wat pi prep for iim sample essays

IssuesforIIMPIProcesshttp://www.essaysforIIM.com

http://www.essaysforIIM.com

'Essays for IIM' brings to you a holistic e-book on Current Essays/Notes with topics ranging from Political, Economic to Business Affairs. Some sample essays can be read on the following pages. The essays have been written and compiled after extensive analysis by our research team. For ordering the complete package visit www.essaysforIIM.com for more information or call us on 099532 45572

MakeforIndiaorMakeinIndia–Thedebatebegins!

With RBI governor Raghuram Rajan providing the strongest critique to the government’s Make in India strategy

the fire to the debate has been kindled. It is a nuanced statement made by the RBI governor and his import

can be understood clearly as below:‐

a) He has said that given the huge demand potential for India, make for India, albeit in India, may be a

better strategy.

b) Cautioned against an export‐led strategy but clarified that through his ‘Make for India’ he is not

advocating ‘export pessimism’.

a. A strategy for export‐led growth involves subsidizing exporters with cheap inputs as well as an

undervalued exchange rate might not work simply because of current demand conditions

i. Slow global economic recovery, especially in the industrial countries is expected

atleast for next 5 years.

ii. Other emerging markets certainly could absorb more, and a regional focus for exports

will pay off.

iii. Another question is if the world as a whole would be able to accommodate another

export‐led China

b. An incentive driven approach leads to build‐up inefficiencies in the system and is not self‐

sustaining as removal of incentives would make them uncompetitive once again.

c. Moreover, not only are their costs to provide incentives in the form of subsidies, given the

information age the buyers are aware of incentives and hence negotiate contracts taking into

account the incentives. Hence, a part of the incentives flow to foreign nationals.

c) Cautioned against Import‐substitution strategy as it may not work in the current global economic

scenario as it as an era of Global Value Chains and we cannot be seen by the world as trying to curb

imports.

a. An import substitution strategy creates barriers leads to reduced domestic competition,

creating inefficient producers leading to increased costs to consumers.

b. Instead we need to be more open and create an environment that makes our firms able to

compete with the rest of the world, and encourages foreign producers to come and take

advantage of our environment to create jobs in India

d) Cautioned against picking a particular sector such as manufacturing for encouragement simply

because it has worked well for China.

a. The main focus of the government should be on creation of a generic environment with a very

high ‘Ease of Doing Business’. Which sector to invest in and focus should be left to the

entrepreneurs. We should focus on provide the public goods that are the requirement of each



sector and provide them at a faster renewed pace. For eg: MSMEs will benefit more if we

provide multiple product quality certification agencies, marketing support by building

platforms to sell and a finance platform to sell receivables.

e) This means we have to work on creating the strongest sustainable unified market we can, which

requires a reduction in the transaction costs of buying and selling throughout the country,

improvements in the physical transportation network, more efficient and competitive intermediaries

in the supply chain from producer to the consumer. A well‐designed GST (goods and services tax) Bill,

by reducing state border taxes, will have the important consequence of creating a truly national market

for goods and services, which will be critical for our growth in years to come

US‐CHINA ENVIRONMENT DEAL China US

Goals

announced

As emissions rise it sets a target

for emissions to peak in 2030 or

earlier. First time China has set

any deadline for stopping

emissions

Would increase the share of

clean energy sources like wind

and solar power to 20 percent by

2030, about double what it is

today.

Sets a goal to make its 2025

emissions between 26 ‐28 % lower

than they were in 2005

Would help the U.S. achieve its

longer‐term goal of bringing

emissions 80% lower than 2005 by

2050.

U.S. emissions peaked in 2007, but

about half the reductions since

have been due to the recession.

Significance of

Targets

China is the biggest source of greenhouse gas pollution, with about a

quarter of the world’s emissions. The U.S. is No. 2 with about 15%

The two countries are often adversaries at U.N. climate talks, and their

unprecedented joint announcement sends an important signal that a

deal is possible next year.

Last month, the European Union said that its 2030 emissions would be

40 percent lower than in 1990.

With pledges from the top three emitters on the table a year ahead of

the Paris climate summit, pressure now builds on other countries

including India, Russia and Japan to present their own targets.

Challenges Coal still fuels about 80% of China’s

electricity. Move away would need

transformation in whole economy as

heavy industries such as steel,

A significant proportion of promised

reductions hinge on cutting carbon

pollution from coal‐fired plants. But



cement and chemicals heavily

depend on coal.

The government has already been

trying to boost less polluting sectors

of the economy, such as high‐tech,

and in fact coal use fell by a

percentage point last year. Still,

quitting coal will require a massive

investment in natural gas and

renewable energy.

