Let's understand the concept of global economic crisis first. It is important before proceeding to analyze its impact on Indian economy. Global economic crisis refers to the financial crisis owing to the great depression of 1930. It is an upshot of profound economic recession, which commonly refers to business cycle contraction and decelerated activity over a long period of time. It is a situation where macro indicators like gross domestic product, employment, capital utilization, household incomes and business profit fall and bankruptcies as well as unemployment rates rise. This global financial crisis is among the greatest financial challenges of the world economy, which originated in the United States. It began in July 2007, when the credit crisis started with the loss of confidence by US investors in the assessment of sub-prime mortgages, which caused a liquidity crunch. With globalization, the entire world is affected by the crisis and its impact can be very well witnessed all over.
It is often predicted that India will be one of the largest markets in the future. This is primarily because India is considered to be one of the largest developing countries in the world. With the assimilation of the Indian economy and its financial markets with the rest of the world, the country experienced its worst slowdown on the back of global headwind, domestic macroeconomic inconsistency and policy reversals on the financial front. The risks arose mainly from the impending hitch of capital flows on an unremitting medium term basis from the anticipated slowdown of the global economy, particularly in advanced economies and from some elements of prospective financial alterations. In India, the adverse effects have been chiefly in the equity markets due to the setback of portfolio equity flows and the affiliated effects on the domestic Forex market as well as on liquidity conditions.
Impact of economic crisis on different sectors in India
Impact on the IT sector
With the global economic crisis, the IT sector of the country is facing uncertainty, especially the software industry. About 30,000 jobs in this sector have been affected because of the financial crisis in the United States as the industry has been largely dependent on it. Approximately 58% of the revenue was generated from US-based clients, owing to which, the industry had faced and perhaps till sometime will be facing hard days on the economic front.
Impact on the Indian banking system
One of the prime aspects of the current financial mayhem has been the lack of an apparent contagion of global economic crisis being felt by banking systems in budding economies, particularly in the continent of Asia. The Indian banking system as well has not been affected by it similar to other banks in the rest of the continent since it is not directly exposed to the sub-prime mortgage assets. Both in the public sector and in the private sector, Indian banks are financially sound, properly regulated and well capitalized.
Impact on stock and Forex market
The crisis had a great impact on the Indian stock and Forex market. The stock prices in the country have been harshly affected by foreign institutional investors (FII). The most prominent decrease in the manual contract category is in the Automobiles and Transport sectors where employment has declined by 12.45% and 10.18%, respectively.
Apart from these, the global economic crisis has affected some other sectors of the country as well. However, if these areas are properly handled, it will help in overcoming the financial crisis with ease and also help them survive through the tough times.
Sunday 27 September 2015
Tuesday 22 September 2015
Oil Price 2015
The price of oil can affect the entire world economy. It is devastating to developing countries and monetarily straining for developed ones. A price increase or decrease has effects on the supply and demand side of an economy and terms of trade. When a price shock in oil occurs it affects domestic home owners, central banks, governments, inflation rates, exchange rates, and even the stock market. When demand for oil becomes high, significant decreases in purchasing power of domestic homeowners occurs. This can be attributed to an increase in precautionary savings and the increase cost of operating anything that runs off energy. On the other hand the supply side of the economy is affected because of the increase in oil production costs. Lastly, terms of trade become strenuous between nations because of the increase in import costs, especially for net-oil importing countries. Countries like Iran, Kenya, and Venezuela that depend on importing oil for their economic growth. They become exposed to other nations and basically taken advantage of. Countries must decrease oil prices to match the lower world price. While the production costs increase and cause a negative return for the country. This is usually when The Federal Reserve begins to intervene and manage economies. Intentions are to restructure the economy to suit the sudden change in oil price which has affected the entire world. However, many economists have argued that manipulating monetary policies increases the problem. Bodnar writes, "The Fed's efforts to direct the economy may be, as I said in my column, a classic case of hubris. In fact, the Fed's zero-interest-rate policy may actually have backfired, perversely contributing to oil's sudden price drop. As economist Ed Yardeni observes, investors desperately seeking better returns piled into high-yield bonds issued by energy companies and energy-producing countries." (Bodnar pg.6) Investors were shocked soon after to see a large decrease in oil prices. Any sort of stock or bond issued by an energy company was devalued to almost nothing. The affects were not just felt on stocks and bonds. From Bodnar's article you find out that interest and exchange rates were also adjusted prior to the drop and after. The Fed thought if they adjusted rates that it would ease the economic decline. However, the exact opposite happened. Economies began to spiral into an even deeper recession.
