Q40:-HOW BLACK MONEY AFFECTS INDIAN ECONOMY

BLACK MONEY

The core of a legitimate economy is white money. Black money refers to the income on which tax has been totally or partly evaded. Part of this money is utilized for consumption and part for hoarding or investment. It follows from this fact that black money goes unaccounted for during a country's tax assessment period.
The massive circulation of black money could pose a big menace to a country’s economy and has the potential to undermine the entire fiscal structure of a country. It also causes huge losses in tax revenues to the government. The evil of black money does not revolve around a particular country but is a global phenomenon, although in poorer countries the threat from it is more pronounced than in relatively wealthier ones.

Introduction:

The CBDT is hopeful of collecting more than Rs 7,000 crore (Rs 70 billion) as income tax area, the target indicated by Finance Minister P Chidambaram for the current financial year. The board has already collected Rs 3,400 crore (Rs 34 billion) during the first six months of the current fiscal year, compared to Rs 2,700 crore (Rs 27 billion) in the same period a year earlier.Finance Minister P Chidambaram's Budget speech for 2004-05 shows there were only 27 million taxpayers in the country on the date of the presentation of the Budget. This indicates the tax evasion rampant in the country.
The economy keeps growing and so does the deficit, while the revenues do not increase in the same proportion as the economy grows. There could be a number of reasons for the shortfall, which may vary from year to year like recession in the industrial sector or shortfall in agricultural production

History:

The period 1946-61 was one of the intense creativity. A black or parallel economy emerged both in the wake of the Second World War and the expansion of the economic activity in the post-independence period. Incentives were provided through the taxation laws to promote savings and investment; this made the tax laws more complex. Then, there was the need for larger revenues to finance the plans of economic development. Thorough investigations were, therefore, conducted into the structure of taxation not only with a view to widen the base of income tax but also to look for new taxes and to prevent tax evasion and avoidance. The Income-tax administration came under heavy strain due to the increase in the volume and complexity of its work.

Indian black-money

India currently tops the list for black money in the entire world with almost US$1,456 billion in Swiss banks (USD 1.4 trillion approximately) in the form of unaccounted money.According to the data provided by the Swiss Banking Association, India has more black money than the rest of the world combined Indian Swiss bank account assets are worth 13 times (1300%) the country’s national debt, and, if this black money is brought back to the country, India has the potential to become one of the richest countries in the world.

The proliferation of a parallel economy

Black money is generated through activities that are kept hidden from the purview of authorities. Taxes are not paid on this money. Contrasted to this is the white money that is shown in relevant accounts and tax paid, if due. The circulation of black money gives rise to what is referred to as a ‘parallel economy’-- an economy that stands diametrically opposite to a legitimate economy. Parallel economy has various monikers and are also referred to as ‘black economy’, ‘unaccounted economy’, ‘illegal economy’, ‘subterranean economy’, or ‘unsanctioned economy’.
India, for instance, which has of late witnessed a shocking number of black money hoarders being exposed, the money involved in illegal transactions (parallel economy) is estimated to account for anywhere between 20% and 50% of the country’s GDP. Experts even maintain that the amount of balk money generatein India could be double of Some observers even maintain that the annual rate of growth of black money in India is higher than the annual growth-rate of its GDP.

The genesis

The genesis of black money can be attributed to several factors. However, the most widespread tale on black money is associated with World War II. The supply of industrial goods to the Allies was cut during the War from their traditional suppliers, leading to a severe shortage of vital necessities. This prompted the British Government to indulge in excessive inflationary finance tactics for its war efforts, leading to a sharp rise in the prices of commodities. Tax rates on higher incomes and excess profits were also raised, prompting many to resort to black marketing and tax evasive measures. People made huge profits by dealing in items in short supply giving rise to a psychology that more money could be made from shortages than from production and expansion of business.