Republicans are fighting the plans both

at the state level and in Congress.

Lawsuits have already been filed

against the proposals, setting the stage

for a lengthy battle that’s likely to

continue well beyond Obama’s term.

Without the support of the next

president, the new pollution standards

aren’t likely to survive.

What other issues need to be solved for a global climate deal?

a) Developing countries want a Kyoto protocol style deal with no legally binding commitments for them

b) Developed countries including US want developing also to take commitments

o Since they began more than two decades ago, the U.N. climate talks have been bogged down

by arguments between rich and poor countries over who should do what to fix global

warming. Rich countries say developing countries need to act because they account for most

of the growth. Developing countries say the rich have already pumped out so much pollution

for so long that they should take the lead.

o The U.S. and China have been on opposite sides of that debate, which is why their joint

announcement is seen as such a breakthrough.

c) Low chances of US congress ratifying any binding treaty

d) Developing countries want the rich nations to make firm commitments to live up to their pledges for

eg: the pledge to provide $100 billion a year by 2020 to poor countries

What impact will the US‐China deal have on global warming?

The graph of China’s commitments is very unclear with only 1 sanctity i.e. peak in year 2030. No

clarity on the y‐axis (emissions) as to how high that peak will be. No clarity on x‐axis( time) as to

whether emissions would plateau or decline quickly or slowly after that.

Moreover, China’s increase in emissions till 2030 will dwarf, US’s decreases and hence overall global

emissions will continue to rise.

Global temperatures have risen 0.8 degrees Celsius since pre‐industrial times, and the U.N. climate

talks are aimed at keeping that number from topping 2 degrees C .



The U.N.’s expert panel says that would require cutting global emissions by 40 percent to 70 percent

by 2050 and to zero by the end of the century.

OIL PRICE Major stakeholders:

a) OPEC (a 12‐member cartel of hydrocarbon rich countries)‐ Supply

b) US especially its Shale gas producers ‐ Supply

c) Developing countries – Demand

d) Developed countries ‐ Demand

How much have prices fallen

From roughly $114 per barrel in June, prices began to hover around $90 in the second half of the year.

Now it is being speculated that prices may even fall to the $40 level in the near future.

On Dec 1st , one benchmark, West Texas Intermediate (WTI) was trading at less than $65 per barrel.

Another global indicator, Brent Crude, stood just above $67 per barrel, tumbling further from the $72 per

barrel last week. These price levels are the lowest since 2009.

Some Facts and recent happenings:‐

OPEC – Supplies 30 million barrels per day (bpd). Has decided to keep production at that level for now while

many analysts were expecting them to cut production as global prices have been falling. Led to a downward

swing in prices.

The story of falling oil prices has two parts.

a. One reason for this decline was the discovery of huge non‐traditional hydrocarbon sources, especially

shale reserves in North America. As crude oil prices rose, production of shale oil, otherwise

considered economically unviable, became attractive. Graph below shows increased production of

US mainly due to shale gas

b. The increase in oil and product stock levels in OECD countries coupled with the ongoing rise in non‐

OECD inventories, are indications of an extremely well‐supplied market.



Why OPEC kept production constant:‐

a. The decision not to cut production went against the demand of OPEC members like Iran and

Venezuela, who had demanded that production be cut. A falling oil price is hurting these countries

badly given that money earned from selling oil is a major source of revenue for the respective

governments. Also, in the past, OPEC has been quick to cut production whenever prices have fallen

and that has ensured that prices don't fall any further. But that doesn't seem to be happening this

time around.

b. Decision was motivated by existing oil inventories and the diminishing returns from any production

cutbacks for the cartel. Any decrease in supply when economic growth is slow will lead to a decrease

in consumption and not increase in prices of oil.

c. Many analysts believe that OPEC’s decision is a response to Shale oil threat. They want to bleed out

competitors by making shale development unviable. The breakeven price for Shale has been

estimated in the range of $50‐70 by various studies. As prices go south, shale players become

unviable and could be driven out of market. [Has followed this strategy earlier in mid‐80s when it

drove oil price from to just under $10 a barrel by 1986.]

d. It would also funding alternative sources of energy unviable and slow down the research and

development process of new technologies.

Risks and opportunities

The moment global growth is restored, prices may march north again. Hence, locking in long term

prices is important for countries like India with a huge import dependence on oil

For India, this is a recipe for continuing dependence on imported oil and gas.



Cheaper oil means a lower import bill, a better current account balance and consequently, lower fuel

inflation.

