Nobel economists 2011


Nobel Prize

Every year since 1901 the Nobel Prize has been awarded for achievements in physics, chemistry, physiology or medicine, literature and for peace. It is an international award administered by the Nobel Foundation in Stockholm, Sweden. In 1968, Sveriges Riksbank established The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, founder of the Nobel Prize.

Thomas J. Sargent and Christopher A.Sims are noble prize winners of 2011 in the field of economics.

Both nobel prize winners are americans and are 68 years old.They worked separately and through their research work devised tools to analyze how growth and inflation are affected by interest rate and taxes.Their research work which was done in 1980s and 1970s has been of alot of help to bankers and policy makers.Sargent is a professor at NYU and Sims is a professor at Pricneton, they got the honour for their “emperical research on cause and effect in macroeconomy”

                            Christopher A.Sims

Thomas J.Sargent

RISING OIL PRICES—IT`s IMPACT AND WAYS TO CONTROL


Rising oil prices was always the concern of middle class throughout the world who drive the economy fast than any other class people. Surge in oil prices faster than the income levels earned by middle class people has made governments tumble. In view of every raising demand in spite its heavy shortage in supply the rise in oil prices gained momentum to support the economic system from being collapsed. Though oil producing countries like U.S, U.K, Russia and Middle East countries are concerned about the increase in supply, due to shortage of resources in countries like U.S and U.K made the world to rely on Middle East countries for its oil supply. As the availability of alternatives for oil is not much in use it posed a threat to raise severe demand for oil which upsurge the rise in oil prices. For its latest India economic growth projections, ADB has factored in an average crude price of $104 per barrel during 2011-12 and $112 per barrel for 2012-13, Mr Rana Hasan, Principal Economist in ADB’s, India Resident Mission, told reporters here on the occasion of release of ADB’s flagship annual economic publication ‘Asian Development Outlook 2011′.
The first quarter of 2011 saw prices rising further because of disruptions in oil supplies from Egypt and Libya. Though the Organization of Petroleum Exporting Countries has increased production, inflationary fears over crude oil prices are getting stronger. The news of Osama bin Laden’s death had depressed oil prices temporarily. But they have begun rising again.

