Category Archives: Politics

25 YEARS OF STRUCTURAL REFORMS IN INDIA

imageSource credit- THE HINDU
BACKGROUND-

From a beggar of financial aid to one of the global economic powers, from a socialist economy to a capitalist inclined economy, from following a restrictive trade to practising a free trade, this transition has been dramatic. Dramatic yet progressive. It has not been an easy task. The LPG (liberalisation, privatisation, globalisation) reforms caused a myriad of changes in the economic structure of India.

Surprisingly, this was a reform taken by a PM who had been a socialist by heart and principles. This huge step was taken to ease the lump some debt that India owed to IMF. Devaluation of currency, foreign investments, and increased exports are some effects of the reforms.

Why the Indian government initiated these reforms-

Rajiv Gandhi was assassinated in 1991, this was also a time when the foreign debt was piling up and the investors lost confidence, which led to the Indian economy on a verge of economic bankruptcy. PV Narsimha Rao stepped up as the PM with Manmohan Singh as the Finance Minister(though an economist). The balance of payment crisis was a big concern to the government. The overvaluation of the currency had a gargantuan impact in the 1991 crisis.

This was not the only problem. The foreign reserves started vanishing so fast they were at such a point that it would last only for less than 3 weeks. The Gulf War made the BOP swell and the oil bill skyrocketed. All this led to decrease in exports which was supported by the fall in the USSR- a major trade ally of India at that time. The gross fiscal deficit rose against 12.7% of the GDP. This was a major problem as the productivity of the workforce and the growth was not enough to cater to the deficit. Redtapism, and bureaucratic hurdles caused in the low establishment of private industry firms. So, all these caused in the downfall of Indian economy. We see a big transition from socialist to a mixed economy.

What are some the major changes in the Indian economy post reforms-

The government had to take big steps like devaluation of currency, easing the rules and regulations for private sector industries and abolition of licence raj.

Currency Valuation-
These reforms led to freeing of the exchange rate. This was a huge step that the Indian economy took in reference to foreign investments. Rupee value is from then on determined by the market forces and a slight intervention of the central bank. Now India is well connected with the world due to healthy trade and investment. Ultimately, the exports increased for various goods due to depreciation in our currency. In the due course our depreciated currency may appreciate due to increased trade and connectivity.

Abolition of License Raj-
The term license Raj may not be a familiar term now, but it was extensively used before 1991. The government had control over the industries and the industries had to take permission for every change they made or every action they wanted to take in the course of its operation. Because of these strict rules Private Sector was limited to a very few industries and the productivity of these few was low when compared to the global progress. Post these reforms, the Monopolies and Restrictive Trade Practices Act(MRTP) was abolished- according to which the large scale companies had to comply with the Act when they plan on diversification or expansion. Furthermore, industrial licensing was eliminated in all except 18 industries(doesn’t even sum up to 20%).

Foreign Investment –
Foreign investments were almost nil prior the reform period. This was due to the unwelcoming policies adopted by institutions. However, after the easing of economic policies, 51% of the equity for a few industries was granted for foreign direct investment(FDI). It further rose to 74% and subsequently to 100% for a few industries. The government setup Foreign Investment Promotion Board(FIPB) which is a single clearance window for applications on FDI.

Trade-
India’s trade found a new trajectory with the implementation of LPG reforms. India had a Foreign Exchange Regulation Act(FERA),-which imposed restrictions on outward flow and inward flow of currency- violating which was a criminal offence. Now, India has full current account convertibility; this means that rupee can be exchanged with other currencies to buy goods and services from other countries. India also has partial capital account convertibility. There was also rationalisation of tariffs on import goods and removal of restrictions pertaining to trade.

Socialistic to Mixed Economy-
Socialism started as a part of the Indian Independence Movement against the British. The common citizens were perplexed by the zamindars’, princely class’ and landed gentry’s dominance over the economy. From then to until 1991 the Indian economy remained socialist and as per the Constitution it still is. But, after the Soviet Union fall and Gulf War India’s economic outlook took a U- turn to a mixed economy. Privatisation marked this change. It holds good for a country with huge population like India, because the private sector takes care of most of the business aspects and government can focus on the mainstream economic problems.

Banking Sector-
Before 1991, Indian banking sector did not even have a shade of private entrepreneurship. The banks did not mention about their profits and losses. There have been significant changes in the cash reserve ratio(CRR) and statutory liquidity ratio(SLR) aftermath of the reforms. The banking sector is now more flexible, well regulated and suffices most of the financial needs of people.

