.
DSE-It is a part of the Delhi University and there is a common entrance. We have to register with the university and with the colleges separately. The admission notice will come during the first week of may. DSE is the best place to be. Selection is made on the performance in the written test. It consists of microeconomics, macroeconomics, mathematical economics and statistics.
JNU-It offers two masters in economics, one the usual masters(which i prefer) and one with specialization in world economy. The last dates for sending the applications by post is march 17. The previous question papers can also be got from the university.
Thats all for now.
All the best!

CLIOMETRICS

2005-12-28T11:53:00.000+05:30

During my reading i came across a new term and also a whole new dimension to economic history. Thought of sharing it.
The new economic history in which quantitative techniques including econometrics are used to make interpretations and reconstructions of the past. It was pioneered by Robert William Fogel and Douglass C North.

Lemon problem

2005-12-23T14:46:00.000+05:30

This problem was noted byAkerlof in 1970. A popular example of the phenomenon is in the secondhand car market, where sellers know whether or nor their car is a lemon (i.e perform badly), but where buyers cannot make that judgement without running the car. Given that buyers can't tell the quality of the car they are buying, all cars of the same model will end up selling at the same price, regardless of whether they rae lemons or not. But the risk of purchasing a lemon will lower the price buyers are prepared to pay for any car and, because secondhand prices are low, people with non-lemon cars will be little inclined to put them on the market.
This problem is commonly referred to as an adverse selection.

Indian institutions of repute in economics

2005-11-09T16:55:00.000+05:30

After all my search for the best schools to apply in India for economics, i have found the following institutions. I have chosen these, taking in account their international repute, number of students who have gone to top universities in the world for further studies and their number of quantitative electives which would help in further studies in economics. They are
1) Indian Statistical Institute(ISI)
2) Delhi School of Economics(DSE)
3) Jawaharlal Nehru University(JNU)
4) Indira Gandhi Institute for Development and Research(IGIDR)
All the above institutions offer a masters programme in economics which includes quantitative papers as compulsory and optional papers. So for those who are planning to do economics at an academic level, these would be the best options. The admission is through an entrance test comprising of both economics and math at the undergraduate level.
For those who wish to pusue a doctorate in economics, these institutions will get you on the right track. The entrance questions can get real tricky if you dont have your basics right. So start working on your basics from now. All the best!

Money

2005-10-30T15:00:00.000+05:30

I was reading Paul Krugman's The Accidental Theorist and it came to my notice the impact money has had on humans is more than any other variable. There is nothing in this world which moves people as much as money. This is a danger to the whole world.
Recalling the origin of money; it was introduced as a medium of exchange so as to make life easier for man! Now it has become the sole motivating factor for any achievement either directly or indirectly.
Krugman has also criticised the pegging of a currency to the gold. When i went through this book it struck me that politicians cannot make rational decisions concerning a nation especially its economy. Thus economists are necessary.
Sadly, India has very few economists when compared to politicians. One more observation is that people are willing to sacrifice their non monetary benefits for acquiring more money. For example people work overtime, work for leave salaries, etc.
For a better insight go through Krugman's book.

Inequalities

2005-09-17T23:31:00.000+05:30

A common feature of all economies in the world whether developing or developed is the presence of inequalities, not only in money terms but also mainly in real terms. Till now I believe inequalities have never been quantified but rather it is measured as a discrepancy between incomes.
Inequalities will never cease to exist. It can be narrowed but only to a limited extent through redistribution of incomes and wealth. Again this is against the notion of Pareto optimality as it brings down the welfare of the rich and redistribution does not seem to hold good in most economies.
The only remedy is growth-both economically and socially so that the welfare of the rich and the poor are improved; but concentrating more on the less rich by giving the poor more opportunities to work and develop. Government intervention is not the only remedy. The government has to oversee that a moderate level of competition should prevail for the provision of such opportunities. Provision of facilities in the rural areas should be given high priority and those enterprises that provide such facilities must be given incentives.