In its latest assessment of the world economic outlook, the International Monetary Fund (IMF) projects global oil prices to increase by more than 35 percent in 2011. The prediction may come good, given the current trends. From about $70 a barrel this time last year, oil prices increased to $125 a barrel at the end of April 2011. They dropped below $115 a barrel following bin Laden’s death. But this will probably be a short-lived trend because fears of greater turbulence in West Asia will lead to increase in prices
Impact of rising oil prices
The current rate of price increase has serious implications for China and India. It can recreate the scenario of 2008, when crude oil prices reached almost $150 a barrel, a few months before the collapse of Lehmann Brothers and the outbreak of the global financial crisis. With economic activity and GDP growth in both countries having recovered to pre-crisis levels, high oil prices pose major risks to their growth.
As two of the world’s leading oil consumers and crude oil importers, demand for oil in both countries is relatively price-inelastic. Given their growth trajectories, neither country will experience decline in demand for oil in spite of high prices. And as they keep buying oil at high prices, both will feel the impact on their balance of payments, inflation and GDP growth. Higher oil imports will reduce their trade surplus and bring down their current account balances.
China’s large trade surplus will help in absorbing a major part of high import costs and can marginally moderate the current account balance. For India, however, the scenario is more worrying. Its current account deficit of 3.2 percent of GDP can worsen because of high oil imports and a deteriorating trade balance.
India and China both will be worrying about the effect of oil prices on domestic inflation, too. High crude prices will lead to higher prices of gasoline, liquid petroleum gas, diesel and aviation fuel and result in higher producer and consumer prices in all domestic energy-intensive activities.
Inflation is already high in both countries. Further rise in domestic prices means more hardships for low and middle-income groups. India has already raised interest rates for tackling prices. High interest rates, however, can discourage investment and depress GDP growth. According to the IMF, if crude oil prices reach $150 a barrel, they may reduce GDP growth for 2011 by 0.50-0.75 percentage point in China and by about 0.25 percentage point in India.
Both countries are helpless when it comes to oil prices because they can hardly influence them. Lack of adequate oil supplies in the Asia-Pacific region ensures that China and India continue to depend on oil from North Africa and the Middle East. This dependence increases their vulnerability to supply disruptions in the Persian Gulf and the resultant volatility in oil prices.
A rise in global oil prices by $ 10 per barrel would reduce India’s economic growth by 0.2 percentage points and also affect the country’s current account deficit, Goldman Sach said.”A VAR (value-at-risk) analysis suggests that a $ 10 increase in oil would reduce GDP growth by 0.2 percentage point,” Goldman Sachs said in its latest edition of ‘Asia Economics Analyst’. India imports three quarters of its annual oil and gas requirements, with the Middle East and North Africa regions contributing to a substantial chunk of it. India’s import bills amount to $ 18 billion.
How to deal with rising oil prices
A possible option for both countries to reduce this dependency is to shift to other suppliers of oil and energy. Russia may be one such supplier. Europe is trying to reduce its reliance on the Middle East by procuring more oil from Russia. For China and India, too, Russia can be a feasible alternative, more so because China, India and Russia are members of the BRICS club and are already cooperating with each other on several issues.
A second course of action for minimizing the harms caused by high oil prices is to coordinate spot purchases of crude oil from the international market. In recent years, China and India both have been responsible for driving up prices in the global oil market because of their large demands. Both countries had discussed the possibility of coordinating spot purchases of crude oil during Premier Wen Jiabao’s visit to India in December 2010. So effective coordination of oil purchase will help both in avoiding unexpected volatility in prices.
A third option is to enter into more forward contracts with suppliers for future purchase of crude oil at previously agreed prices. But given the current high prices of oil, delivery prices in such contracts may also be high. This is where the negotiating skills of oil companies from both countries will be tested as they try to secure favourable forward delivery contracts.
Usage of alternative resources like solar energy, hydrogen energy, electrical energy, geothermal energy, bio-fuel stands as close-fitting alternative for promising sustainable availability of oil resources curbing the ever rising prices of oil.
Production of fuel efficient automobiles also favours a lot on saving grounds of highly costly non-renewable resource like oil and consumption from the common public should also be decreased, so that we ensure sufficient availability of oil for our future generations.

Role of OPEC
OPEC should regulate the rising oil prices by following methods:
• Regulation of rationing of quota of oil for various countries.
• Keeping the oil prices away from speculations of other influencing factors.
• Should control market volatility.
• Establish proper market conditions to meet the demand.
• Strive for increasing the supply of oil.
It’s the collective responsibility of the government and regulatory, production authorities, common public to ensure this precious non-renewable resource availability for future generation at the same time ensuring to meet the present requirements efficiently helps in the sustainable development.

Articles invited for Ecosynthesis



Ecosynthesis- Magazine of EconIMI

The yearly magazine will be soon launched this year.The theme that we have decided is Global Financial Instability which has been affecting the whole world from a last few years.

Theme

Financial instability occurs when shocks to the financial system interfere with information flows so that the financial system can no longer do its job of channeling funds to those with productive investment opportunities. Indeed, if the financial instability is severe enough and is spread across the globe, it can lead to almost a complete breakdown in the functioning of financial markets across the entire world, a

situation which is then classified as a global financial crisis. Indeed this global financial crisis can be attributed as the reason for the world wide recession.

The global financial instability could be felt when the global economic crisis begun in July 2007 with the credit crunch, when a loss of confidence by US investors in the value of sub-prime mortgages caused a liquidity crisis and had a ripple effect around the world.