Controlling flow of black money

The menace of black money stares Indian economy in its face. Ironically, one of the main causes for the continued and widespread prevalence of black money in India is the government’s apathy and leniency. Moreover, following the abolition of the Gift Tax Act, black money racketeers have found more lee-way in generating such unaccounted money. The Act, constituted in April 1958, stated that all gifts in excess of Rs 25,000, in the form of cash, draft, check or others, received from one who doesn't have congenital relations with the recipient, were taxable

Misuse of productive resources

Black money in an economy tends to cripple the free flow of a country's resources in the right direction. It also widens the income gap. Salaried individuals, especially those in the lower rung of the corporate ladder, do not see their incomes rising unlike those in the higher echelons as it can be safely assumed that the latter group has huge sources of unaccounted income, the vindication of which comes from news reports almost on a daily basis.
An impediment to a country's growth indicators
The presence of unaccounted money acts as a block on the right assessment of a country's progress. The assessment of a country's progress is dependent on the accurate calculation of the savings-to-income ratio and sector-wise composition of national income. The floating of black money could Again, black money is usually parked in so-called safe tax havens overseas, which is a huge drain on the national exchequer. This way, a country also unwittingly becomes a ‘de facto’ lender of capital to more advanced and wealthier nations.

CONCLUSION:

There had been umpteen talks and voluntary disclosure schemes in the past for checking evasion and black money, but no perceivable results have come. Rather, the quantum of black money in circulation has increased substantially in volume. There is one sure medicine: eliminate the population and both unemployment and inflation will be eliminated. So long as cash transactions continue to be made, tax evasion will be there and black money will continue to be generated.

REFERENCE:

http://www.flame.org.in/blackmoney.htm
http://www.echeat.com/essay.php?t=28005
http://en.wikipedia.org/wiki/Black_market

General Agreement on Trade in Services

1. INTRODUCTION

Trade in Services refers to the sale and delivery of an intangible product, called a service, between a producer and consumer. Trade in services takes place between a producer and consumer that are, in legal terms, based in different countries, or economies, this is called International Trade in Services.

The General Agreement on Trade in Services (GATS) is a treaty of the World Trade Organization (WTO) that entered into force in January 1995 as a result of the Uruguay Round negotiations. The treaty was created to extend the multilateral trading system to service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade.

All members of the WTO are signatories to the GATS. The basic WTO principle of most favoured nation (MFN) applies to GATS as well. However, upon accession, Members may introduce temporary exemptions to this rule.

2. Historical background

Before the WTO's Uruguay Round negotiations began in 1986, public services such as healthcare, postal services, education, etc. were not included in international trade agreements. Most such services have traditionally been classed as domestic activities, difficult to trade across borders, notwithstanding the fact that for example educational services have been "exported" for as long as universities have been open to international students. Nevertheless, foreign participation has existed in many countries prior to the GATS. While the overall goal of the GATS is to remove barriers to trade, members are free to choose which sectors are to be progressively "liberalised", i.e. marketised and privatised, under which mode of supply a particular sector would be covered under, and to what extent to which liberalisation will occur over a given period of time. Members' commitments are governed by a "ratchet effect", meaning that commitments are one-way and should not be wound back once entered into. This reason for this is the creation of a stable trading climate

3.DECISIONS

Ministers decide to recommend that the Council for Trade in Services at its first meeting adopt the decision on subsidiary bodies set out below.

The Council for Trade in Services,

Acting pursuant to Article XXIV with a view to facilitating the operation and furthering the objectives of the General Agreement on Trade in Services,

Decides as follows:

1. Any subsidiary bodies that the Council may establish shall report to the Council annually or more often as necessary. Each such body shall establish its own rules of procedure, and may set up its own subsidiary bodies as appropriate.