Joy of reading

2005-08-09T20:12:00.000+05:30

I have been busy lately, though not with economics. I entered into my world just two days back. My internals are going on now. I have to start preparing for my entrance exam to get into a good masters program in Jawaharlal Nehru University(JNU) or Delhi School of Economics(DSE) as their standard of questions is very good.
I have been interested in Economic history and Economic thought lately. So explains my previous post and so will my future posts!
I am currently reading 'The end of poverty' by Jeffrey Sachs, which is a good book. Those who have finished reading it, please post your views on it.

Mercantilism

2005-08-08T18:26:00.000+05:30

The forerunner of Mecantilism was Thomas Mun, a 17th century British merchant-economist. He proposed the following theories.

For Britain to prosper economically, it has to run trade surpluses.

Nations become wealthy for the same reasons that families become wealthy i.e when the income is more than the expenditure.

Importation of necessities was good, while luxuries were considered as bad, unless these luxuries could be re-exported and profits could be earned. Rich metals is an example of re-exportation.

Only international trade would bring about trade surplus and not domestic trade.

The money which Britain earned should not be spent for unproductive purposes. Nor should it go to the hands of individuals, because it would lead to an increase in the aggregate demand, leading to a price rise. In order to avoid that, it should be reinvested in the economy. Thus he stressed the importance of capital investment in an economy.

These are some of the principles he talked about. I feel, as students of economics, it is highly necessary for us to know about the works of the great economists.

Public good

2005-06-29T16:30:00.000+05:30

A public good is good which can be used by all without paying a price. In most of the countries, the public goods are being produced by the respective governments by incurring high costs. For its usage an individual or a company does not pay a price. A typical example is that of a public road, where a fee is not collected for its usage. The burden of producing public goods falls on the shoulders of the government. Some costs are paid off using the government taxes such as road tax, sales tax etc.
I believe that it is the duty of the private in a developing country to offer such services owing to the already high burden on the goverment. The government can give the private entrepreneur high rates of subsidies on undertaking this kind of work as it requires a very high rate of capital investment.
Another type of good where a price is paid for the public good is known as a Merit good. Charging a small amount for building infrastructure can be justified as it accelerates development. Thus i am of the opinion of converting most public goods to merit goods.

Final year

2005-06-22T11:35:00.000+05:30

I have only got a year left for my graduation. This semester we are being taught the following papers
1) Mathematical economics
2) Managerial economics
3) International economics
4) Fiscal economics
5) Monetary economics
6) Indian economics
At last i am so glad because i will have to study economics only. Lately there have been no posts owing to my lack of time to visit the web. I had been very busy as i was house hunting. I will get a house only on the first of the coming month.
I will do some economics posting only after i move into my new flat. I am planning to post on Behavioral economics and, the mobility of labour.

Pigovian fees

2005-06-12T10:45:00.000+05:30

I had earlier mentioned about government intervention in the case of polluting by firms. One way to intervene is by imposing a tax. So i am introducing the concept of Pigovian tax. But there are more efficient ways of regulating pollution, one of the comments i recieved state a more market friendly way of reducing pollution; which i agree to.
Early in the 20th century, the English economist Arthur C. Pigou argued for the imposotion of taxes on generators of pollution. Since the social cost of pollution is in excess of the private cost (it is a negative cost since they save money by polluting) to the pollutor, the government should intervene with a tax, making pollution more costly to the pollutor. If the pollution is more costly to produce, the pollutor will produce less pollution. This tax has come to be called a Pigovian fee or Pigovian tax. The fee is generally paid to the government. The Pigovian fee is not any emission fee; it is the marginal savings from pollution at the optimum pollution level.
This fee is not a market friendly way of controlling pollution. It is imposed on the people. Offering these firms incentives on reducing their emission levels would help more rather than imposing a tax.
[pigovian fees]Economics

Game theory

2005-06-10T19:41:00.000+05:30

For a time, one of the most exciting new developments in economic theory was John Von Newman and Oskar Morgenstern's Theory of Games and Economic Behaviour. It represents a unique approach to the analysis of business decisions; and these decisions make up the ultimate raw material with which economic theorists must work.The general object of game theory is to determine standards of rational behaviour in situations in which outcomes depend upon the actions of interdependent players. Game theory is a multi person decision theory. The outcome is determined by those actions independently taken by multiple decision makers.
Game theory deals with taking descisions so as to maximize our payoffs(benefits). A typical example in traditional game theory is the prisoner's dilemma.They are kept in two different cells. If one confesses, he is set free but the other suffers maximum imprisonment. If both tell the truth, they suffer sometime in the prison. But if both keep quiet, they undergo minimum sentence.Hence, it is best that both keep quiet. But if the prisoners do not trust each other, it is very likely that both will confess and end up serving sometime in the prison.
I have just introduced the topic so as to make the readers get to know what game theory means. It is a very vast subject which cannot be simplified by me. In most of the microeconomics texts, game theory is mentioned. But, surely it is an interesting paper to learn. In most good graduate programs, game theory is offered as a separate paper.