The good comes from the boost that lower oil prices provide to consumers and manufacturers in oil‐

importing economies

There is also a positive distributional effect within these economies, although it is marginal rather

than decisive. Because energy spending constitutes a bigger part of the budget for lower‐income

families, lower oil prices help counter some forces that have worsened the inequality of income,

wealth and opportunities.

For one thing, they lead to immediate cuts in energy companies’ investment budgets, both in the

traditional sector and among promising alternative technologies. As a result, longer‐ term energy

potential will be undermined, both overall and in its more environmentally friendly components.

The lower oil prices, which would normally be seen as producing “good” disinflation in oil‐importing

countries, could accentuate the general deflationary tendency in Europe—one that could be quite

detrimental to the continent’s immediate and longer‐term economic well‐being.

A third risk relates to certain segments of the financial markets. Look for the plunge in oil prices to be

disruptive for the commodities markets as a whole, and for securities issued by energy companies

and oil‐exporting countries. Given the weight of investments in these securities in certain emerging‐

market and high‐yield indexes, the result could mean generalized pressure to sell in these asset

classes

PAYMENT BANKS

Background

In the Union Budget 2014‐2015, the Hon’ble Finance Minister announced that: “RBI will create a framework

for licensing small banks and other differentiated banks. Differentiated banks serving niche interests, local

area banks, payment banks etc. are contemplated to meet credit and remittance needs of small businesses,

unorganized sector, low income households, farmers and migrant work force”.

Key features of the Payments Banks guidelines are:

i) Objectives: to further financial inclusion by providing (i) small savings accounts and (ii)

payments/remittance services to migrant labour workforce, low income households, small

businesses, other unorganised sector entities and other users.

ii) Eligible promoters :



c. Existing non‐bank Pre‐paid Payment Instrument (PPI) issuers; NBFCs, corporate Business

Correspondents(BCs), mobile telephone companies, super‐market chains, companies, real sector

cooperatives etc

d. A promoter/promoter group can have a joint venture with an existing scheduled commercial bank

subject to equity stake as per Banking Regulation Act, 1949.

e. ‘fit and proper’ with a sound track record of professional experience or running their businesses for

at least a period of five years

f. Promoter's contribution: minimum initial contribution atleast 40% for first 5 years

g. Foreign shareholding: as per FDI policy for private sector banks

iii) Scope of activities :

b. Acceptance of demand deposits. Will initially be restricted to holding a maximum balance of Rs.

100,000 per individual customer.

c. Issuance of ATM/debit cards. Payments banks, however, cannot issue credit cards.

d. Payments and remittance services through various channels.

e. BC of another bank, subject to the Reserve Bank guidelines on BCs.

f. Distribution of non‐risk sharing simple financial products like mutual fund units and insurance

products, etc.

iv) Deployment of funds :

a. The payments bank cannot undertake lending activities.

b. Separate SLR requirement:‐ required to invest minimum 75% of its "demand deposit balances" in

Statutory Liquidity Ratio(SLR) eligible Government securities/treasury bills with maturity up to one

year and hold maximum 25 per cent in current and time/fixed deposits with other scheduled

commercial banks for operational purposes and liquidity management.

v) Capital requirement: Minimum paid‐up equity capital shall be Rs. 100 crore with leverage ratio not less

than 3% i.e. outside liabilities should not exceed 33.33 times its net worth

viii) Other conditions :

a. The operations of the bank should be fully networked and technology driven from the beginning,

conforming to generally accepted standards and norms.

b. The bank should have a high powered Customer Grievances Cell to handle customer complaints.



HUMANDEVELOPMENT:INTERNATIONALCOMPARISONThe Human Development Report (HDR) published by the United Nations Development Programme (UNDP)

estimates the human development index (HDI) in terms of three basic parameters:

live a long and healthy life,

to be educated and knowledgeable, and

to enjoy a decent economic standard of living.

According to HDR 2013, India with an HDI of 0.554 in 2012 has slipped down a few notches with its overall

global ranking at 136 (out of the 186 countries) as against 134 (out of 187 countries) as per HDR 2012

India has a long way to go as it is still in the medium human development category with countries like

China, Egypt, Indonesia, South Africa, and even Vietnam having better overall HDI ranking within the same

category and Sri Lanka moving to the high human development category from medium in the 2012 HDI

ranking despite years of internal conflicts.

The existing gap in health and education indicators in India as compared to developed countries and also

many of the developing countries highlights the need for much faster and wider spread of basic health and

education. Life expectancy at birth in India was 65.8 years in 2012, compared to 81.3 years in Norway, 78.7

years in the United States, 73.8 years in Brazil, 75.1 years in Sri Lanka, 73.7 years in China, and the global

average of 70.1 years.