Stock Markets-
Stock markets have been redefined after 1991. It found its ground through the major stock exchanges in our country like NSE and BSE. Many services related to this like Asset Management, Hedging Services, Investment Banking have started coming up. Employment generation has also been a major advantage of the stock market boost.

CONCLUSION-

Have income inequalities been reduced? Are the poor people still suffering from something called poverty? Are all the middle class households immune to inflation? Can the poor farmers avail loans or credit whenever they need? Are all the children of this country educated? Is child labour still a problem? These are the questions we have to focus upon.

Yes, we are able to earn more. But, the income gap still persists the rich are able to earn more faster than the poor. Though, this holds good to some households. The Indian domestic industry especially the small and the micro enterprises are the worst hit due to globalisation. Most of the unskilled labourers still work for low wages in risky conditions. The real wages are low due to inflation rates and other macroeconomic factors.

There has been an overall progress, but it may not be progressive or advantageous for every person in the country. After all, we have to bear the opportunity cost of these reforms. Economics is so complex, everything is interrelated and interconnected. It may hold good for one but can lead to an adverse effect on the other.

Read more thoughtful articles by Hindu Reddy here!

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Obama makes History.

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Obama on Friday visited Hiroshima, the first city in history to be targeted with a nuclear bomb, becoming the first sitting president to do so more than seven decades after the attack.

Obama arrived at the Hiroshima Peace Memorial Park alongside Japanese Prime Minister Shinzo Abe. The two leaders laid wreaths in front of the cenotaph for the victims of the bomb.

“Seventy-one years ago, on a bright cloudless morning, death fell from the sky and the world was changed. A flash of light and a wall of fire destroyed a city, and demonstrated that mankind possessed the means to destroy itself,” Obama said.

“Why do we come to this place, to Hiroshima? We come to ponder a terrible force unleashed in the not-so-distant past. We come to mourn the dead, including over 100,000 Japanese men, women and children, thousands of Koreans, a dozen Americans held prisoner. Their souls speak to us. They ask us to look inward. To take stock of who we are, and what we might become.”

Ahead of the visit, Obama had confirmed that he would not apologize for President Harry S. Truman’s decision to drop the bomb toward the end of the war. On August 6, 1945, a United States Air Force plane dropped the bomb named “Little Boy” on the city, leading to the deaths of an estimated 140,000 people. A second bomb was dropped on Nagasaki three days later, killing another 70,000 people.

Obama told a news conference Thursday his visit was also a reminder of the need for a “sense of urgency” about the risks of future nuclear conflict, singling out North Korea’s pursuit of an atomic bomb as “a big worry for us all.”

(originally posted on Fortune)

What did you think about President Obama’s visit to Hiroshima?

One of the World’s Richest Countries Is Voting on Whether to Give All Its Citizens $2,500 Per Month

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Next month, the world could get its first national basic income, but the likelihood of it passing remains a long shot.

The Swiss will vote on June 5 whether to institute an unconditional basic income that will take the place of some welfare benefits. The concept of basic income is a hot topic nowadays as the world considers a future with less work, but Switzerland will be the first country to actually vote on it.

Proponents of the stipend say that it will give all Swiss a decent living and allow them to “participate in public life.” The text of the referendum doesn’t specify how much each citizen will receive, but advocates have suggested 2,500 francs or $2,500 for adults and 625 francs for kids per month.

Opponents of measure–including the Swiss government-argue that an automatic income is a disincentive to work and will increase taxes. The government also says the stipend could hamper the Swiss economy by causing a shortage in skilled workers, prompting businesses to relocate abroad. Plus, the suggested $2,500 per month stipend adds up to an annual sum that’s just barely above the national poverty line, according to Bloomberg. Those arguments seem to have resonated with voters. A poll conducted in April showed that just 24% of voters supported it; 4% remained undecided.

But even if the Swiss reject the measure, the idea of basic income is likely to remain a timely talking point, as world leaders grapple with wealth inequality and concerns that machines could someday displace a vast share of workers.

Lausanne, Switzerland made the news last month when its city council narrowly passed a motion calling for a city-wide basic income trial program. Other governments–namely those of Ontario in Canada, Finland, and the Netherlands–have also toyed with the idea of giving their citizens free money to cover basic needs. And some players in Silicon Valley are also infatuated. Y Combinator president Sam Altman said in January that the startup incubator wanted to fund a study of the idea.