Economics of the environment

2005-06-07T20:27:00.000+05:30

Well, the hype at present is on the Environment and its onus on the citizens of a country. As responsibility is concerned, we all have a lot to do which unfortunately is not being done anywhere and so the need arises to impose policies. During the process of development in a nation i.e. growth of its industries and building of infrastructure, environment is totally forgotten about. There is not much being done, which regulates the amount of pollution. And people in developed countries now prefer a region which is environmentally very well off because after all their monetary needs are met, they look for a pleasant atmosphere without noise and other pollutants. It is the responsibility of the government to make sure that its citizens are environmentally safe.
I have mentioned only the ill effects of air pollution, not because it is the most important but because it is more prevalent.
Air pollution is mostly concentrated in urban areas, due to concentrations of people both as the sources and victims of pollution. It leads to health problems and also reduces human performance. It damages materials, increases maintenance costs which erode the infrastructure of an economy. It incurs great loss to the economy.
In rural and semi-urban areas it damages crops; moreover it harms the forest and aquatic ecosystems. It also leads to global warming.Chloroflurocarbons (CFC’s), one of the major nonfuel air pollutants lead to depletion of the stratospheric ozone layer. These substances are primarily used as refrigerants. One economic problem which has resulted is the growing black market in illicitly produced CFC’s.The United States has spent approximately 2% of GDP on pollution abatement and control.

Presently, a survey conducted said that Kerala is getting warmer due to high deforestation rates as compared to afforestation and increased global warming. The reasons mentioned also include climate change and increased vulnerability to natural disasters. The survey was conducted by the Kerala State Council for Science, Technology and Environment (KSCSTE) with assistance from the Ministry of Environment and Forests. It says that on an average, Kerala has become warmer by around 0.5 degree Celsius over the last 43 years. Air Pollution by the emission of greenhouse gases is mainly due to increased consumption of firewood and petroleum products. The pressure of the large number of tourists is felt on the coastal areas. Sand mining, over exploitation of mangroves and the growth of housing and industries are the other reasons mentioned. Dredging in coastal areas is also a major reason.

To conclude, I would say that if the government does not have money to protect each persons environment, the collection of an Environment Tax is justified, provided it makes progress. I don’t think the government will do that in India because, as it is the people feel that the money they pay as tax is not being utilized properly.
This calls for some intervention. It is up to the private players to take up this job. Where the Government has failed the Public can win provided they are willing to take risks. They can set up organizations to provide environmental safety to its customers by paying those companies an amount based on the work done. For example, if an individual’s pond in his premises is dirty or the air is polluted, he/she can approach the above mentioned organizations and ask them to clean the pond and also plant more trees in order to reduce the incidence of pollution after paying a specified amount. This will bring about an increase in employment, mainly for the rural people as they would only be truly willing to do such cleaning. The salaries ought to be high because environmental protection is very important and the fees charged should be accordingly high in urban areas and low in rural areas. This will also help to reduce the inequalities between a city and a village.
Reference
1.Environmental Problems and Policy Solutions, Chapter 2, Environmental Economics, Charles Kolstad, Oxford University Press
2.‘Kerala getting warmer by the day, says survey, T Nandakumar’, Pg 2, The Hindu, June 5, 2005

VAT in Kerala

2005-06-06T18:50:00.000+05:30

First let me pen down the impact and then the reasons as it will make the reader to think as to what the shortcomings are and for the reader to get an insight into how these policies affect the common man.
It is upon the Government to ensure that the benefits of all policies should accrue to everyone without any inequality. The major problem with VAT is traders and customers are uneducated on its computation. Or a VAT department ought to be set up which takes care of imparting knowledge on VAT to all and in its subsequent computation and also to study the impact it has on the lives of the people especially those BPL (below poverty line). It should conduct surveys and make the information public and freely accessible by all.
Impact on Kerala Economy