However the Indian life expectancy figure is significantly higher than that of South Africa (53.4 years) which

has higher HDI rank and even higher per capita income within the same category.

The Indian performance in mean years of schooling (4.4 years) is not only much below that of countries

like China, Brazil, Sri Lanka, and Egypt which have higher per capita incomes but also below that of

Bangladesh and Pakistan which have lower per capita incomes. It is also much lower than the global

average of 7.5 years.

Though lower in HDI ranking, in terms of average annual HDI growth rate for 2000‐12, India is well ahead

of many countries with high and very high human development. With 1.50 per cent average annual HDI

growth it is ahead of China (1.42), Brazil (0.73), Egypt (0.92), and Bangladesh (1.46), though it is behind

Pakistan (1.74). While China and Egypt performed very well in terms of HDI growth in the 1980s and 1990s,

there was a deceleration in the 2000s. On the other hand, India, which seems to have faltered in the 1990s,

has picked up again during 2000‐12

INEQUALITYThe HDR measures inequality in terms of two indicators.

The first is the income Gini coefficient which measures the deviation of distribution of income (or

consumption) from a perfectly equal distribution among individuals within a country.

o For India, the income Gini coefficient was 33.4 during 2011‐12. In this respect, inequality in India

is lower than in many other developing countries like South Africa (63.1), Brazil (54.7), Malaysia



(46.2), China (42.5), Sri Lanka (40.3), the Russian Federation (40.1), Thailand (40.0), Turkey (39.0),

and Vietnam (35.6), as well as countries like the USA (40.8), Poland (34.1), and Switzerland (33.7)

that have otherwise very high HDI ranking.

o Not only is inequality lower in India than many other countries, it has also decreased as reflected

in a 9.2 per cent fall in its Gini coefficient from 36.8 during 2010‐11 to 33.4 during 2011‐12.

The second indicator is the quintile income ratio, which is a ratio of the average income of the richest 20

per cent of the population to that of poorest 20 per cent.

o The quintile income ratio for India was 4.9 in 2011‐12. Countries like the United States (8.4),

Switzerland (5.5), Turkey (7.9), Poland (5.5), the Russian Federation (7.3), Brazil (20.6), China (9.6),

Malaysia (11.3), South Africa (25.3), Philippines (8.3), and Thailand (7.1) had higher ratios.

o This implies that the inequality between the top and bottom quintiles in India was lower than in a

large number of countries.

A related issue is the rural‐urban disparity.

o One of the parameters used to estimate the rural‐urban gap is the monthly per capita expenditure

(MPCE), which is defined as a value assigned to each household for measuring the level of living.

o According to the findings of the NSS 68th round (2011‐12), the average MPCE based on URP

estimates at current prices is Rs. 1278.94 and Rs. 2399.24 respectively for rural and urban India

indicating rural‐urban disparities . However, at constant prices (2004‐05), it is Rs. 703.42 and Rs.

1353.82.

o The real MPCE at constant prices has grown over seven years (2004‐05 to 2011‐12) by 25.9 per

cent in rural India and by a higher 28.6 per cent in urban India.

FIVEPRONGEDSTRATEGYTOCONTROLINFLATIONThe strategy to control inflation has to take into account the following factors:

1. Move to market prices: It is important to be cognizant of the fact that deregulation of diesel prices, power–

sector reforms, and generally the move from administered to market‐determined prices will release

suppressed inflation in the short run. Nevertheless, the consequent reduction in subsidy and fiscal deficit

will have the salutary effect of reducing inflation.

2. Improving efficiency of public programmes and breaking the wage‐price spiral: The projects selected for

schemes like the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) do not

improve the productivity of the agricultural sector commensurately. The increasing wages under such

schemes have reportedly created shortage of labour in the agricultural sector as well as caused a wage‐

price spiral. The solution lies in selection of productivity enhancing projects for ambitious public policy

programmes like the MGNREGS.

3. Rationalization of government support to farmers: If the policy of supporting farmers through MSP and

procurement is to continue, the MSP should be scrupulously linked to the cost of production. Procurement

should not be open‐ended, and the practice of some state governments of charging as high as 14‐15 per

cent mandi fee/tax and paying high bonuses over and above the MSP must be discouraged. Experience has

shown that the Food Corporation of India (FCI) has not been able to release enough stocks in the market



to soften cereal prices while recovering its economic cost. While farmers can be incentivized by gradually

removing restrictions on exports, the FCI can learn to procure stocks from markets more efficiently and

manage risks through the futures market.