Recovery from the global recession was underway, when S&P lowered US credit rating to one notch below AAA to AA+. Adding to the difficulties is the concern that the downgrade is only one of the many issues roiling global markets. The European debt crisis is spreading, with Italy and Spain coming under the gun after Greece, apart from the fact that the current   U.S. economy is weaker than many investors had thought and all this have led to fears of another recession as all the economies of the world including India dependent heavily on the world superpower i.e. US . The major concern here is “Are the developing countries still developed”?

 

Another serious concern affecting the world economy is economic disparity or global surplus. At the heart of global imbalances is a mismatch between saving and investment. Deficit countries do not save enough relative to their investments, and surplus countries do not invest enough given their high savings. Thus capital will flow to the country that is most profitable as investors want to invest their capital in the country that would give them maximum return. Thus the key question that arises is “Where to invest?”

Amidst the above explanation, it is clear that Innovation could be one of the major factors that could lead to a sustainable economy. Innovation is one of the keys to survival, adaptability, and responsiveness in times of change and uncertainty. Innovation matters across the economic spectrum, to the for-profit sector, to nonprofits, for academic and educational institutions at all levels, and for government. Thus we can safely say that Innovation is essential to the future economic prosperity and quality of life.

So in the light of above scenario we have chosen theme for our magazine as prevailing ‘Global Financial Instability’ which will cover articles on ‘are developed countries still developed ?’, ‘global surplus’, ‘where to invest ?’ and ‘sustainability through innovation’

Topics

For the article writing competition topics are as discussed above:

  1. Global financial instability
  2. Global surplus
  3. Are developed countries still developed?
  4. Sustainability through innovation

Points to be noted

  • Please maintain a word limit of 1500-2000 words.
  • Articles should be completely original and devoid of plagiarism. Mention the references at the end of the article.
  • Article can be written by an individual or in a team of two.
  • Please write in font size of 12, Times New Roman and 1 line spacing
  • Mention your Institute name, Year and course at the end of document.
  • Save you word document as Name_Collegename.doc or Name_College name.docx
  • Send your articles at econimi.soc@gmail.com with subject as

‘Ecosynthesis4_Article_College name_ your name’

  • Last date for sending articles is 6th October 2011, 11:59 p.m.

What you get?

  • Top 3 articles will be published in the magazine and on our blog https://econimi.wordpress.com/
  • Best article will get a prize money of Rs 3000/-
  • All the published articles will get a certificate of recognition.
  • Best article shall get a special mention in the magazine

so what are you waiting for????grab your pen and write down your thoughts to us.

ECONOMICS: In a lighter vein!!



An economist is a man who states the obvious in terms of the incomprehensible: Alfred.A Knopf

Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair: Sam Ewing

An economist is an expert who will know tomorrow why the things he predicted  yesterday didn’t happen today: Laurence J peter

For every action, there is an equal and opposite government program. : Anonymous

Q.: Why did God create economists? A: In order to make weather forecasters

There’s no trick to being a humorist when you have the whole government working for you. : Will Rogers

Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it. : Ronald Reagan

Tete-e`-tete: Economics Style! : EconIMI’s online online dialogue writing competition during Kritva 2010.



Winning Team: Speakonomics from SPJIMR (Prasad Vaidya and Piyush Guliani)

Life, as we know it, is a balance sheet. Full of assets of individual self and liabilities for the society, most of which are firmly parked in the balance sheet of the mind, life breathes and lives economics with an authority only Adam Smith can wield! Together with the emotional investment and psychological instruments, a more skewed case of economic dynamism is hard to find!

So here goes the story of a SEC A household in the economic hub of India, Mumbai. The location is a home in the vibrant area of very high market potential value, Andheri and the characters in the story are:

 

Housewife: Maya

 

Husband: Moneysh

[Time: 7 p.m. Enter Maya]

Maya: Hark! My life-long MOU with my husband seems to be under fire of an exponential Indifference Curve! What seemed to be a perfectly synergized JV of two equal partners in the beginning, my marriage has been giving only diminishing marginal returns day by day. Really, the Incremental Capital Output Ratio of my emotional investment in this alliance is on a decline.