The article's main strength is that it's a credible source that is knowledgeable on the relationship between commodity prices and monetary rates and policies. They bring up key statistics that help illustrate the impact oil prices have on monetary policies and vice versa. They also discuss the long term affects that oil has on economies and not just the immediate. The only weakness I could find with the article is a lack of visuals. I would have liked to see a graph showing the price changes in oil over the past 20-30 years. They could have compared that side by side to a graph showing the inflation and exchange rates and how they changed during those crisis moments where oil prices changed significantly.
When interest rates are decreased it causes an increase in consumer spending which creates a high demand for commodities. With this growth of investment it puts pressure on oil prices. Countries that depend heavily on importing oil become vulnerable. Yoshino and Hesary write, "The relationship between discount rates and commodity prices, stating that lower discount rates would lead to credit augmentation, which would increase commodity prices under the condition that money velocity is constant." (Yoshino & Hesary pg.6) Increased spending for an economy looks great on "paper." However, countries overlook the underlying problem which is connected to oil prices. With increased spending that means less saving. So when people are blindsided by a sudden increase in gas prices it causes them to save more and cut back on spending. This cripples producers of oil because that means less oil is being consumed and they are losing profit. This causes them to produce less which increases production costs. It is a continuous cycle of monetary decline. Inflation rates are also affected by oil prices. Yoshino and Hesary write, "This means that a depreciation of the US dollar would make oil imports cheaper in non-dollar-denominated currencies, raising oil imports and oil demand. Another exchange rate channel is as follows: a depreciation of the US dollar would cause an appreciation of non-dollar-dominated financial assets and would, in turn, arouse world oil demand because of the wealth effect." (Yoshino & Hesary pg.6) Inflation of the US dollar leads to oil imports being cheaper in foreign oil-importing countries. This raises oil demand and the price for it. It also makes foreign financial assets cheaper which attracts countries all over the world because of the huge profit that can be made while the assets are cheaper because of the decline in oil prices.
The strengths in this article are the visual graphs. It really helps you make a visual connection to the differences that a change in price of oil can have on an economy. I also like how they show you formulas that economists use to actually calculate some of the changes. I thought the author connected the inflation and interest rates to the price change in oil very well. They used real world examples that actually happened and fully explained them and created visual graphs for each scenario. The only weakness I had with the article was the referencing. The authors referenced a lot of economists or other scholars.
However I didn't have the necessary background knowledge on them. It difficult to determine if it's a credible reference.
The biggest concern for economists when oil prices change are the long term affects. If a country is heavily dependent on importing oil we want to know the long-term effect that will be felt from a decrease in oil price. When oil prices fall there tends to be less war and conflict. Most heavily importing countries favor the oil price when it is high. However, there is a violent long-term affect from this. Countries have armed conflicts over drilling sites and territories. The value of oil is so high and rewarding that lives are being taken over it. Small militia groups are formed in lesser developed nations like Kenya. These small armies burn and destroy small villages that are built near oil drilling sites. They have no morals or sense of democracy when it comes to earning a large profit. This leads into economist's next concern which is political leaders. When economies begin to spiral out of control with no reason, political leaders are the first suspects. Oil production is a very shady and unsavory business to be involved. Political leaders of countries have been imprisoned over issues concerning oil prices. For example some political leaders will take "kickbacks" from companies to allow drilling in certain areas of the country. Also, they will lower or raise import taxes so that it becomes inexpensive/expensive for producers. Lastly, high ranking Federal Reserve officials become bribed. They are persuaded by monetary benefits to lower or raise interest rates. This will cause an increase or decrease in consumer spending on oil. This allows companies to save money by cutting production if interest rates are high and consumer spending is low. It's almost like an insider trading tip.