4. Role of APMC Acts: The State Agricultural produce marketing committee (APMC) Acts have created

monopolies and distributional inefficiencies. They constitute a major roadblock in the way of creating a

national market for agricultural commodities. Apart from breaking the monopoly and dissuading state

governments from treating the APMCs as liberal sources of revenue, substantive efforts have to be made

to create alternative trading platforms in the private sector where it is possible to reduce the layers of

intermediation. Since this may take time, fruits and vegetables should be taken out of the purview of the

APMC Acts immediately. A processor should be able to buy directly from farmers without having to pay

any mandi fee/tax to the APMC.

5. Role of public deficits: Fiscal deficit should be brought down by setting stringent time‐bound targets under

the Fiscal Responsibility and Budget Management (FRBM) Act

MAKEININDIAOPPORTUNITY1. India has almost missed the

manufacturing bus. India has failed to ride

the manufacturing wave that helped so

many countries in Asia emerge out of mass

poverty. Prime Minister Narendra Modi’s

exhortation to companies to “make in

India” is one indication that he wants to

replicate the Asian manufacturing success

stories in India. One popular depiction is of

China as the factory of the world while

India is viewed as the global back office.

The reasons for this are complex. Yet, the

harsh fact is that India has failed to build

enough factories to provide jobs for the

millions who are leaving farms.



2. There is an opportunity to get back in the game

Economic history tells us that industrialization follows

an inverted U‐pattern. Very poor countries dependent

on farming do not have much manufacturing. The share

of factory output begins to grow as countries develop.

Manufacturing later cedes space to modern services in

affluent societies. The share of manufacturing in

economic output begins to accelerate when the

average income of a country in terms of purchasing

power parity is around $5,000. It peaks when the

average income is $10,000. According to World Bank

data for 2013, India has an average income of $5,410

that is close to the level when manufacturing takes off

while China has an average income level of $11,904

when manufacturing is expected to peak as a

proportion of any economy.

3. Future success will depend on strategic

clarity. A 2012 study by McKinsey Global

Institute shows that global manufacturing is not

monolithic. There are five variants: global

innovations used for local products such as

cars, regional processing industries such as

food, manufacturing activities such as

petroleum refining that use energy or

commodities intensively, global

technology innovations such as

electronics and labour‐intensive

production for exports such as textiles. A

country as large as India may have to

straddle several of these categories if it is to

build a diversified industrial base that will give

the country strategic depth in terms of geopolitics.



4. The nature of the global supply chain

matters. Many Asian countries have

progressed by linking to the massive supply

chains that connect the global economy.

Three economists, Greg Linden of the

University of California, Jason Dedrick of

Syracuse University and Kenneth Kraemer

of the University of California, studied the

economics of the iconic iPod to illustrate

how value is shared in the complex

manufacturing process. The lower value

work is done in Asia while the more

innovative stuff is done in the US. The

Narendra Modi government will have to

figure out where India can be positioned in

similar supply chains.

5. Excessive regulation still hobbles

manufacturing and India is one of the most

unfriendly places to do business: policy

uncertainty, poor infrastructure, rigid labour

laws and the “Inspector Raj” are just some of the

common complaints. Powerful companies with

the requisite political contacts can sail

through these rough waters but the small

entrepreneur is often at his wits’ end. There

is already speculation that the Modi

government will try to make India a less tough

place to do business. Here is a look at what

starting a new business entails in India.

TWO FACTOR IDENTIFICATION ISSUE The RBI has shut the overseas payment gateway for credit card transactions within India, saying that the rules

need to be followed with respect to e‐commerce credit card transactions “essentially taking place between

two residents in India”.



This means that firms such as Uber will have to follow the two‐step authentication procedure that it was able

to evade by virtue of having an overseas payment gateway.

2 Factor authentication means – when a consumer buys something online using credit or debit card there

needs to be an additional means of authentication, such as “Verified by Visa”, “3D Secure” or generation

One Time Password(OTP)

Serves as an effective prevention mechanism. In fact, EU has mandated multi‐factor authentication starting

Feb 2015

Initially, RBI had made it mandatory for banks to put in place additional authentication / validation based

on information not visible on the cards for all on‐line card not present (CNP) transactions

While some companies implemented it, other’s still did not do it various reasons including that they were

using foreign payment gateways which does not come under the purview of RBI.

This year, extended the rule to credit/debit cards and other payment gateways

Additionally, they will need to tie‐up with an Indian bank payment gateway, without which Indian

consumers cannot make purchases.

This creates a barrier for multinational e‐commerce companies from debiting charges directly from the

customer’s credit/debit cards.

The apex bank asked banks to make sure that payments should be in rupees in cases when the credit card is

not presented physically. The move from RBI will have an immediate impact on the much contended taxi

business, especially Uber, which has swiftly attracted users in India. The San Francisco based company has so

far been able to charge credit cards of users without authentication. The users of Uber are automatically

charged at the end of their ride based on card details furnished at the time of enrollment. They are able to do

so because authentication is not needed when someone buys from websites based overseas. This loophole has

now been closed by the central bank.