Hike in prices of snacks like chips and other fried items-which are felt among ordinary people.
Hike in prices of writing materials (4% tax levied) like ink, eraser, paper, etc which are very commonly used goods by the students.
Hike in prices of medicines, especially life saving drugs (supposed to be exempted).
Hike in prices of medical equipment, (costs more when compared to electronic goods) as a 12.5% tax is levied so poor patients will find it difficult to pay the bills. [Recently Delhi & Karnataka Governments cut down the tax to 4%]

Processed goods: Retailers charge more than before.
Branded goods: They are under priced as traders resort to unethical business practices.
Spurious goods: They will tend to flood the market.

The traders from states where VAT is not introduced take advantage of the price differential, thereby flooding the Local Kerala markets with their goods. Moreover these products are of questionable quality.

Till date the shop owners were collecting additional tax from the customers without paying the Government.

The commodities which enter from other states are procured without bills which in turn are sold without bills to the consumers. This results in a heavy loss to the exchequer.

Quality of products manufactured in Kerala is affected as they abstain purchasing from states where VAT is introduced, and they suffice by procuring from very near areas, so as to reduce cost, but it happens with the subsequent reduction in quality too.

Food products entering from other states are relatively cheaper as they are transported into Kerala using clandestine methods which reduce their transportation costs.

An overall rise in prices in the state, mainly felt among the ordinary people. It was introduced in April 2005.

Reasons for implementation

VAT is scientific in developed nations like Europe not in developing nations like India which is characterized with a lot of Cottage industries, because it becomes unscientific.

VAT proposed lower prices, wide spread tax compliance and equitable tax collection.

VAT or value added system is a multi-stage consumption/production tax computed on the value of purchase/sales made at various stages of its business activity.

It proposed to bring maximum benefits to traders, businessmen and customers.

Impact on neighboring states

In Lakshwadeep, almost all articles are imported from Kerala (VAT state) and Karnataka (VAT state) which is going to bring about an increase in the cost of living without a consequent/subsequent increase in the standard of living.

Suggested remedies

Issue of bills should be made mandatory.
ISI should standardize the quality of consumables.
The prices prevailing on that day should be displayed in shops like groceries. (As in jewellery shops)
The Food & Civil supplies department should make a regular inspection of quality.
It is feasible to set up an institute for Food technology as in Mysore which examines different food samples so as to ensure quality standardization.

Reference
The Hindu, Saturday, June 4, 2005-Peoplespeak.kochi edition.Pg 2.

Economic-tricks

2005-05-24T19:40:00.000+05:30

Econometrics rectifies, actually minimizes the errors found in Mathematical models. So it is of extreme importance for Economists & Econometricians to have a proper knowledge about Math as well as Econometrics.For those who have not yet been introduced to the basics of Econometrics, i will give a brief introduction on what it means and the steps involved.
Econometrics is a social science where the tools of Economics and Mathematics are applied to Economic theories so as to determine the relationships between the endogenous variables, if any; or whether the mathematical model is in dearth of variables i.e the dependent variable depends on exogenous variables(not included in the model originally). This requires a rearrangement or the removal of the choice variables.
The methodology which is usually followed:
(1)Understanding the Economic theory in all its totality.
(2)Framing a Mathematical model based on the Theory containing variables and constants.
(3)Inserting an error/stochastic term (the term stochastic because of its randomness) thus converting the original model into an Econometric one.
(4)Collection of data(having a large Sample size is advantageous)(only some values are plotted using the samples, the rest of the values are generated using a Mathematical process known as Interpolation)
(5)Estimation of the coefficients;either Interval/Point estimation. Interval Estimation is mostly done because it reduces the error owing to estimation, the S.E(standard error)is minimized.
(6)Testing of Hypothesis.
(7)Used for Forecasting purposes
I understand that this is a very necessary course for all Undergrads.The tricks in Economics are many-all yet to come!