2. Any sectoral committee shall carry out responsibilities as assigned to it by the Council, and shall afford Members the opportunity to consult on any matters relating to trade in services in the sector concerned and the operation of the sectoral annex to which it may pertain. Such responsibilities shall include:

(a) to keep under continuous review and surveillance the application of the Agreement with respect to the sector concerned;

(b) to formulate proposals or recommendations for consideration by the Council in connection with any matter relating to trade in the sector concerned;

(c) if there is an annex pertaining to the sector, to consider proposals for amendment of that sectoral annex, and to make appropriate recommendations to the Council;

(d) to provide a forum for technical discussions, to conduct studies on measures of Members and to conduct examinations of any other technical matters affecting trade in services in the sector concerned;

(e) to provide technical assistance to developing country Members and developing countries negotiating accession to the Agreement Establishing the World Trade Organization in respect of the application of obligations or other matters affecting trade in services in the sector concerned; and

(f) to cooperate with any other subsidiary bodies established under the General Agreement on Trade in Services or any international organizations active in any sector concerned.

4. Services trade

Ranging from architecture to voice-mail telecommunications and to space transport, services are the largest and most dynamic component of both developed and developing country economies. Important in their own right, they also serve as crucial inputs into the production of most goods. Their inclusion in the Uruguay Round of trade negotiations led to the General Agreement on Trade in Services (GATS).

5.MODES OF SUPPLY

Mode 1: Cross-border supply Service delivered within the territory of the Member, from the territory of another Member Service supplier not present within the territory of the member . Mode 2: Consumption abroad Service delivered outside the territory of the Member, in the territory of another Member, to a service consumer of the Member. Mode 3: Commercial presence Service delivered within the territory of the Member, through the commercial presence of the supplier Service supplier present within the territory of the Member. Mode 4: Presence of a natural person Service delivered within the territory of the Member, with supplier present as a natural person.

Criticisms

The GATS document has been criticized for tending to substitute the authority of national legislation and judiciary with that of a GATS Disputes Panel conducting closed hearings. WTO member-government spokespersons are obliged to dismiss such criticism because of prior commitment to perceived benefits of prevailing commercial principles of competition and 'liberalisation'.

While national governments have an option to exclude any specific service from liberalisation under the GATS, they are also under international pressure, from business interests, to refrain from so excluding any service "provided on a commercial basis". However, important public utilities including water and electricity supply most commonly involve purchase by consumers and are thus demonstrably "provided on a commercial basis". The same may be said of many health and education services which are sought to be 'exported' by some countries as profitable industries.^[3]

This definition makes virtually any public service "provided on a commercial basis" except for certain areas as police, the military, justice system and public administration. Over a long time perspective, this could open up for the privatisation or marketisation of large parts, and possibly all, of what today are considered public services currently available for the whole population of a country as a social entitlement, paid for out of general taxation, to be restructured, marketised, contracted out to for-profit providers, and eventually fully privatised and only available to those who can pay for them. This process is currently far advanced in most countries, usually (and intentionally) without properly informing or consulting the public as to whether or not this is what they want.

submitted by:

ASNEET KAUR

M.B.A (semi 1)

sec:A

Assignment -1

WHY DO NOT PRICE DECLINE DURING RECESSION?

INTRODUCTION

During the time where our economy is booming the prices of things commonly rise due to the amount of money that is on the market. People have more money to spend, so they are inclined to pay higher prices for items so would not it make sense that while a recession prices for many items should go down? However this does not occur & during a recession prices usually stay the same rise to as lower degree than during economic boom. Why this? It may not seem like it but it is merely a matter of supply & demand. One of the most basic economic principles is that of supply & demand. As demand goes up outpace the supply available .Such as in an economic expansion, prices do not go down during a recession. Many consideration affect prices of goods & services in capitalist economy.

Four basic factors that affect the level of prices are

Supply of money

Supply of goods

Demand for money

Demand for goods

During a boom, we expect the demand for money & goods to both group & supply to go down. Because of this expectation one would initially assume that in a time a of economic down turn that the opposite would occur however this is merely true.