The RBI has clarified that “such camouflaging and flouting of extant instructions on card security, which has

been made possible by merchant transactions (for underlying sale of goods / services within India) being

acquired by banks located overseas resulting in an outflow of foreign exchange in the settlement of

transactions, is not acceptable as this is in violation of directives issued under the Payment & Settlement

Systems Act 2007 besides the requirements under the Foreign Exchange Management Act, 1999”.

In order to prevent fraudulent activities the central bank had made it mandatory for banks to put in place

additional authentication based on information not visible on the cards for all online transactions.

BITCOINANDTHEVIRTUALCURRENCYWhat is Bitcoin?

Bitcoin is a digital currency designed by Satoshi Nakamoto, a pseudonym, in January 2009. Bitcoin allows users

to send payments within a decentralized, peer‐to‐peer network, and is unique in that it does not require a

central clearing house or financial institution clearing transactions. Users must have an internet



Satoshi is the smallest unit of Bitcoin; 1 Bitcoin contains 100 million Satoshi. By design, the supply of Bitcoins

cannot exceed 21 million Bitcoins (2,100 trillion Satoshi). The total amount of Bitcoin in circulation will increase

predictably, based on its underlying code, until reaching the cap in 2140. The current supply is 12 million

Bitcoins or 57% of the eventual total.

Exchanges allow the conversion between real‐world fiat currencies and Bitcoin. The participation in exchanges

requires consumers to take on credit risk by transferring Bitcoins from a personal account to a third‐party’s

account, which is similar to entrusting real‐life cash to depository institutions.

Money/currencies are generally thought to have three distinct roles: as a unit of account, medium of exchange,

and store of value. To the extent that Bitcoin offers users many benefits and efficiencies as a medium of

exchange, this means it possesses some fundamental value that may increase over time as it gains wider use.

However, as a unit of account and store of a value, it has considerable shortcomings which we believe will

ultimately hinder it from ascending to international currency status.

Advantages

As a medium of exchange, Bitcoin is attractive as it offers low transaction costs. It does so by

eliminating the need for a central clearing house or financial institution to act as a third party to

financial transactions. Using a decentralized, peer‐to‐peer network, transactions are verified

independently by network users (i.e., miners) who are rewarded for their work with newly minted

Bitcoins. In addition, it provides an alternative payment method to users who may not have access to

credit or debit cards, or, other forms of electronic payments.

Bitcoin offers an attractive alternative to cash in terms of security, transparency of transactions, and

counterfeiting. Bitcoins reside in an encrypted format on their owner’s computer, making it difficult,

though not impossible, for hackers to access and steal electronically. Physical Bitcoin theft is also

possible, but it seems no easier to carry out on a large scale than for cash. In addition, given their digital

format, Bitcoins are much easier to carry than cash, which could be a particular benefit in economies

where large scale transactions are conducted in cash. Bitcoin also offers the benefit of being easier to

track than cash given that each coin contains an electronic record of each transaction that coin has

gone through since it was created. Not only is each transaction recorded on each Bitcoin, but all

transactions are recorded in an online public ledger, offering a level of transparency that is not

available with cash. Such transparency offers regulators means to track potentially illicit activity. Lastly,

the digital format with automatic verification also makes it impossible to counterfeit.

There is a finite supply of Bitcoins. The design of Bitcoin seeks to mimic the supply of gold in that the

system will create a finite supply of the currency, which its proponents see as a way to protect its value

from profligate governments or central banks.

Bitcoin’s relative anonymity is advantageous to citizens of crisis countries. It has been reported that

some believe Bitcoin can be used by those seeking to avoid evade high taxes, capital controls, and

confiscation.

“Winner Takes All” market ensures that increasing acceptance and popularity of Bitcoin increases

likelihood of success. As Bitcoin becomes more popular, competitors will face higher barriers to entry,



making it less likely they will be successful in supplanting Bitcoin’s market share. Several other digital

currencies with similar features to Bitcoin have been introduced with limited success. However, we

believe the structure of the digital currency market is one of “winner takes all” whereby as Bitcoin

becomes more popular and is easy to use, consumers will have much less incentive to experiment with

an alternative currency with similar features.

