Thursday, August 12, 2010

Economic Ethos

After the 20th century was hit by the worst economic depression in the 1930s, the 21st century has been hit early by the world-over stigma of recession which indicates how far the world economies advance in this century. With most of the developed countries like USA, Japan & UK being affected by the economic recession, it subsequently affected the other world economies. Let us peep into some of the aspects of this depression which put the world at a standstill.

The Banking system forms a major part in the countries economy. The Central Bank of each country controls the economy of the country. Some countries have Unit banking system and some have Branch banking system. Most of the developed technologically advanced countries follow Unit banking system and others follow branch banking with a bank having numerous branches in different parts of the country. Banks control the supply of money in the population of the country, priority sectors ,commercial and public sectors and government controls the percentage of taxes and interests to be levied by the banks on the citizens. in different policies, credits and debits. Indian banking system was revolutionized by the new economic policy 1991 which imposed LPG-Liberalization Privatization and Globalization on the Indian economy making India accessible to the worldwide companies and work force and liberating from the stigma of public sector control of money in few hands.

Economic Depression is the losses suffered by the companies due to reduction in the profits earned by them. This usually happens when the supply of money in the different sectors is less and the production costs are high in the international market. It affects the developed countries the most because of less availability and high expenditure on labour force in those countries.Hence unemployment increases as the demand for labour force is more than supply.Consequently the company reduces the salaries of the employees as it suffers depression and in this situation inter-company transfers occur. Thus, developed countries suffered sever economic depresion in the first decade of the 21st century.

Subsequently, this drought in the developed countries reached the developing and under-developed countries through Capital market which is the strongest link in the international trade. Capital markets are d long term loan markets or investment markets which can be primary and of secondary type. Primary Capital market is confined in a smaller pupil radius as through this, the companies sells shares to the people.Secondary capital market opens the countries economy to the world as through this, shares are sold and bought by different companies and individuals at a common platform, i.e, in Stock Exchanges.Its similar to purchasing a second hand book and then selling it again to gain profits. For example, a company issued the advertisement in a newspaper for bonds(small amounts of money), say Rs 100. 1000 people applied for it. 100 people will be sold the bonds and the remaining 900 people go to the stock exchanges where share dealings take place.

Many MNCs invest in share market and also sell there stocks in share markets of different countries. After the depression in developed countries, their companies withdrew their shares and stopped selling shares due to loss of capital, in the stock exchanges of various countries worldwide. This affected the share market drastically as individual refused to buy shares of companies running in losses and thus the share price index (like Sen-sex and Nifty) deteriorated. A country like India was saved from being worst hit because of the exploding population of India which can supply easy and cheap labour force thus increasing the employment opportunities.To control the depression, the RBI increased the money supply and relaxed the taxes and interest rates in the Credit policy announced every 3 months to review the inflation or depression situation. Over-relaxation of capital in the country lead to increase in Inflation, which is the price rise in various sectors of a country. the food resources sector was the most affected. It was basically due to below-average rains in India, high prices of agricultural machineries and high rate of production of consumables which directly summed up to the increase in the food prices. the inflation rate is consistently in double figures from Dec 2008 and the solution still needs to be sought out by the UPA government.

In this way, The Finance Ministry and the Reseve bank of India always work in collaboration to design new schemes and policy to maintain a balance between depression and inflation & inflation and growth rate of the country. Dear friends, comment on my post and you can ask your queries.                                                      
           'Economy is the Medical department of the country with Economists as its doctors'

No comments:

Post a Comment