The main thing to reminder when considering inflation is that it does fall during recession. However it willnewver go below zero & experience any sort of deflation because of the ever increasing supply of money. Recessions are periods of time when people become afraid that they will not have enough money to live the way that they are used to living or that a pending recession most certainly means that they will loose the money that they have worked so hard to earn. It is true that for many people a recession brings unfortunate news and some cuts to the job market which could mean the loss of jobs and the stagnation of business growth. But you must remember that although a recession may make these unfortunate events more likely, they are not guaranteed and certainly not everyone will be directly affected. In fact some areas of the market see no effect at all.

MEANING OF RECESSION

A recession as the time when business activity has reached its peak and starts to fall until the time when business activity bottoms out.

DEFINITION OF RECESSION

The definition of a recession is a decline in a country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year. A recession may involve declines at the same time in the measures of overall economic activity such as employment, investment, and corporate profits. Recessions may also be a combined with deflation, or, alternatively, sharply rising prices or inflation. An economic depression is a severe or long recession.

Feature of recession

A recession in economics is defined by a period of at least 2 quarters of negative gdp.A recession is caused by fall in GDP,

Recession tend to lead to reductions in confidence which can further reduce consumption or investment spending

In recession, however govt tend to borrow more money which leads to increased public spending in an attempt to offset the reduction in consumption or investments.’

Sometimes recession is caused by reduction in exports which may be due to a world recession.

This should lead to reduction in exchange rates which would reduce the price of exports.

Why do not prices fall during a recession?

The reason we can have both recession & inflation is because wages are “sticky” & normally people do not accept lower wages in a time of recession.

The prices for most goods & services will also stay the same in early stages of recession.

CAUSES OF RECESSION

Many factor contribute to an economy‘s fall into recession but the major cause is inflation. Inflation refers to general rise in price of goods & services over period of

Time. The rise rate of inflation, smaller the % of goods & services that can be purchased with the same amount of money, inflation can happen for reason as varied as increased production cost, higher energy cost & national debts.

IMPACT OF RECESSION

Saving in a recession private sector saving tends to rise. This is because people become more nervous to spend .The specture of unemployment encourages people to save more & spend less.

Consumption will tend to fall because people are worse off.

Government spending in recession government have to spend more unemployment benefits.

CONCLUSION

For many the best advice for how to invest during a recession is simply to not be afraid of the perceived risks. Investing is risky no matter what the market is doing. Some people can make a lot of money in the stock market, while others play it safe, invest over the period of a few years and end up with just a little more money than what they started with. The fact that we are or are not in a recession simply changes the details of investing, not the fact that you should or should not continue your financial planning strategy.

Submitted To: - Gurdeepak Singh

Submitted By :- Rupinder Kaur MBA 1st (A)

IMPACT OF GLOBALISATION ON INDIA

Question No – 35

INTRODUCTION:

Globalisation is the new buzzword that has come to dominate the world since the nineties of the last century with the end of the cold war and the break-up of the former Soviet Union and the global trend towards the rolling ball. The frontiers of the state with increased reliance on the market economy and renewed faith in the private capital and resources, a process of structural adjustment spurred by the studies and influences of the World Bank and other International organisations have started in many of the developing countries. Also Globalisation has brought in new opportunities to developing countries. Greater access to developed country markets and technology transfer hold out promise improved productivity and higher living standard. But globalisation has also thrown up new challenges like growing inequality across and within nations, volatility in financial market and environmental deteriorations. Another negative aspect of globalisation is that a great majority of developing countries remain removed from the process. Till the nineties the process of globalisation of the Indian economy was constrained by the barriers to trade and investment liberalisation of trade, investment and financial flows initiated in the nineties has progressively lowered the barriers to competition and hastened the pace of globalisation.

Definition:

Globalised World - What does it mean?

Does it mean the fast movement of people which results in greater interaction?