However, these concerns are not always present or true. Manso writes, "3rd that there are no clear association or correlation between the oil price cycle and the political leaders of the main industrial and developed countries (USA, UK, F, G, Russia), because some of these leaders are contemporaneous of several expansions and contraction phases of the oil price cycles." (Manso pg.55) This is stating how hard it is to find a direct correlation between political leaders and the change in oil prices because they are so frequently changed. A political leader may implement a strategy that was secretly benefiting him and raising oil prices. However, he may not be in power or office to see the remainder of that political strategy played out. Then the next guy taking his position looks like the suspect. There are some political leaders who are corrupt and receive these kickbacks, however there are leaders who are honest and don't. In conclusion economist's long-term concerns should be more focused on the violent aspect and not political when it comes to oil price changes.
The strength of this article is in its formulas, graphs, and conclusion. The formulas and graphs help illustrate periods of expansion in an economy when oil prices are high and contraction when oil prices are low. The conclusion was also a big strength. The author went into detail and explains the reasoning behind economist's long-term concerns. Whether they are violent or nonviolent (political corruption) economists are still worried about the effects price change can cause. This helps tie together the importance of oil price changes to heavily importing oil countries and the long-term effects it can possibly have.
To summarize, oil price effects all economies worldwide. It's the most common and valuable commodity in the world. Oil price effects and is affected by interest and inflation rates. When rates are low it causes an increase in consumer spending which increases the demand for commodities. This puts pressure on producers and oil prices. These effects have caused economists to raise concern for economies in the long run.
Their concerns began with small armed conflicts in countries that are heavily dependent on oil exportation. Innocent people were being killed over territories that were used for oil drilling. If these drilling sites weren't taken by force than they were taken politically. Leaders began to impose legislation that made it very difficult or easy for countries to drill. Bribery and extortion in the political arena began to rise. Which will always be a concern for economists. Mainly because that means it is not a free-market economy. It is being manipulated by high ranking political leaders.
The article's main strength is that it's a credible source that is knowledgeable on the relationship between commodity prices and monetary rates and policies. They bring up key statistics that help illustrate the impact oil prices have on monetary policies and vice versa. They also discuss the long term affects that oil has on economies and not just the immediate. The only weakness I could find with the article is a lack of visuals. I would have liked to see a graph showing the price changes in oil over the past 20-30 years. They could have compared that side by side to a graph showing the inflation and exchange rates and how they changed during those crisis moments where oil prices changed significantly.
When interest rates are decreased it causes an increase in consumer spending which creates a high demand for commodities. With this growth of investment it puts pressure on oil prices. Countries that depend heavily on importing oil become vulnerable. Yoshino and Hesary write, "The relationship between discount rates and commodity prices, stating that lower discount rates would lead to credit augmentation, which would increase commodity prices under the condition that money velocity is constant." (Yoshino & Hesary pg.6) Increased spending for an economy looks great on "paper." However, countries overlook the underlying problem which is connected to oil prices. With increased spending that means less saving. So when people are blindsided by a sudden increase in gas prices it causes them to save more and cut back on spending. This cripples producers of oil because that means less oil is being consumed and they are losing profit. This causes them to produce less which increases production costs. It is a continuous cycle of monetary decline. Inflation rates are also affected by oil prices. Yoshino and Hesary write, "This means that a depreciation of the US dollar would make oil imports cheaper in non-dollar-denominated currencies, raising oil imports and oil demand. Another exchange rate channel is as follows: a depreciation of the US dollar would cause an appreciation of non-dollar-dominated financial assets and would, in turn, arouse world oil demand because of the wealth effect." (Yoshino & Hesary pg.6) Inflation of the US dollar leads to oil imports being cheaper in foreign oil-importing countries. This raises oil demand and the price for it. It also makes foreign financial assets cheaper which attracts countries all over the world because of the huge profit that can be made while the assets are cheaper because of the decline in oil prices.
The strengths in this article are the visual graphs. It really helps you make a visual connection to the differences that a change in price of oil can have on an economy. I also like how they show you formulas that economists use to actually calculate some of the changes. I thought the author connected the inflation and interest rates to the price change in oil very well. They used real world examples that actually happened and fully explained them and created visual graphs for each scenario. The only weakness I had with the article was the referencing. The authors referenced a lot of economists or other scholars.