Disadvantages

Bitcoin’s role as a store of value is seriously compromised by its elevated price volatility. The dollar

price of Bitcoin has moved 10% on a daily basis since its inception including days when the price moved

190% from that day’s highs to lows. It can be argued that these swings reflect shifts in estimates about

the fundamental value of Bitcoin as more people become aware of it, or, use it. For example, the

Bitcoin’s dollar price increased 50% to $785 following a Senate Hearing on November 18th after which

a couple regulators took a more positive stance towards the use of Bitcoin as another form of

payment..

High volatility also undermines Bitcoin’s role as a medium of exchange as large retailers are much

less likely to accept it as a form of payment with prices so volatile. Stores accepting it now are

effectively internalizing the costs of this volatility and not passing it onto consumers, but we would not

expect such likely unprofitable practices to last.

Regulators could try to impose controls that would increase the transaction costs for using Bitcoin

despite its efficiency and the transparency relative to cash. Firstly, the government is unlikely to want

to promote a new currency that could be viewed as one that could help facilitate “black market”

activities, or, tax evasion. As a result, regulators are currently thinking about how Bitcoin will fit into

the broader payment and tax system, and what makes sense in terms of regulation. The bottom line is

any new regulation will raise Bitcoin’s transaction costs, offsetting and/or eliminating one its main

benefits. In addition, the ease with which Bitcoin can be used internationally increases the need for

international regulatory coordination. While coordination raises the risk of an uneven regulatory

landscape for Bitcoin, stringent regulation by a few large countries/regions would significantly increase

the costs of using Bitcoin, thus limiting its usefulness as a medium of exchange.

The quality of Bitcoin exchange security, where consumers exchange dollars for Bitcoins (and vice

versa) is suspect. For Bitcoin users not able to mine their own Bitcoins, their only alternative is to

exchange their local currency for Bitcoins at an exchange. Aside from the FX risks these customers take,

a large number of Bitcoin exchanges have been hacked with large amounts of customer Bitcoins stolen.

In one reported case Bitcoinica, an exchange, lost 18,547 Bitcoins from its deposits after its systems

were hacked. More recently, a European exchange called BIPS lost 1,295 Bitcoins (or $990,000)

following a security breach.4 As the vast majority of potential Bitcoin users cannot mine their own

Bitcoins, exchanges will be critical for linking local currencies with Bitcoin. Without deposit (FDIC) or

investment (SIPC) protection, Bitcoin users/investors have little recourse to retrieve stolen funds so in

addition to investment risk they are also carrying credit risk.

A 50 minute wait before payment receipt confirmation is received will prohibit wider use. Fifty

minutes is the time needed for enough additional blocks to be added to the chain to protect against



double spending. This is less of an issue for two parties that know each other because they trust the

other will not double spend, but when dealing with an anonymous counterparty this creates a high

level of unhedgeable risk. As a result, in the absence of a central counterparty verifying

transaction/clearing Bitcoin is likely to remain illiquid, and will prevent it from becoming a significant

international currency.

Bitcoin’s use as an international currency will likely be hindered by the fact that it is not a legal

tender. Unlike fiat money, nobody is under any obligation to accept Bitcoins as a mean of payment.

Therefore, its value is only as good as the perception of its worth by its users. Without a backstop

buyer, Bitcoin could disappear very quickly should perceptions of its usefulness decline. Repeated

bouts of volatility and further cyber‐attacks which put consumer and investor money in jeopardy will

certainly inform this perception even as Bitcoin does offer many benefits.

JUDICIAL ACTIVISM Judicial activism is a philosophy of judicial decision-making whereby judges allow their personal views about

public policy, among other factors, to guide their decisions. It can be narrowly defined as one or more of three possible actions: overturning laws as unconstitutional, overturning judicial precedent, and ruling against a preferred interpretation of the constitution. (For instance widening the right to life to include right to free legal aid, right to privacy, right to healthy environment etc)

The chief instrument through which judicial activism has flourished in India is Public Interest Litigation (PIL). In normal course of law, an individual can approach the courts only if he/she has been personally aggrieved. But in the case of PIL, the case is filed not by the aggrieved persons but by others on their behalf. Many public spirited citizens and voluntary organisations (eg. Center for PIL - CPIL represented by Prashant Bhushan and Shanti Bhushan) sought judicial intervention for protection of existing rights, betterment of life conditions of the poor, environment etc.

Detractors of judicial activism charge that it usurps the power of the elected branches of government or appointed agencies, damaging the rule of law and democracy. They argue that an unelected or elected judicial branch has no legitimate grounds to overrule policy choices of duly elected or appointed representatives, in the absence of a real conflict with the constitution. In some instances, government regulation by appointed officers in government agencies are overturned by elected judges.

Defenders of judicial prerogatives say that many cases of so called "judicial activism" merely exemplify judicial review, and that courts must uphold existing laws and strike down any statute that violates a superseding law.