Of the division of process in Technology

2005-05-24T08:11:00.000+05:30

Some thoughts taken from Adam Smith's masterpiece " The Wealth Of Nations" written in 1776. The example given by him is of pin making. A person is needed for straightening the wire,one for cutting,one for shaping it and many others are required for its completion. Suppose totally there are 10 distinctive processes; take the case where there are 10 labourers working independently towards making pins. The total output would be, say TQ. But when this distinctive process is distributed among the 10 labourers, labour gets divided and the total output becomes, say TQ + a,(where 'a' is a constant which has an expected value(E) of more than 2TQ.
The reasons for this increase as mentioned by him are mainly three:
1)Improved dexterity
2)Saving of time
3)Application of machinery invented by workmen
This division of Labour is also known as Specialization. This has creeped into all aspects of the economy -Medicine, Engineering and even Education. This also increases the employment opportunities in a nation. The opulent countries all are higly specialized in all aspects of their working, which has resulted in an increase in efficiency, known as X-efficiency which is caused about by Technology advances.
The latest of these as seen in the media, is BPO(Business Process Outsourcing) and KPO(Knowledge Process Outsourcing) whereby a particular firm Specialises in a business process fully and, mostly these Specialised firms are set up in developing nations and does work for the Developed countries thus letting the Developed nations have a share in their low costs, owing to the low level of wages prevailing. Presently there is a division of technology too! All this has been brought about by Globalization and Liberalization. Has this resulted in an Efficiency increase in the developing countries? Will it contribute in the near future? Are the Developing countries gaining by the Theory of Comparitive advantage(also Absolute Advantage)?
P.S.Only the example and the reasons for increase in production and productivity are taken from the book.

Recommended books

2005-05-20T19:07:00.000+05:30

For an undergraduate and for those weak in Math in their masters can do their study with the following text books
1) Fundamentals Of Mathematical Economics BY Alpha C Chiang
2) Introduction To Mathematical Economics BY Edward T Dowling IN Schaum's series
They both form a very good combination. Schaum's series is amazing.I just got my personal copy of the 2nd book.
I am doing my reading on Mathematical Economics now.Very soon i will come up with a blog ranking the top 5 universities/institutions in UK, USA and India in economics

Inequalities

2005-05-20T18:59:00.000+05:30

Well,there had been a paucity of posts as i just returned from a trip to Andhra Pradesh(AP), 5 days back. The situation there is very pitiable-the place i went to was a village. Kerala is very developed in comparison with AP. This has got to do mainly with the polity in power. The strength of communism is shown in kerala where the inequalities of income and wealth are kept to the minimum. It truly is an achievement.
The condition is as follows
no proper shelter
lack of electricity
very low wages
environmental externalities
On the whole the state of well being is absent.I heard that there the women are paid just Rs.30 for a days work as compared to a wage not less than 100 in kerala. Moreover it seems that, there, a labourer is willing to work for a whole year for a meager Rs.1800.
I was upset about the whole issue,it has been disturbing me ever since. The absence of education is very much felt.
The riches there are in lands and gold.The agrarian sector appears to be strong founded but i doubt this greatly as how can a sector be called as developing when the main factors-the labour, is inadequately remunerated!

Poverty lines?

2005-04-18T19:05:00.000+05:30

The definition as given by the UN for poverty is a minimum intake of approximately 250 calories. so if u ask a statistician he would place the amount of those under the poverty line in india between 40 to 45 % but actually it comes to more han 60%! can you imagine that???its an astounding fact.well you mentioned food, shelter and clothing.do you not feel that education comes under the basic necessities, well it does and if the individual lives in polluted place but he has all the basic necessities????
first we i.e india needs to define the word poverty for itself as conditions in different places are unalike.in kerala the inequalities are the minimum regarding incomes.
well we indians have resources.all our brains are working in foreign countries , developing it, as they are being paid in dollars & euros. india spends so much of resources on education and this is what happens.very few of them do the opposite.money is not everything in life!
if the markets cannot give the remedy to the problems of the nation like poverty, unemployment then an external body has to involve itself and that is the GOI(govt of india).why do we pay taxes?because we are responsible.why are elections held?its a democracy and the people who rule us have been elected by us!
according to the UN human development report, indian has been ranked somewhere around 136. what a shame!HDI(human development index) takes into account life expectancy, infant mortality rate, sex ratio, etc.
we might be growing at about 7% of GDP but it can be either due to inflation or a population explosion.what do the lay men know of GDP, the intricacies involved,when it is seen that GDP has grown they think india is growing...where is the growth seen,the poor are still the same..its a saddening sight...hope we make a difference to this sad state as indians!

the answer lies in economics!