However I didn't have the necessary background knowledge on them. It difficult to determine if it's a credible reference.
The biggest concern for economists when oil prices change are the long term affects. If a country is heavily dependent on importing oil we want to know the long-term effect that will be felt from a decrease in oil price. When oil prices fall there tends to be less war and conflict. Most heavily importing countries favor the oil price when it is high. However, there is a violent long-term affect from this. Countries have armed conflicts over drilling sites and territories. The value of oil is so high and rewarding that lives are being taken over it. Small militia groups are formed in lesser developed nations like Kenya. These small armies burn and destroy small villages that are built near oil drilling sites. They have no morals or sense of democracy when it comes to earning a large profit. This leads into economist's next concern which is political leaders. When economies begin to spiral out of control with no reason, political leaders are the first suspects. Oil production is a very shady and unsavory business to be involved. Political leaders of countries have been imprisoned over issues concerning oil prices. For example some political leaders will take "kickbacks" from companies to allow drilling in certain areas of the country. Also, they will lower or raise import taxes so that it becomes inexpensive/expensive for producers. Lastly, high ranking Federal Reserve officials become bribed. They are persuaded by monetary benefits to lower or raise interest rates. This will cause an increase or decrease in consumer spending on oil. This allows companies to save money by cutting production if interest rates are high and consumer spending is low. It's almost like an insider trading tip.
However, these concerns are not always present or true. Manso writes, "3rd that there are no clear association or correlation between the oil price cycle and the political leaders of the main industrial and developed countries (USA, UK, F, G, Russia), because some of these leaders are contemporaneous of several expansions and contraction phases of the oil price cycles." (Manso pg.55) This is stating how hard it is to find a direct correlation between political leaders and the change in oil prices because they are so frequently changed. A political leader may implement a strategy that was secretly benefiting him and raising oil prices. However, he may not be in power or office to see the remainder of that political strategy played out. Then the next guy taking his position looks like the suspect. There are some political leaders who are corrupt and receive these kickbacks, however there are leaders who are honest and don't. In conclusion economist's long-term concerns should be more focused on the violent aspect and not political when it comes to oil price changes.
The strength of this article is in its formulas, graphs, and conclusion. The formulas and graphs help illustrate periods of expansion in an economy when oil prices are high and contraction when oil prices are low. The conclusion was also a big strength. The author went into detail and explains the reasoning behind economist's long-term concerns. Whether they are violent or nonviolent (political corruption) economists are still worried about the effects price change can cause. This helps tie together the importance of oil price changes to heavily importing oil countries and the long-term effects it can possibly have.
To summarize, oil price effects all economies worldwide. It's the most common and valuable commodity in the world. Oil price effects and is affected by interest and inflation rates. When rates are low it causes an increase in consumer spending which increases the demand for commodities. This puts pressure on producers and oil prices. These effects have caused economists to raise concern for economies in the long run.
Their concerns began with small armed conflicts in countries that are heavily dependent on oil exportation. Innocent people were being killed over territories that were used for oil drilling. If these drilling sites weren't taken by force than they were taken politically. Leaders began to impose legislation that made it very difficult or easy for countries to drill. Bribery and extortion in the political arena began to rise. Which will always be a concern for economists. Mainly because that means it is not a free-market economy. It is being manipulated by high ranking political leaders.
Wednesday 2 September 2015
British Muslims and ISIS
British Muslims through the lens of Majid Nawaaz of the Quilliam Foundation are supposedly inarticulate who depend on leftist ideological dogma to perpetuate a state of incompatible culture and "ghettoization" propounding the assimilationist policies. However, the UK is a universalist society based on British values that were most notably championed by Amnesty International in securing his release from an Egypt prison when he was incarcerated for terrorist related activities. Perhaps the hypocrisy is that Nawaaz is embracing totalitarism under the pretext of his version of reformism.
The fallacy of the argument that British values of democracy, the rule of law, individual liberty, and mutual respect and tolerance of those with different faiths and beliefs are somehow regressive leftist sedatives perpetuating a state of victimhood to score petty ideological points against "the West" is based on weak presumptions and limited understanding of British Muslims or values. In fact, British values have been around since the Magna Carta in one form or another and Convention Rights have been around since the last great war to protect against state oppression or persecution. It is also worthy of note that the true interpretation of Islam is totally compatible with the Magna Carta and Convention Rights.