Does it mean that because of IT revolution people can be in touch with each other in any part of the world?

Does it mean trade and economy of each country is open in Non-Intrusive way so that all varieties are available to consumer of his choice?

Does it mean that mankind has achieved emancipation to a level of where we can say it means a social, economic and political globalisation?

Though the precise definition of globalisation is still unavailable a few definitions worth viewing, Stephen Gill: defines globalisation as the reduction of transaction cost of transborder movements of capital and goods thus of factors of production and goods. Guy Brainbant: says that the process of globalisation not only includes opening up of world trade, development of advanced means of communication, internationalisation of financial markets, growing importance of MNC's, population migrations and more generally increased mobility of persons, goods, capital, data and ideas but also infections, diseases and pollution.

DISCUSSION:

Impact on India:

India opened up the economy in the early nineties following a major crisis that led by a foreign exchange crunch that dragged the economy close to defaulting on loans. The response was a slew of Domestic and external sector policy measures partly prompted by the immediate needs and partly by the demand of the multilateral organisations. The new policy regime radically pushed forward in favour of amore open and market oriented economy.

Major measures initiated as a part of the liberalisation and globalisation strategy in the early nineties included scrapping of the industrial licensing regime, reduction in the number of areas reserved for the public sector, amendment of the monopolies and the restrictive trade practices act, start of the privatisation programme, reduction in tariff rates and change over to market determined exchange rates.

Over the years there has been a steady liberalisation of the current account transactions, more and more sectors opened up for foreign direct investments and portfolio investments facilitating entry of foreign investors in telecom, roads, ports, airports, insurance and other major sectors.

The Indian tariff rates reduced sharply over the decade from a weighted average of 72.5% in 1991-92 to 24.6 in 1996-97.Though tariff rates went up slowly in the late nineties it touched 35.1% in 2001-02. India is committed to reduced tariff rates. Peak tariff rates are to be reduced to be reduced to the minimum with a peak rate of 20%, in another 2 years most non-tariff barriers have been dismantled by march 2002, including almost all quantitative restrictions.

India is Global:
The liberalisation of the domestic economy and the increasing integration of India with the global economy have helped step up GDP growth rates, which picked up from 5.6% in 1990-91 to a peak level of 77.8% in 1996-97. Growth rates have slowed down since the country has still bee able to achieve 5-6% growth rate in three of the last six years. Though growth rates has slumped to the lowest level 4.3% in 2002-03 mainly because of the worst droughts in two decades the growth rates are expected to go up close to 70% in 2003-04. A Global comparison shows that India is now the fastest growing just after China.

This is major improvement given that India is growth rate in the 1970's was very low at 3% and GDP growth in countries like Brazil, Indonesia, Korea, and Mexico was more than twice that of India. Though India's average annual growth rate almost doubled in the eighties to 5.9% it was still lower than the growth rate in China, Korea and Indonesia. The pick up in GDP growth has helped improve India's global position. Consequently India's position in the global economy has improved from the 8^th position in 1991 to 4^th place in 2001. When GDP is calculated on a purchasing power parity basis.

Globalisation in the form of increased integration though trade and investment is an important reason why much progress has been made in reducing poverty and global inequality over recent decades. But it is not the only reason for this often unrecognised progress, good national polices , sound institutions and domestic political stability also matter.

Despite this progress, poverty remains one of the most serious international challenges we face up to 1.2 billion of the developing world 4.8 billion people still live in extreme poverty.

But the proportion of the world population living in poverty has been steadily declining and since 1980 the absolute number of poor people has stopped rising and appears to have fallen in recent years despite strong population growth in poor countries. If the proportion living in poverty had not fallen since 1987 alone a further 215million people would be living in extreme poverty today.

India has to concentrate on five important areas or things to follow to achieve this goal. The areas like technological entrepreneurship, new business openings for small and medium enterprises, importance of quality management, new prospects in rural areas and privatisation of financial institutions. The manufacturing of technology and management of technology are two different significant areas in the country.