At least one basic income acolyte says Switzerland is an ideal testing ground for the concept given its wealth. (It’s typically ranked among nations with the highest per capita GDP.) Former Greek Finance Minister Yanis Varoufakis told Bloomberg that, “A rich country like Switzerland has the great opportunity to try out this great experiment.”

(originally seen on The Fortune)

What do you think about this?

Do you think Swizzerland should vote Yes or No?

Michael Bloomberg Blasts Donald Trump and Bernie Sanders in Commencement Speech — Fortune

Michael Bloomberg, the former New York City mayor who considered a presidential run this year, blasted the partisan politics and “demagoguery” of the 2016 race in a commencement speech on Saturday, making reference to both Donald Trump and Bernie Sanders. “In this year’s presidential election, we’ve seen more demagoguery from both parties than I can… Read more on  Fortune.

Five good and bad things that “could”(would) happen if Trump becomes President.

Five good and bad things that “could”(would) happen if Trump becomes President.

imageEveryone talks about the bad things that could happen so much.
But since he’s so popular, there’s bound to be some good things in his campaign….right?
So I thought I’d list up five good and bad things that could happen from my perspective.

Let’s start with the good things that could happen first, shall we?

1. Fewer “Illegal” immigrants from Mexico.
Even though some people say forcing them home is inhuman or Trump’s remarks on sending them home are racism, it’s still illegal. And it’s also true that they take jobs from Americans and all the legal immigrants.
So….this is good news for America right?
Yes, for most of us. But maybe not so much for factories that employ them for cheap salaries.

2. Shut down parts of the Internet.
Now, I know what you’re screaming right now.
“Wait a minute! Why is closing the Internet a good thing!?”
I’ll tell you why. He’s not shutting it down for everyone. He’s gonna shut it so the Islamic State can’t recruit teens or grownups to join them.
Feel better now?;)

3. Make the gun background checks more secure.
Now, you may think Trump doesn’t care about gun safety or background checks.
But in fact, he says that he’ll make sure that “the states are uploading criminal & health records properly.” And all this is supposed to protect America from terrorist attacks.

4. Bring back jobs to America.
Good news laborers! You’re getting back your jobs!( Hopefully)
This depends on who is reading this.
If you’re a laborer who used to work at motor factories, you would be rolling on the floor with joy. On the other hand, if you’re the manager or the CEO of the company, you’d be throwing your phone across the room by the time you finish reading this.
Companies want to make the same products in low price. But to do that, companies have to have their factories where they can employ low wage workers. And American wages are soaring too high for them to afford.

5. Reduce the $18 trillion national debt
How? He says he will “Vigorously eliminate waste, fraud and abuse in the federal government”. And he will also cut redundant government programs and focus on growing the economy.
Here’s the bad things that could(would) happen.

1. Let’s build a wall!
Yes, as I said earlier, there are a tremendous amount of illegal people coming from Mexico to the US. But that doesn’t mean America needs to build a wall to physically stop them.
That kind of wall could and will cause cracks in US and Mexico relations. And what will happen to NAFTA? If he builds a wall? So all in all, building a wall isn’t a good idea.

2. Refuse to call Iran’s leader by his preferred title.
Hmmm….maybe it’s time to strengthen ties with Saudi Arabia…..
Trump says, if he becomes President, he will “NOT” call Iran’s leader “supreme leader”.
He would rather call to him…”Hey baby! How ya doin?”

3. Heavily surveil mosques in America.
Trump says he may close some mosques in the United States to keep the civilians safe.
As ISIS is advances in the Middle East and more inhuman terrorist attacks occur in parts of Europe such as France, Belgium and Germany.

4. He might invest BIG on something and then lose BIG.
Even though, Donald Trump is a billionaire now, he has also experienced bankruptcy in his life. That means that Trump’s investments are “not always” accurate. And when he wins big, that’s good for America. But if he loses big then….that’s gonna be a whole different story.

5. Make the Europe feel betrayed.
Donald Trump is hugely unpopular in Europe. Especially to British PM, David Cameron. And Trump also, hates him back. Newspapers write articles that urge US voters NOT TO vote for Trump in the elections. “If” Trump becomes President and “if” this hate for Trump in Europe continues, The United States may have to fight ISIS and other threats alone.

If you have something you thought or something to add to this post, feel free to leave it in the comment box below. We will be more than happy to answer them! –TOAC