Finance, Investment and Crisis Understanding Cell - Fiscul, LSR

FISCUL THURSDAY POST #9

1991 VS. 2021: THE SITUATION OF INDIAN ECONOMY

It has been nearly 30 years since the day India began its journey in the direction of globalisation with the launch of New Economic Policy (NEP), 1991. This policy brought a major structural change in the Indian Economy to solve the economic crisis (involving huge current account deficits and depleting foreign exchange reserves) which the country was facing then. The LPG policy not only helped the country in overcoming the economic crisis in less than two years but also integrated the Indian economy with the global economy (which improved the macroeconomic parameters rapidly).
Saying that the current state of our economy is similar to the time just before the NEP, 1991 was launched would be an understatement. But, many believe that the Indian economy will be seeing a V-shaped economic recovery, just like it did three decades back, with required reforms and policy changes.
However, before jumping to this conclusion, it is important to realize that the economic slowdown that India is facing currently is very different from what it was witnessing before LPG.
In 1991, the cause of the economic crisis was endogenous i.e. the cause was present within the economic system whereas the cause of the current crisis is the pandemic which is exogenous to the economic structure. Moreover, the economic slowdown faced in the late ’80s/ early ’90s was specific to the Indian economy but the current economic contraction is prevalent globally (though the degrees might be different in different economies).
These differences make policy responses very challenging today. In the former case, the crisis came to an end by adopting India-specific economic policies, as other nations were having a relatively stable economic environment. In current circumstances, there is no headroom to accommodate the consequences of any policy changes as the global economy at large is suffering and is in dire straits. According to the chief scientist of WHO (Ms. Soumya Swaminathan), the next 6 to 18 months will be crucial in determining the economic and overall condition of India which will thereby determine the future course of action. Hence, it is too early to introduce any fundamental policy change.
Therefore, all crises cannot be converted into opportunities for reforms and development as it is subjective to the key factors of the crises. In addition to this, the leaders, policymakers and implementers need to have a shared vision and coordination to bring reforms for recovery.

Warm Regards
Mansi Chaudhry
FISCUL Thursday Post Writer 2021

FISCUL THURSDAY POST #8
According to Global Findex Database (2018) by World Bank, 19 crore Indians do not have a bank account. Moreover, according to the same report in 2017, 56% Indian women do not have bank accounts. Despite substantial efforts and a vast network of rural banks, the rural poor still have very little access to formal finance, and informal lending remains strong. As we all know, the oppression and exploitation faced by the poor and marginalised sections at the hands of deceitful middlemen is a harsh reality of rural India in particular.
However, over the past decade, new microfinance approaches designed to deliver finance to the poor have emerged and some have shown promise. Microfinance institutions, popularly known as MFI’s, provide financial services to small businesses as well as entrepreneurs and are based on two key systems:
 Relationship based banking for individual entrepreneurs and small businesses which is a shift from the conventional brick and mortar banking.
 Group based banking and financing which enables a group of entrepreneurs to collectively apply for loans and avail other financial services. For example, many Self Help Groups have been able to grow and flourish by pooling their resources to get cheap credit.

According to PwC’s Microfinance Lender’s Survey 2019, 53% of executives of financial institutions believe that access to affordable funding will enable them to move forward to a sustainable business model and growth. Moreover, government schemes and financial institutions in the field of microfinance have been able to enhance access to microcredit to nearly 67% of Indian population in rural areas. So clearly, financial access and inclusion through microfinance has the potential to blur the harsh boundaries between haves and have nots. It is the key to faster economic growth and development which can not only help India reach the goal of $5 trillion economy but also can help the country to alleviate roadblocks like poverty and unemployment.

Warm regards
Mansi Chaudhry
FISCUL Thursday Post Writer 2021

FISCUL THURSDAY POST #7

HOW WAS THE ECONOMIC SLUMP IN VENEZUELA DIFFERENT FROM THAT OF GREECE?