There will be new prospects in rural India. The growth of Indian economy very much depends upon rural participation in the global race. After implementing the new economic policy the role of villages got its own significance because of its unique outlook and branding methods. For example food processing and packaging are the one of the area where new entrepreneurs can enter into a big way. It may be organised in a collective way with the help of co-operatives to meet the global demand.

Understanding the current status of globalisation is necessary for setting course for future. For all nations to reap the full benefits of globalisation it is essential to create a level playing field. President Bush's recent proposal to eliminate all tariffs on all manufactured goods by 2015 will do it. In fact it may exacerbate the prevalent inequalities. According to this proposal, tariffs of 5% or less on all manufactured goods will be eliminated by 2005 and higher than 5% will be lowered to 8%. Starting 2010 the 8% tariffs will be lowered each year until they are eliminated by 2015.

GDP Growth rate:

The Indian economy is passing through a difficult phase caused by several unfavourable domestic and external developments; Domestic output and Demand conditions were adversely affected by poor performance in agriculture in the past two years. The global economy experienced an overall deceleration and recorded an output growth of 2.4% during the past year growth in real GDP in 2001-02 was 5.4% as per the Economic Survey in 2000-01. The performance in the first quarter of the financial year is5.8% and second quarter is 6.1%.

Export and Import:

India's Export and Import in the year 2001-02 was to the extent of 32,572 and 38,362 million respectively. Many Indian companies have started becoming respectable players in the International scene. Agriculture exports account for about 13 to 18% of total annual of annual export of the country. In 2000-01 Agricultural products valued at more than US $ 6million were exported from the country 23% of which was contributed by the marine products alone. Marine products in recent years have emerged as the single largest contributor to the total agricultural export from the country accounting for over one fifth of the total agricultural exports. Cereals (mostly basmati rice and non-basmati rice), oil seeds, tea and coffee are the other prominent products each of which accounts fro nearly 5 to 10% of the countries total agricultural exports.

Where does Indian stand in terms of Global Integration?

India clearly lags in globalisation. Number of countries have a clear lead among them China, large part of east and far east Asia and eastern Europe. Lets look at a few indicators how much we lag.

ÂOver the past decade FDI flows into India have averaged around 0.5% of GDP against 5% for China 5.5% for Brazil. Whereas FDI inflows into China now exceeds US $ 50 billion annually. It is only US $ 4billion in the case of India

ÂConsider global trade - India's share of world merchandise exports increased from .05% to .07% over the pat 20 years. Over the same period China's share has tripled to almost 4%.

ÂIndia's share of global trade is similar to that of the Philippines an economy 6 times smaller according to IMF estimates. India under trades by 70-80% given its size, proximity to markets and labour cost advantages.

ÂIt is interesting to note the remark made last year by Mr. Bimal Jalan, Governor of RBI. Despite all the talk, we are now where ever close being globalised in terms of any commonly used indicator of globalisation. In fact we are one of the least globalised among the major countries - however we look at it.

ÂAs Amartya Sen and many other have pointed out that India, as a geographical, politico-cultural entity has been interacting with the outside world throughout history and still continues to do so. It has to adapt, assimilate and contribute. This goes without saying even as we move into what is called a globalised world which is distinguished from previous eras from by faster travel and communication, greater trade linkages, denting of political and economic sovereignty and greater acceptance of democracy as a way of life.

CONCLUSION

The implications of globalisation for a national economy are many. Globalisation has intensified interdependence and competition between economies in the world market. This is reflected in Interdependence in regard to trading in goods and services and in movement of capital. As a result domestic economic developments are not determined entirely by domestic policies and market conditions. Rather, they are influenced by both domestic and international policies and economic conditions. It is thus clear that a globalising economy, while formulating and evaluating its domestic policy cannot afford to ignore the possible actions and reactions of policies and developments in the rest of the world. This constrained the policy option available to the government which implies loss of policy autonomy to some extent, in decision-making at the national level.