[Enter Moneysh]

 

Moneysh: Maya, here I come! Your sublime sight brings to me the same kind of exuberance as monsoons do to Montek Singh Ahluwalia and his team.

Maya: Huh! You are always late, just like the Indian IIP numbers.

Moneysh: Sorry Maya. My bureaucratic boss and overstretched infrastructure have proved to be bottlenecks in our family growth story.

Maya: Leave it! You are just as unreliable as a hot infusion of funds by FIIs in Indian Equity. All you do is cook up numbers in account books in the office and false stories at home. Your credit worthiness rating is worse than a junk bond!

Moneysh: Why do you always overheat with rage? This kind of behavior would only lead to sterilization of domestic peace. Let us not get into a debate again. Our arguments will continue like the complex deadlock at the WTO summits.

Where are our children, Yen and Yuan?

Maya: Now you will remember them! In today’s age, when economies are opening up and Indian companies are going abroad, what is stopping my children to go out and play base-ball?

Moneysh: Opening up of economies comes with its own troubles. The age of protectionism has come back. Call them home! After 7 p.m., it should be a closed door policy at our residence.

Maya: Your thinking is still very orthodox and conservative. Prepare to embrace the idea of a global village. Today, we could not go for shopping only because you were late!

Moneysh: Shopping!! A fad coming from the western developed economies of the world! You know that our current account balance is in the red and all our transactions are running on capital account at present. Do you want to put ourselves in the subprime bracket of borrowers by straining our scarce resources further?

Maya: Oh no! Depressing sentiments always give sad results, as evident from everyday SENSEX. It is because of people like you that recessionary attitudes are set in the society.

Moneysh: What do you know about the imbalance of payments that I have to face at the end of every month? I have to take strict action for our domestic fiscal policy and put stringent regulations on your inappropriate expenses.

Maya: Do not tell me about your screwed up financials. We already have a large enough cash reserve ratio that goes into the fixed deposit every month. We also keep enough funds reserved for the priority sectors of education, food and healthcare. It is because of your ‘other expenses’ that the balance of payment if not balancing.

Moneysh: My ‘other expenses’? Do I now need to give attach explanatory notes for every extraneous expense that happens?

Maya: Did I say so? I wonder why our increased purchasing power is not reflecting in the improved standard of life at home.

Moneysh: Do not worry Maya. But there are many invisibles in our family expenses that constrain our resources.

Maya: Hmm true. So I have to delay my plans of buying jewellery further just like the delay in introduction of GST.

Moneysh: Let it be so. Investing in our children will only help them drive their personal and economic growth in future. Look at the demographic dividend that they will be giving to the society. Yen and Yuan will definitely script India growth story 2020!

Maya & Moneysh [Together]:

Yes!

Economy is the engine

That drives the family growth story,

Many factors playing a role

Just one of them being Money!

 

 

 

 

India’s information revolution: A journey towards inclusion and integration


India’s ICT (Information, Communications and Technology) revolution and its attendant benefits have been much talked about. The first phase was driven by home grown skilled engineers developing code and applications for foreign clients who found it cheaper to ‘outsource’ such labour to Indian companies. The unprecedented opportunity that was created soon acquired an unstoppable momentum that led to the birth of many other firms, initially clustered in Bangalore, and later spreading to other inexpensive locations across the country. Alongside, another massive revolution was taking place. Deregulation of the telecommunications market in the mid 1990s and the subsequent technological progress and persistent innovation made it possible to deploy wireless networks at very low costs. The success has been characterized by increasing tele-density, declining prices, and elimination of waiting lists. In 1994, fewer than 1 in 100 Indians owned a phone. A little more than 15 years on, tele-density has increased to about 60% and subscriber numbers are growing at a rate of about 15 million per month. Voice calls in India are amongst the cheapest in the world