Venezuela, a Latin American country, witnessed socioeconomic and political crisis, which began during the last days of Hugo Chavez’s presidency and continued into the presidency of Nicolas Maduro. In the late 90’s, the country managed to raise huge amount of income with its large oil reserves. As a result, Chavez committed the oil income to various projects called Misiones which aimed to tackle poverty and inequality. However, when the oil prices crashed in the early 2000’s, the government continued to spend the reduced income on the Misiones rather than infusing it in the infrastructure of the economy which had an adverse impact.
Under Maduro, the situation worsened as the country had fallen a prey to inflation-devaluation spiral. In other words, rising prices in Venezuela domestically undermined confidence in the economy and currency, due to which rate of inflation sky rocketed and further led to a situation of hyperinflation. It is also believed that political instability, price controls and other interventions prevailing in the country were major contributors to its condition.
On the other hand, Greece, a European country, faced a debt crisis as it owed exorbitant amount of sovereign debt to the European Union between 2008 and 2018.One of the major reason for this financial burden was the investment in the development and maintenance of the infrastructure built for Olympic Games 2004. The operating and maintenance cost post the games aggravated the burden. This crisis became prominent in the global financial markets when in October 2009, Greece announced that it had been understating its deficit figures and even said that it might default on its debt, thereby threatening the viability of the Eurozone itself and raising alarms about its financial soundness. By the spring of 2010, Greece was veering towards bankruptcy.
To avert calamity, various international authorities and private investors loaned nearly 320 billion euros. It was the biggest financial rescue of a bankrupt country in history. But, the bailouts came with stringent conditions. Lenders imposed harsh austerity terms, requiring deep budget cuts and steep tax increases to strengthen the Greek financial structures.
Though the two nations faced severe slump in their financial systems, the cause of their crisis is different from each other. Venezuela, an economy dependent on oil for generating revenue, faced a slump as it continued to finance its welfare programmes (even after their oil income fell tremendously) instead of investing in productive projects to revive the economy. In contrast, Greece, a nation which is primarily based on the service sector, witnessed a debt crisis due to excess emphasis on infrastructural development and its maintenance rather than focussing on its economy at large. Hence, this comparative analysis gives a common interpretation. If a country focusses only on one aspect of its economy and does not develop better alternatives for generating income, then it can lead its way to a deep economic and financial downfall.


GLOSSARY
• Misiones refers to a series of social programs implemented under the administration of former Venezuelan president Hugo Chávez
• Sovereign debt refers to the amount of money that a country's government has borrowed, typically issued as bonds denominated in a reserve currency.
• Hyperinflation refers to rapid and out of control rise in general price level, typically measuring more than 50% per month.

Warm regards
Mansi Chaudhry
FISCUL Thursday Post Writer 2021

FISCUL THURSDAY POST #6

PANIC BUYING
It has been more than a year since our lives turned upside down by the outbreak of the coronavirus pandemic. The world saw the most bizarre occurrences in this period (almost 13 months). One of the unusual happenings which took place at the beginning of the pandemic was panic buying.
This refers to a peculiar phenomenon involving a rapid spike in volume of purchase which leads to a rise in the price of the good. Panic buying was observed across many nations, including India, when an immediate lockdown was imposed after WHO declared novel coronavirus (Covid-19) as a pandemic. As these lockdowns were announced suddenly without much information dissemination by governments around the globe, there was a lack of awareness among people which led to the fear and apprehension that the supply of essential commodities and food would be restricted (due to a curfew-like situation). In India, the purchase of fast-moving consumer goods grew by 79% in the last week of March, when the first nationwide lockdown was declared and then it further increased manifold by 239% due to the extension of the lockdown. Dwindling stocks of necessary goods resulted in a sudden spike in prices. For example, the prices of N95 masks went up to Rs. 500 on online grocery websites during the last week of March and the first week of April.
In general, panic buying takes place due to many other reasons as well, each of which can have different impacts on an economy and its monetary policy support. High volume buying may be driven by demand for a new product that consumers are overwhelmingly interested in. This type of high demand can be good for the economy while also leading to price inflation. Adversely, in some economic situations, panic buying may be driven by an extremely low supply which can drive up the price and also cause a shift towards new alternatives. Some panic buying situations may also only be for the short term such as high demand for goods related to weather-related conditions which can have their economic implications.
Panic buying may or may not have an impact in the long run on an economy, depending on the duration of this phenomenon, but it creates inefficiency and disequilibrium in the short run. An economy can avoid this situation by spreading adequate and authentic information in the market and by curbing the spread of rumors.


Warm Regards
Mansi Chaudhry
FISCUL Thursday Post Writer 2021

Thursday Post

BRICK-AND-MORTAR BANKING
VS.
ONLINE BANKING

Undoubtedly, in today’s virtual age, most of the banks have expanded their horizons by providing various banking services like bill payments, transferring remittances etc. online. One can access his/her account easily with a click of a button from anywhere around the globe without any delay and hassle. Mobile banking has further amplified these benefits.