Submitted to – Mr Gurdeepak Singh

Submitted by – Kamal jeet togra

Class – Mba (Semester 1)

Section – A

social cost of carbon

what is carbon??
Carbon is a chemical element with symbol C and atomin no. 6.As a member of group 14 on a periodic table it is non metalli and tetravalent making 4 electrons available to form covalent chemical bonds.There are 3 naturaly occuring isotopes,with and 13C being stable,while 14C is radio active,decaying with a half life of 5730 years.Carbon is one of the few elements known since antiquity.Carbon is the 50th most abundant element in the earth crust,and the fourth most abundant element in the universe by mass after hydrogen,helium,oxygen.It is present in all known life forms,and in the human body.Carbon is the 2nd most abundant element by mass
(about 18.5 %)after Oxygen.

Social cost of carbon

The social cost of carbon is the marginal cost of emitting 1 extra ton of carbon at any point at time.To calculate the SCC,the atmospheric residence time of carbon dioxide must be estimated,along with an estimate of the impacts of climate change.The impacts of extra ton if carbon dioxide in the aatmosphere must den be converted to equalent impacts when the ton of carbon dioxide was emitted.In economics,comparing impacts over time requires a discount rate.this rate determine the weight placed on impacts occuring at different times.

According to economic theory if SCC estimates were complete and markets perfect,a carbon tax should be set equal to SCC.Emission permits would also have a value equal to SCC.In reality,markets are not perfect and SCC estimates are not completes.

And amount of Carbon dioxide pollution is measured by the weight of the pollution.Sometimes this is measured directly as the weight of the carbon dioxide molecules.This is called a tone of carbon dioxide and is abbreviated 'TCO2'.Alternatively the pollutions weight can be measured by adding up only weight of the carbon atoms in the pollution,ignoring the oxygen atoms.this is called a tone of carbon and is abbrevieted by 'TC'.Estimates of dollar cost of carbon dioxide pollution is given per tone,either carbon or carbon dioxide or TC or TC2.One TC is roughly equavalent to four TCO2.

Estimate of SCC are highly uncertain.Yohe et al.(2007.813) summerized the literature on SCC estimates: peer reviewed estimates of the SCC for 2005 had an average value of dollar 43/Tc with a standard devation of dollar 83/Tc.The wide range of estimates is explained mostly by underlined uncertainities in the science of climate change,different choices of account change,different valuations of economic and non economic impacts,treatment of equity and how potential catastrophic impacts are estimated.The true SCC is expected to increase over time.The rate of increase will very likely be 2 to 4 % per year.

CARBON TAX

A carbon tax is an enviormental tax that is levid on the carbon contents of the fuel it is form of carbon pricing.Carbon is present in every fossil fuel and is realised as carbon dioxide when they are burnt.In contrast non combustion energy sources wind,sunlight,hydropower and nuclear do not convert hydro carbons to carbon dioxide.A carbon tex ca be implemented by taxing the burning of fossil fuel coal,petroleam such as gasoline,aveation fuel and natural gassine proportion to carbon content.

PRESENTED BY-HEMA (MBA I)
Submitted to - Mr. Gurdeepak singh

social cost of carbon

carbon

Apology Letter By Rajat Parashar

I am really soory that it was my great fault to not be ensure about security instructions of my gmail account. Everybody shoud be aware of its accounts security.I will be aware of my account in future .

HOUSING BUBBLE AND THE FINANCIAL CRISIS

Question No – 29

Introduction:

Housing bubble or property bubble

Housing bubble or property bubble results in the rapid growth of real estate prices and mortgage credit. When demand for real estate increases significantly, it exceeds the supply. Supply becomes tight in the short term because it takes some time to build a new house. With exceeding demand, prices and rents climb up. The growth of both price and demand supports outstanding loans, and mortgage credit accelerates. Speculators enter the market, believing that profits can be made through short-term buying and selling. Then they drive demand up even more. At some point, demand stops growing and the supply increases, resulting in a sharp drop in prices — and the bubble bursts.

