IMT – 79: ECONOMIC ENVIRONMENT OF INDIA-MT2

PART – A

Q1. Explain with examples the various aspects of Economic and Social factors influencing Business Environment.

Q2. Discuss the objective & achievements of the eleventh Five-Year plan.

Q3. Trace the evolution of Industrial Policy in India with special reference to Industrial policy of 1991.

Q4. Make a balanced assessment of the role played by the PSUs in rapid economic development of India.

Q5. Explain the inter-relationship between political and economic environment with example.

PART – B 

Q1. What should be the corporate social responsibility in the modern contest.

Q2. What do you understand by Liberalization, Globalization and Privatization? Make a critical assessment of India’s Liberalization experience?

Q3. Write a note on the role of the World Bank in developing countries with special reference to India.

Q4. Explain the role of WTO? What are the commitments made by India to WTO?

Q5. How does IMF help Developed and Developing countries?

PART – C

Q1. What do you understand by Public Finance? What is the difference between Public Finance and Corporate Finance?

Q2. What is the importance of the Central Budget presented by the Finance Minister?Explain the Budget process?

Q3. What do you understand by Fiscal Deficit? What is the difference between the Fiscal Policy and Monetary Policy?

Q4. How does the Reserve bank of India control Inflation?

Q5. Explain how does the Political system influence the Business environment and flow of FDI?

CASE STUDY – I

The Global Recession

Beginning in the United States in December 2007 (and with much greater intensity since September 2008, according to the National Bureau of Economic Research), the industrialized world has been undergoing a Recession, a pronounced deceleration of economic activity. This global recession has been taking place in an economic environment characterized by various imbalances and was sparked by the outbreak of the financial crisis of 2007-2009. Although the late-2000s recession has at times been referred to as "the Great Depression," this same phrase has been used to refer to every recession of the several preceding decades.

The financial crisis has been linked to reckless and unsustainable lending practices resulting from the deregulation and securitization of real estate mortgages in the United States. The US mortgage-backed securities, which had risks that were hard to assess, were marketed around the world. A more broad based credit boom fed a global speculative bubble in real estate and equities, which served to reinforce the risky lending practices. The precarious financial situation was made more difficult by a sharp increase in oil and food prices. The emergence of Sub-prime loan losses in 2007 began the crisis and exposed other risky loans and over-inflated asset prices. With loan losses mounting and the fall of Leman Brothers on September 15, 2008, a major panic broke out on the inter-bank loan market. As share and housing prices declined many large and well established Investment and Commercial banks in the United States and Europe suffered huge losses and even faced bankruptcy, resulting in massive public financial assistance.

A global recession has resulted in a sharp drop in international trade, rising unemployment and slumping commodity prices. In December 2008, the National Bureau of Economic Research (NBER) declared that the United States had been in recession since December 2007. Several economists have predicted that recovery may not appear until 2011 and that the recession will be the worst since the Great Depression of the 1930s. The conditions leading up to the crisis, characterized by an exorbitant rise in asset prices and associated boom in economic demand, are considered a result of the extended period of easily available credit, inadequate regulation and oversight, or increasing inequality.

Fiscal and monetary policies have been significantly eased to stem the recession and financial risks. While this has renewed interest in Keynesian economic ideas, the recent policy consensus is for the stimulus to be withdrawn as soon as the economies recover to “chart a path to sustainable growth”.

Questions

1. What do you understand by Global Recession? How was it triggered?

2. How do you distinguish between Recession, Inflation, Deflation and Stagflation?

3. What has been the adverse impact of the present recession on the world economy and the Indian Economy?

4. How can Recession be fought? What are the immediate measures and policy changes already undertaken by India and major countries like USA, Japan and Germany?

CASE STUDY – II

India’s Economic Growth in 2009-10

Displaying unmistakable signs of a surge, the country’s economy grew by a robust 7.9 per cent in the second quarter of the current fiscal (July-September 2009), prompting experts to project a seven per cent growth for the full fiscal as against 6.5 per cent estimated earlier.

Planning Commission deputy chairman Mr. Montek Singh Ahluwalia described the happy development as being “above expectations”. “There is also scope to revise the growth projections,” Mr. Ahluwalia said, alluding to the prospect of an upward fine-tuning of the Plan panel’s earlier estimate.

The economy had registered a 6.1 per cent growth in the first quarter of this fiscal and took the cumulative expansion for the first half of the current fiscal (April-September) to seven per cent, the Central Statistical Organization (CSO) said in a statement here. The growth registered last fiscal was 6.7 per cent.

The bulk of the recovery was led by a 9.2-per cent growth in manufacturing, while mining and construction activities expanded by 9.5 per cent and 6.5 per cent, respectively. The news also enthused the markets and helped the Sensitive Index (Sensex) of the Bombay Stock Exchange (BSE) gain.

The growth rate is the fastest in 18 months, making experts wonder if it was not time to introduce an interest rate rise and cut stimulus spending in the face of mounting inflation. “This data could be a green light for the Reserve Bank of India to hike rates, and there are greater chances of this by the end of the calendar year,” said Mr. Robert Prior-Wandesforde, senior Asia economist at HSBC in Singapore.

Allaying fears about food inflation, Mr. Ahluwalia said: “I don’t believe there are serious worries on inflation, except food prices. Food prices are a matter of concern, but I don’t think conventional monetary policy will take care of that problem.” He also reiterated the government stance that stimulus would remain in place. “Personally, I don’t think the second quarter numbers suggest any change in the (fiscal) policy in the current year,” he said. However, RBI Deputy Governor, Mr. Subir Gokarn said he would not be surprised if growth slowed in the December quarter. “While it is a recovery and it seems to be gaining strength, we should not ignore the fact that it is still being driven substantially by public spending,” he said.

Mr. Rajeev Malik, economist at Macquarie in Singapore, said that the central bank would use liquidity management rather than rate rises in December and January as farming output was likely to fall. “I don’t think they are going to be swung by what agriculture has done,” he said. However, the farm sector grew less than one per cent in the second quarter of this fiscal from 2.7 per cent a year earlier, mainly due to the twin impact of drought and subsequent floods. The growth in agriculture, forestry and fishing is estimated at 0.9 per cent in the July-September quarter, the Central Statistical Organization (CSO) data said.

The finance minister, Mr. Pranab Mukherjee, is all smiles at the nation posting a robust growth. “I’m happy about the figures released by CSO. If you compare it with the earlier two quarters, it’s a very heartening progress,” he told reporters outside Parliament.

However, Mr. Mukherjee hastened to caution, “even then, I will keep my fingers crossed till the third quarter result comes in.” “The results that have come out today show that the stimulus package we provided has started paying dividends... The negative trend in exports is coming down. I’m happy. We will wait for the next quarter,” Mr. Mukherjee said.

Questions

1. What are the projections made above for India’s future growth? Why were the policy-makers optimistic about it?

2. How is the growth of the economy measured and calculated? Why it is not measured in terms of National Income or Net National Product?

3. What are the reasons for a very low growth in the Agricultural Sector? What was the future prospect for Indian Agriculture?