The impact of both these developments has been tremendous. Software and IT are the largest contributors to India’s exports; NASSCOM expects software services exports to reach USD 47 billion in fiscal 2011.  In addition, the IT industry accounts for 5.8% of India’s GDP generating  2.23 million jobs directly and an additional 8 million through spillover effects on other industries. Besides these estimable quantitative impacts, India’s IT prowess has been recognized globally.  It has also been instrumental in instilling in India and Indians a new found confidence that was hitherto missing. On the other hand, increased mobile connectivity has been responsible for catalyzing growth rates across Indian States. Academic research has shown that Indian states with higher mobile penetration can be expected to grow faster, and by 1.2% points for every 10% increase in the penetration rate.  Furthermore, this positive effect becomes pronounced when the level of mobile penetration exceeds a critical mass of about 25%.  Mobiles currently provide more than 600 million points of connectivity in India, through which information flows.  Citizens with access to telecommunications can tap into the economic growth opportunities much more easily than those who are unconnected.


While both these developments were significant, they largely occurred independently of each other, thus precluding the benefits that could accrue due to greater integration between IT and telecoms. As India enters its second phase of ICT growth it seems that this may be about to change. This phase will be led by high speed data, applications, processes and new infrastructure and therefore demands the coming together of the two industries. The trigger to the second phase of growth is the envisaged Public Information Infrastructure (PII) initiative, which the central government is about to begin. It combines access, shared or dedicated with applications to deliver public services on a scale that no country in the world has ever done or even imagined. Although ambitious, if implemented right, it has the potential to revolutionize information and governance infrastructures in India permanently.

Central to the PII is to establish four national data centers and eventually provide high speed data connectivity to the 250,000 panchayats and urban local bodies, which form the backbone of local governance. This will have far reaching impact not only on governance and public delivery systems but also on competitiveness. The key is to create a high speed, meshed broadband network at the center, state, district, block and panchayat levels that is open, secure and interoperable. The PII will create access, connectivity and systems to integrate – geographical and sectoral boundaries and applications to revolutionize how we access and process information. If all the multiple layers – broadband platform, UID platform, GIS platform, security platform and payment platform – are combined, the opportunities are limitless. The PII aims to create connectivity among the various government schemes, departments and sectors. For example, there will be a server for UID, a server for income tax, a separate server for NREGA, for food distribution, for passports and even driver’s license. So, while all of these vertical silos will remain the plan is to link them. Each state will have its own servers. The federal government will have four or five major locations for servers and each would be linked with certain security.  Once the infrastructure is in place, the nature and kind of public services that can be delivered on these pipes will only expand to include education, health, and other citizen services obviating expensive and periodic visits to the babus.

According to Mr. Sam Pitroda who is spearheading the PII initiative, at the core of the PII is the greater access to information that it will enable. In the same way that access to telecommunications became an important catalyst to realizing productivity and efficiency improvements, access to information has the potential to change the manner in which public services are delivered thereby making it potentially possible for the benefits of economic growth to be shared. Historically, in India information has always been controlled by few, be it the Brahmins, the British, or more recently the Bureaucrats. Michael Porter, on a visit to India in the 1990s predictably concluded after extensive research, that the scarcest commodity in India was information. So, the marginalized actually have never had the opportunity to grasp and use information effectively. But for that to occur effectively, telecom and IT i.e. access and applications must come together to offer meaningful services at affordable prices and with universal coverage. The aim of the PII is just that.

Such ubiquitous Internet/Broadband infrastructure will have a huge transformative impact. We know that broadband is a key driver of economic growth and the competitiveness of nations (See OECD (2008) Broadband and the Economy). Recent research by the World Bank finds that for every 10-percentage-point increase in the penetration of broadband services, developing countries can see an increase in economic growth of 1.3 percentage points. The impact of broadband in India should be potentially higher since it will overcome the constraint posed by the weak infrastructure. Combine with this the public services that could be delivered with the PII and we have an unprecedented opportunity for the benefits of economic growth to be shared. Let’s hope that this project does not disappoint.

 This article is written by Rajat Kathuria who is a professor of Managerial Economics at IMI New Delhi.