Financial crisis

Financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults. Financial crises directly result in a loss of paper wealth they do not directly result in changes in the real economy unless a recession or depression follows.

Discussion:

Following the burst of the ‘dotcom’ bubble in 2000 and the 2001 terror attacks on the United States, the US and most other advanced economies embarked on a period of Sustained expansionary economic policies to ward off recession. The Federal Reserve, For instance, lowered its discount rate no less than 27 times between 2001 and 2003 Low interest rates, facilitated by the huge trade surpluses which China and other Countries used to purchase US Treasury Bonds, stimulated rapid growth in credit. Accompanying rises in house prices further fuelled credit growth, especially through Mortgage lending. In the US, sub-prime market mortgage lending, to households without the essential means to repay loans, took on huge proportions.

By the summer of 2007 increasing defaults on mortgages and growing numbers of Foreclosures in the US signaled that the sub-prime market was in crisis. House prices And financial stock prices started to plummet.

In the wake of the crisis in the US, the biggest initial fear in the rest of the world was That of financial contagion. This is the danger that financial institutions in developing Countries will be negatively affected. There are both direct and indirect ways in which this can happen. Directly, banks in developing countries may be affected to the extent to which they hold Assets contaminated by sub-prime mortgages. Many developing-country banks had limited interrelationships with foreign owned banks. There is, however, a more serious indirect threat through declines in stock market prices and housing prices. These reduce the capital of banks (and of other big firms), which in particular causes problems where they do not hold sufficient levels of their capital in cash. In such cases it is likely that banks will reduce lending in order to shore up their capital. In a worst-case scenario banks may face solvency problems and may require their governments to recapitalize them. Reductions in bank lending will have the impact of reduced investment, lower growth, and an increase in unemployment.

Even if most developing countries are spared significant damage to their own financial Systems, the fact that the advanced economies are entering a recession is likely to hurt them. For now though, it should be noted that the potential may be Significant, given that most developing countries have been basing their economic Growth in recent years on exports. Declines in commodity prices will be detrimental to the export earnings of a large Number of countries that are major exporters of commodities. But it is not just commodity-dependent countries that will be adversely affected. Recession in the United States and other G7 countries will in general reduce the demand for their exports, as these markets are important destinations of developing-country Exports. A significant proportion of US imports are from developing countries. Many of These imports are also imports of services, not just goods.

Possible outcomes:

A valid global concern is that the possible combination of banking failures and Reductions in domestic lending, reductions in export earnings, and reductions in financial flows to developing countries will end up reducing private sector investments, household consumption.

This in turn will lead to reduced government expenditure, as governments will now face the higher cost of raising funds coupled with less tax Income. Together, low investment, consumption and government expenditure could spell higher unemployment and poverty across the developing world.

Conclusion

Having studied financial crises, I come to the conclusion that crisis is ultimately political in nature. Even if it erupts as a financial crisis, its resolution would inevitably be political because the distribution of losses would be highly arbitrary and controversial. Ultimately, all financial crises are crisis of governance. Financial crises prove that financial engineering cannot create perpetual prosperity. It takes good governance, at the corporate, financial and social level, to generate long-run sustainable stability. All crises have to be solved by governments, and if not satisfactorily, by the next government. The bursting of the US housing bubble could have serious adverse consequences for the United States. Although the size and speed of the bursting of the bubble is unknown, on the scale of shock simulated here the bursting of the bubble could be sufficient to put the United States into recession a year later.

References:

· Google.com

· wikipedia.in

Submitted to – Mr Gurdeepak Singh

Submitted by – Ishtdeep Singh

Class – Mba (Semester 1)

Section – A