2005-04-18T01:52:00.000+05:30

well,when i went to the railway station yesterday, i was told that things are real easy NOW because the railways are now computerised.has this really increased the efficiency of the people in a totalitarian sense.has these been made available to the public? the economists sitting in top of the ladder creates policies for welfare improvement......but as it climbs down, it falls apart...not reaching the bottom of the ladder!when ever a policy is introduced, be it railway concession or any other concession made so as to improve the welfare of people,it neither reaches the strata of population in penury nor are they aware of such a scheme.the rich class remains the same, if not richer.....but the middle class tends to gain.....what about the poor?resulting in the inequalities in the distribution of income and wealth increase(does the poor have wealth?) here in india we dont even have a proper definition for the poverty line!!!!
i feel an answer to this problem can be given by economists.......the local self goverments must be made more transparent......it should look after the welfare of the people under it by formulating policies applicable to that particular region only......i feel all LSG's should employ a graduate in economics who has experience in policy making!presently the panchayats are looked down upon...this has to undergo a transition!the presence of an economist in an institution helps in the transition!

A digression

2005-04-16T15:07:00.000+05:30

well it suddenly dawned upon me to share some quotes which can be of help
1)no good deed goes unpunished!
2)to give anything less than your best is to sacrifice the gift!

economics is not an independent discipline, instead it is very much accomodative.it can be coupled with religion,philosophy and so on!economics is all about being a rational individual or group in makin choices.....rational meaning making the best possible choice(but not at the cost of others)this what Vilfredo Pareto's PARETO OPTIMALITY teaches us too....if we look deeply into economics and religion,we conclude that both strive to make the life here on earth go smoothly.....in equilibrium!

thoughts on indifference curves

2005-04-16T00:09:00.000+05:30

ECON-me

IC(curves), here we refer it to as IC curves.....dont know how the repetition came about..well as i was goin through FERGUSSON & GOULDS MICROECONOMICS, it suddenly came to my notice as to how infinite number of IC can be drawn in a commodity space.....on looking at the diagram, we make out only finite lines can be drawn......fergusson made the revelation to me that " IC's HAVE NO WIDTH".i was surprised because of the fact that when it was taught in class neither the prof nor the students asked anything about this.....maybe thay knew...i most certainly did not know....feeling foolish about myself!

scheduling...

2005-04-15T09:43:00.000+05:30

another man day .......planning to do some micro reading.......i am starting from the begining(DD & SS) so that i get an clearer picture......need to improve my math too..if i knew one concept in math very well, i could do wonders because knowing a concept fully allows you to make analysis easier..in economics, the usual concepts needed are(broadly) calculus,matrices,optimization.....there is another fantastic section known as econometrics,which deals with the use of statistical analysis in economic modelling-which contributes to the emperical verification of the theory or model.
the books in ascending order of reading in econometrics are
BASIC ECONOMETRICS by Damodar Gujarati
ECONOMETRIC ANALYSIS by W H Greene
Gujarati can take you through the basics very well.
in india, specifically south india,students doing their undergrad in economics dont know either about econometrics nor mathematical economics......at least hope they know both are different .
i am planning to do the following
MA eco from delhi university
Msc econometrics and mathematical economics from UK
PHd from USA
as of now these are my plans... not considering them to change in the future.for those who are planning to do a doctorate abroad, take as many math papers you can in your master's.score well too....mere opting is not enough.
hoping i make some progress with my micro today
cheers to all those pursuing economics

genesis

2005-04-15T00:26:00.000+05:30

i am proud to be doin my BA economics . economics is all i wanted to do.the problem in india is that the teaching is carried on in a very theoretical way not relating the same to the economic phenomena. very little math is being taught.alas!planning to do a masters after this.i feel blogging is one way of putting ones thoughts to n number of persons.most people get bored by reading economics , what a sad state!