However, the idea propounded by Nawaaz (a self proclaimed intonation of a libertarian Muslim) that there is some conspiracy to impose a version of Islam on the indigenous population of UK is barren rhetoric designed to feed the rapacious appetite of the far right movements like UKIP and EDL in Britain. Nawaaz presupposes that there is homogeneity and it somehow displaces loyalties because of political or religious conflicts in lands far away. But this simplistic view painfully ignores the socio-economic disquiet in British politics. It ignores the disempowerment of youth and women as a consequence of patronage politics amongst British Muslims. It disregards the sensationalist media portraying this community as a suspect community.
Whilst we acknowledge there is a small misguided minority in Britain that do hold religious ultra-literalist views of "them against us" or "Islam is under attack from the west", these people must be won over by reigning them in from the wilderness and winning their heart and minds through political engagement. The alternative is alienation and irresponsible derision designed to feed Nawaaz's or the political far rights insatiable covet for attention. It is asinine to fabricate a nexus between events abroad and criminality of a minority on our shores along religious apparition to provide a platform for Nawaaz's or the far rights benighted views of this community.
The jittery inflections that he posits in support of his assertion that 1000 British Muslims have joined ISIS is more to do with dog-whistling to the far right agenda rather than acknowledging the criminality of ultra-literalist religious grooming by unscrupulous internet predators that is the ISIS cyber-machinery. However, Nawaaz is reminded of our pride and confidence in our judicial system to stand the tests of time whether its wars or ideologies to deal with the challenges facing our great nation. Nawaaz may remain fixated with the notion that British Muslims live in a vacuum of impregnable religiosity but in reality it is he who lives in a vacuum of impregnable ignorance and ought to stick his nose out into the real world of British Muslims once in a while and smell the coffee.
The fallacy of the argument that British values of democracy, the rule of law, individual liberty, and mutual respect and tolerance of those with different faiths and beliefs are somehow regressive leftist sedatives perpetuating a state of victimhood to score petty ideological points against "the West" is based on weak presumptions and limited understanding of British Muslims or values. In fact, British values have been around since the Magna Carta in one form or another and Convention Rights have been around since the last great war to protect against state oppression or persecution. It is also worthy of note that the true interpretation of Islam is totally compatible with the Magna Carta and Convention Rights.
However, the idea propounded by Nawaaz (a self proclaimed intonation of a libertarian Muslim) that there is some conspiracy to impose a version of Islam on the indigenous population of UK is barren rhetoric designed to feed the rapacious appetite of the far right movements like UKIP and EDL in Britain. Nawaaz presupposes that there is homogeneity and it somehow displaces loyalties because of political or religious conflicts in lands far away. But this simplistic view painfully ignores the socio-economic disquiet in British politics. It ignores the disempowerment of youth and women as a consequence of patronage politics amongst British Muslims. It disregards the sensationalist media portraying this community as a suspect community.
Whilst we acknowledge there is a small misguided minority in Britain that do hold religious ultra-literalist views of "them against us" or "Islam is under attack from the west", these people must be won over by reigning them in from the wilderness and winning their heart and minds through political engagement. The alternative is alienation and irresponsible derision designed to feed Nawaaz's or the political far rights insatiable covet for attention. It is asinine to fabricate a nexus between events abroad and criminality of a minority on our shores along religious apparition to provide a platform for Nawaaz's or the far rights benighted views of this community.
The jittery inflections that he posits in support of his assertion that 1000 British Muslims have joined ISIS is more to do with dog-whistling to the far right agenda rather than acknowledging the criminality of ultra-literalist religious grooming by unscrupulous internet predators that is the ISIS cyber-machinery. However, Nawaaz is reminded of our pride and confidence in our judicial system to stand the tests of time whether its wars or ideologies to deal with the challenges facing our great nation. Nawaaz may remain fixated with the notion that British Muslims live in a vacuum of impregnable religiosity but in reality it is he who lives in a vacuum of impregnable ignorance and ought to stick his nose out into the real world of British Muslims once in a while and smell the coffee.
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