However, despite the ease, security and efficiency provided by internet banking, many people (like our elders) still find the traditional brick-and-mortar banking system to be much more reliable as it involves face-to-face human interaction and long-term relationship with local banks.
The ones who prefer the conventional physical structure often argue that having deep-rooted relations and trust with a certain branch can help one secure better loans and seek better customer service which is not the case with virtual banking. But, this system has many loopholes due to human involvement and interaction which leads to many malpractices like corruption, scams (remember Harshad Mehta!) etc.
On the contrary, digitalisation of banking has definitely made every transaction transparent thereby eliminating the drawbacks of brick-and-mortar banking. The services can reach a wider prospect base at a lesser cost, thus boosting the prospects of financial inclusion. On the other hand, it reduces the operational cost for banks as there are no (or less) physical overheads for maintaining a branch network. Moreover, considering the current circumstances due to the outbreak of the coronavirus pandemic, digital banking has become a necessity rather than just an option or luxury.
Hence, in this dynamic world, even if one prefers to stick to the old regime and practices, one still has to adopt the latest systems to some extent at the same time. Programs like Digital India, Jan-Adhaar-Mobile (JAM) etc. reaffirm this statement. Even though we cannot completely do away with the existing system of physical banking due to its importance and benefits, we can surely adapt ourselves to the new technologies and innovations in the banking sector.

For reading more about this, you can refer to the links given below:
https://thecollegeinvestor.com/32893/traditional-banking-vs-online/
https://finshots.in/archive/why-a-cashless-economy-might-be-better/

Warm Regards
Mansi Chaudhry
Thursday Post Writer 2021

Traditional Brick-and-Mortar Banking vs. Online Banking: What’s Best? Should you do online banking? Should you bank locally at a brick-and-mortar location? Explore your options and discover what's best for you!

Thursday Post

Quantitative Easing in UK

Quantitative easing has had a global journey. Originally launched in Japan during the early 2000s and adopted in the US and Europe following the 2008 financial crisis, the coronavirus crisis has helped encourage its spread to emerging markets.

https://www.weforum.org/agenda/2014/11/a-beginners-guide-to-quantitative-easing/ gives a detailed explanation for Quantitative Easing , with a focus on big markets.

Usually the first thing for a country' Central Bank to do in a recession or slowing down of economy is to cut interest rates.
Low interest rates has rhe following advantages
• Borrowing and investment cheaper
• Saving money in a cash bank account less fruitful.
So the intention of low interest rates is to flush more cash into the economy, quickly. But sometimes it gets to practically 0% and the central bank still thinks the economy needs a bigger boost.
In England due to coronavirus economic times are hard, people are worrying about losing their jobs, and hence growing wary about spending money. Businesses see their customers staying away. They start losing money, and may have to lay off workers.

Normally, the Bank of England would try to make things better by cutting interest rates.

But interest rates are currently just above zero - there's no scope for another big cut.

That's why the Bank does quantitative easing (QE), an alternative way to encourage spending and investment.

Following procedure is taken place during a QE programme,
1. Bank of England is in charge of the amount of UK's money in circulation in the economy.

Under QE it prints new money electronically with no new physical bank notes created.

2. The Bank spends most of this money buying government bonds ( type of investment where one lends money to the government, in return for an interest paid sometime in the future)

3. Buying billions of pounds' worth of bonds pushes the price up( since price increases with demand)

4. Most of the loan interest rates offered by banks to businesses and individuals are affected by the price of government bonds.
Thus as government bond prices go up, the interest rates on those loans should go down - making it easier for people to borrow and spend money.

5. Also , many investors buy government bonds in times of crisis, as a safe place to put their money, because the UK government has never failed to repay a bond.
But with price of government vond increasing. this safety becomes expensive , thereby pushing investors to buy shares or lend money to bussiness - helping un boosting up of economy.

The first QE programme in the UK was launched in 2009 when the financial crisis was threatening the economy, unemployment was rising and the stock markets were in freefall.

QE does have negative effect : Prices kf shares and property also increase along with bonds. This often benefits wealthier people , who already own this , whereas younger people found it harder to buy their first homes and build up savings.

https://www.bbc.com/news/business-15198789?intlink_from_url=https://www.bbc.com/news/business/economy&link_location=live-reporting-story gives a detailed analysis of the same.

Warm Regards
Himal Bhat
Thursday Post Writer 2019-20

A beginner’s guide to quantitative easing The World Economic Forum is an independent international organization committed to improving the state of the world by engaging business, political, academic and other leaders of society to shape global, regional and industry agendas. Incorporated as a not-for-profit foundation in 1971, and headquar...

Thursday Post

Japan enters Recession

Japan’s economy has officially entered a recession — defined as two consecutive quarters of negative economic growth, according to an economic data.
This economic data is only an early reflection of pandemic slowdown specifically January and February, and hence one should expect a worsening picture , since Japan's response intensified largerly after this period.

Two consecutive quarters of shrinking GDP confirm that the world’s 3rd largest economy fell into a recession even before Japan's Prime Minister Shinzo Abe declared a national emergency for the pandemic in April.
Analysts project a 21.5 % contraction for the quarter through June, which would be a record for official data going back to 1955.

