Articles from General Knowledge Today

Sensitive Items
2011-07-20 07:07:43 Suresh Soni

Question: A recent release in a Financial Newspaper said that during the period of AprilFebruary 2011 total import of sensitive items has shown an increase of 9.3%. What are these sensitive items?

1. Sensitive items is a mixed bag of commodities which include the Arms and
Explosives, Petroleum and other such products 2. Sensitive items is a mixed bag of commodities which include the Drugs and Pharmaceuticals required for critical diseases 3. Sensitive items is a mixed bag of commodities which are essential and are price sensitive and affect the rate of Inflation. 4. Sensitive items is a mixed bag of commodities which the Government has banned for import but has allowed limited imports. Answer of this question is C

A press release from PIB says that: Total import of sensitive items for the period April-February 2011 has been Rs.65596 crores as compared to Rs.60011 crores during the corresponding period of last year thereby showing an increase of 9.3%. The gross import of all commodities during same period of current year was Rs.1392178 crores as compared to Rs 1228944 crores during the same period of last year. Thus import of sensitive items constitutes 4.9% and 4.7% of the gross imports during last year and current year respectively. Kindly note that import of sensitive items constitutes around 4.9% of the gross imports. The sensitive items include: Milk & Milk Products Fruits & Vegetables Pulses Poultry Tea & Coffee Spices Food Grains Edible Oils Alcholic Beverages Rubber Cotton & Silk

Marble & Granite Automobiles Parts & accessories of motor vehicles Product of SSI such as Umbrella, locks, toys, writing instruments, tiles, glassware, etc. Others(Bamboos,cocoa,copra& sugar) Here please note Edible Oils have the maximum fraction of imports as a ratio of the sensitive items.

Concept of Export Quota and Deadweight Loss

2011-07-20 07:07:16 Suresh Soni

In a meeting with President of Maldives Mr. Mohamed Nasheed, India's Union Minister of Commerce and Industry Anand Sharma detailed the new long-term concessional credit scheme for project exports launched by the Government of India and assured to encourage major Indian companies to participate in infrastructure building in Maldives. The president of host Country thanks India for all the assistance and thanks for recent release of export quota for the supply of essential commodities to Maldives.

The question is -what is Export Quota and how does it help? It's worth note that both export quota and import quota are for the restrain of trade . The export quota means "you can not export more than what has been fixed". It restricts the quantity of the goods which can be exported within a set period of time. The restriction can be imposed voluntarily, and in this condition it works like VER (Voluntary Export Restraint). The restraint can also be imposed on behest of other country. The basic objective of Export quota is to protect shortages of essential commodities such as foodstuffs or raw materials. If we talk in the language of Economy, we can say that when export quota is imposed the domestic Producer Surplus of the country will increase because - fewer commodities are exported in comparison to no quota. The export quota is also linked to other interesting phenomenon called "Dead Weight Loss". This is important concept and we need to know more about it: we take an example:

Right now there is high season of Mangoes in almost all parts of India. We consider that a Mango costs us Rs. 10. Now, if Mangoes are distributed free somewhere by some generous seller, we can assume that everybody would flock around that

bighearted and the demand of Mangoes would be the highest possible demand. But if the situation becomes exactly opposite and now the Mangoes are sold in Rs. 250 for each piece, we can assume that the demand would be zero. Now we assume that I am an ardent lover of mangoes and would like to buy it anyhow. I can pay Rs. 50 for each mango. In a market, where there are numerous sellers and numerous buyers (perfect competition), the sellers would sell the Mango @Rs. 10 but will not sell to those who can not pay Rs. 10. But if there is a monopolistic seller in the market, he can charge Rs. 40, 50, 60 or whatever which suits his marginal benefit. If he wants to sell it @Rs. 50, I can get a Mango, otherwise not, because ` 50 suits my pocket and I think that the marginal benefit of purchasing a mango @Rs. 50 is more than its cost, because I have a craving for mangoes. But by doing so, that seller is missing all those who can buy the mango for less than Rs. 50. This was this seller's forgone benefit and is called "Dead Weight Loss". There is another side of this coin, but before that we come back to our question first: When export is restrained, the less goods are exported and the "profit foregone" because of this restraint is causing a Deadweight loss. Isn't it? This means that both the statements in the given question are incorrect. Let's correct them: A country imposes an export quota for an essential commodity then considers the following consequences: Domestic Producer Surplus will increase Deadweight loss will be caused / created.

Now let's look at other side of the coin: If you are purchasing something for a higher cost than its real cost, this means that you are NOT using your resources efficiently. So, you are also causing a "deadweight loss". This means that "Dead Weight loss" is NOT only caused from the seller's side, but also is caused from the buyer's side. Here, an important role is played by taxation. We suppose Mango is sold @Rs. 10 in the market and Banana is also sold @Rs. 10. I love both but would prefer to buy Mangoes. All of a sudden, the Government decides to place a tax of Rs. 5 on each piece of Mango sold in the market, but keeps Banana tax free. This means that now, Mango will cost Rs. 15 and Banana will cost Rs. 10. So I will shift to Banana. Of course the demand of Banana would increase, but the burden of Rs. 5 tax on Mango will

definitely cause a loss of utility to eat fruits, because now I have been forced to buy Banana. Interestingly, the government's Tax revenue from my side in this case would also be zero. Thus, here we see, that "Increased taxation also causes deadweight loss". So we have a conclusion: Imposing Tax causes Deadweight loss.

Financial Stability Development Council (FSDC)

2010-11-28 06:11:00 Suresh Soni

On the lines of the Financial Stability Oversight Council (FSOC) of United States, the Government of India in its Budget of 2010-11 had announced that a Financial Stability Development Council (FSDC) will be established in the country with explicit intention of strengthening and institutionalizing the mechanism for maintaining financial stability and enhancing inter-regulatory coordination. Chairman & Members of the FSDC: The Chairman of the Council is the Finance Minister of India and its members include the heads of the financial sector regulatory authorities, Finance Secretary and/or Secretary, Department of Economic Affairs (DEA), Secretary, Department of Financial Services, and the Chief Economic Adviser. Objectives of FSDC: To deal with the issues that related to Financial stability Financial sector development Inter-regulatory coordination Financial literacy Financial inclusion Macro prudential supervision of the economy including the functioning of large financial conglomerates Coordinating India's international interface with financial sector bodies such as the Financial Action Task Force (FATF) and Financial Stability Board (FSB). Does FSDC Curb the autonomy of Regulators? The FSDC has not been established for curbing the autonomy of regulators. Instead this Council would monitor macro prudential supervision of the economy, including the functioning of large financial conglomerates. It will address inter-regulatory coordination issues and thus spur financial sector development. It will also focus on financial literacy and financial inclusion. Sub-Committee of FSDC: A sub-committee of FSDC has also been set up under the chairmanship of Governor RBI. Under the aegis of FSDC, two empowered Technical Groups have

been formed viz. Technical Group on Financial Literacy and Financial Inclusion and Inter-Regulatory Technical Group.