Some recent instances of Judicial Activism can be – o Distribution of food under Public Distribution System to poor free-of-charge instead of letting it rot in

godowns o The SC ordered the Delhi Government not to demolish night shelters in Delhi for the homeless in the

midst of winters as it is against the right to life. The court had taken suo moto cognizance from news paper reports

o The brawl on the appointment of CVC PC Thomas

In India, even as Prime Minister Manmohan Singh frowned upon “judicial overreach”, Supreme Court former chief justice K G Balakrishnan had welcomed its outcome as a desirable “tension” between the judicial and the



legislative and executive branches. The source of the tension, however, lies in the vacuum created by the lapses of both the legislative and executive branches.

The judiciary is giving the impression of stepping in to fill the vacuum by often forcing the executive to take action (against the privileged sons of politicians, as in the Jessica Lal case) or compelling Parliament to enact laws (for example, to curb sexual harassment at workplaces). This has encouraged the Indian urban middle class to repose its faith in the new-found concept of judicial activism, and to wish that the judiciary replaces the corrupt legislature and bureaucracy as the benevolent authority. But there is a catch in this wishful belief. Barring a few recent cases of judicial intervention, which have had some positive effect on governance, the Indian judiciary on the whole has not displayed any spontaneous will to act on behalf of the common people.

Even though this phenomenon has been welcomed by many, it has many negatives – o It has overburdened the courts leading to delayed justice for normal cases o It has blurred the line of distinction between the legislature on the one hand and the judiciary on the

other. o It has made the balance among the three organs of government very delicate. Democratic government

is based on each organ of government respecting the powers and jurisdiction of the others. Judicial activism may be creating strains on this democratic principle.

Even though Judicial review is essential to maintain the fundamental rights of citizens, the constitution clearly defines the legislature as the law making body. Any aberration in either of these will be against the spirit of the constitution. The two parts should try to work together without stepping into the jurisdiction of each other for the benefit of the nation’s common man.

IMPACT OF RUPEE DEPRECIATION There are three important effects:

1. Some people had borrowed in dollars, and left it unhedged since they were speculating that the INR would appreciate. They get hurt in the process. But this is fine as in a market economy, many people place bets about future fluctuations of financial prices, and half the time the speculator loses money. (If the rupee had not depreciated sharply, these speculators would have been gained).

2. When the rupee depreciates, imports become costlier and India's exports become more competitive. So exports (X) gradually start going up and imports (M) gradually start going down. The net gain in X-M is increased demand in the local economy. Hence, INR depreciation is good for aggregate demand (and conversely INR appreciation pulls back demand). However, we have to bear in mind that these effects are small and take place with long lags.

Many things in India are tradeable. It is important to focus on the things that are tradeable and not just on the things that are imported. As an example, there are many transactions between a domestic producer of steel and a domestic buyer of steel. The buyer and seller are both in India. But the price at which they transact is the world price of steel (which is quoted in dollars) multiplied by the INR/USD exchange rate. This is called `import parity pricing'. Through this, the domestic prices of tradeables goes up when the rupee depreciates.



INFLATION’S IMPACT ON ECONOMY Inflation has an adverse impact on the real economy. The following points are worth noting

1. High and persistent inflation imposes significant socio-economic costs. Given that the burden of inflation is disproportionately large on the poor, high inflation by itself can lead to distributional inequality. Therefore, for a welfare-oriented public policy, low inflation becomes a critical element for ensuring balanced progress.

2. High inflation distorts economic incentives by diverting resources away from productive investment to speculative activities.

3. Inflation reduces households saving as they try to maintain the real value of their consumption. Consequent fall in overall investment in the economy reduces its potential growth.

4. As inflation rises and turns volatile, it raises the inflation risk premia in financial transactions. Hence, nominal interest rates tend to be higher than they would have been under low and stable inflation.

5. If domestic inflation remains persistently higher than those of the trading partners, it affects external competitiveness through appreciation of the real exchange rate.

6. As inflation rises beyond a threshold, it has an adverse impact on overall growth. 7. RBI's current assessment suggests that the threshold level of inflation for India is in the range of 4-6%. If

inflation persists beyond this level, it could lower economic growth over the medium-term.

Hence there is a need for a monetary policy response by the Central Bank to control inflation

'Essays for IIM' brings to you a holistic e-book on Current Essays/Notes with topics ranging from Political, Economic to Business Affairs. For ordering the complete package, visit www.essaysforIIM.com

wat pi prep for iim sample essays

Documents

exportled strategy

particular sector

business affairs

sample essays

import substitution

marketing support

e thismeanswehave toworkon

tobuildup inefficiencies