Nearly all major indicators of economic growth have been struck , with production, exports, and consumer spending all down for the first quarter of the year.

Spending by visitors slid 42% last quarter , with the drop being a cause of concern since
spending by tourists has been a key prop to growth in recent years.

https://asiatimes.com/2020/05/japans-recession-could-be-an-absolute-monster/ talks about how Japan's condition could worsen if the pandemic increases , or a second wave occurs. In that case , the government will be forced to impose a full national lockdown.

Japan's government relied on Olympics 2020 construction to create jobs, but the US-China trade war along with an ill-timed hike in consumption taxes to 10% last October, complications it. And now the 2020 Olympics is postponed to 2021.

http://www.xinhuanet.com/english/2020-05/26/c_139089707.htm talks about how Japanese Economic Revitalization Minister Nishimura Yasutoshi emphasized on restoring domestic demand in post-virus emergency Japan for the recovery of the country's recession-hit economy.
It is expected that Japan's condition will worsen, but under such uncertain times it's hard to say.

Warm Regards
Himal Bhat
Thursday Post Writer 2019-20

Japan’s recession could be an absolute monster The most important thing to know about Japan’s latest recession is how much worse conditions may get in 2020 – and beyond. This is not the narrative coming out of Prime Minister Shinzo Abe’s govern…

Stimulus Package:-
● Rs 3 lakh crore collateral-free automatic loans, Rs 20,000 crore subordinate debt, and
revised definitions of MSMEs.Loans to have 4-year tenor with a moratorium of 12
months on principal repayment and 100% credit guarantee.
● Global tenders will be disallowed in government procurement tenders upto Rs 200crores.
● Rs 50,000 cr equity infusion for MSMEs through fund of funds with corpus of Rs 10,000crores will be set up.

Future:-
The future is uncertain. Making a favourable prediction would be mean expecting a 'Phoenix'.
The idea here is rather simple. A lifeline has been offered to companies in the hope that the
economic scenario improves. And in the event that businesses do perform a miraculousturnaround, the loan gets paid in full, the MSME sector thrives and banks can pat themselves onthe back for scripting a masterclass.

MSMEs were already struggling — in terms of declining revenues and capacity utilisation — in
the lead-up to the Covid-19 crisis. The total lockdown has raised a question mark on the
existence of many primarily because these are not firms that have too much cash to wait out the
crisis. According to a recent survey he did for “small and medium” firms in manufacturing, only
7% said they will be able to survive for more than three months with their cash in hand if their
business remains closed. A big hurdle to restarting now is the lack of labour availability.

Stay tuned to our pages for more such Covid Series

Guest Lecture - Ms. Jayati Talapatra

Greetings! 🌸

The FINANCE, INVESTMENT AND CRISIS UNDERSTANDING CELL (FISCUL), LSR is delighted to invite you to a Guest Lecture by Ms. Jayati Talapatra on "Microfinance".

Ms. Talapatra is a management professional with core expertise in Organization Development and Change Management, with years of experience across the corporate and development sectors - IT, microfinance, auto, education, telecom, ITES. She is pursuing research and teaching Business Sustainability - with an aim to enable the industries with large carbon footprint, adopt sustainable business practices.

📌 DATE - 27th February, 2020 (Thursday)

📌 VENUE - Room 103

📌 TIME - 11:45 A.M - 1.30 P.M

We hope that you give us an opportunity to host you 🌻

Love,
FISCUL
Aashima (8800655858)
Shaivya (9643446085)
Stuti (9831129824)

Greetings from Finance, Investment and Crisis Understanding Cell, Department of Economics, LSR 🌸

Love doughnuts but not economics? Well, there's something as doughnut economics! So, we have a found a perfect movie to feed your curiosity for this weird amalgamation.

🎥FISCUL as part of its FISCUL Week invites you the movie screening titled "Why its time for Doughnut Economics"🎞️

Date: 26th February, 2020
Time: Lunch
Venue: Room no. 28

Cheers,
FISCUL

Greetings from FISCUL💸

WORDS AND WORDS ALL I HAVE TO, SEVERELY MESS UP THE ECONOMY AND CREATE SEVERE REPERCUSSIONS.

The Finance, Investment and Crisis Understanding Cell presents an interactive session on WHO PULLED THE TRIGGER, WHO SHOT THE ECONOMY

When Donald Trump tweets, market falls. However, when
Anne Hathaway makes headlines Berkshire Hathaway prices go up.

Come join as we explore how certain words(and people)have triggered the economy and created unfathomable impacts.

Date- 25th February
Time- Lunch
Venue- TBA

Love ,
FISCUL

For details contact:-
Shaivya +91 9643446085
Stuti +91 98311 29824
Aashima +91 88006 55858