Friday, August 6, 2010

SHARING EQUAL POVERTY

     The National Food Security Bill is going to become a law. Even though there had been many efforts, to improve the standard of living of the marginalized sections of the society, the fundamental difference of the Bill is that it focuses to insure the availability of food grains at a free rate to these masses. The food security declaration of UN in 1996 says that it is the duty of a welfare state to insure food security of its citizens. The very root of their declaration implies that every nation is responsible to make available nutritional food for its people. The implementation of the National food security bill is based on this UN declaration.

     The world in which we live is a picture of contrasts. On the one hand we have a few countries which are economically developed and prosperous. On the other we have mainly two thirds of population living in a state of poverty and dependency. The famous Indian Welfare Economist Amartya Sen defines ‘poverty is the inability to access basic standard of living’. The emphasize here is on the word ‘basic’. Basic standard of living means getting clean water, nutrition, health care, educational, clothing and shelter. According to the definition given by World Bank, people who earn less than $1.25 per day come under Below Poverty Line (BPL). On the basis of this definition 42% of Indian population fall under Below Poverty Line. According to the statistics of Planning Commission (2004-2005) 27.5% of the population live below poverty line. N.C Saxena Committee appointed by the Central Government says that 50% of the Indian population is still poor.

     The newest estimation of poverty in India is done by Tendulkar Committee. The committee is lead by the famous Indian economist Suresh Tendulkar. He has adopted a new method to define and measure poverty. Beyond the definition of the World Bank based on the income earning, he considers health, education, sanitation facilities and amiability of nutritional food along with income earning.

     Since 1972, the estimation of poverty in India was taken place on the basis of food calorie. The people who earn and income which is not enough to make available food from which they get 2100 calorie in cities and 2400 calorie in villages come under below poverty line.

     Poverty is a relative concept. It is very difficult to determine a criterion that differentiate poverty and richness. According to beggars they are poor because they don’t get enough food to overcome hunger. There are millions of laborers who have work but don’t have even a hut. On the other hand there are people who have a shelter but don’t have income or employment. Before 2 centuries Adam Smith in his famous book “An Enquiry in to the nature and causes of Wealth of Nations” said a man is said to be rich or poor depending on the possibility of getting the living facilities to him.

     Poverty is a situation which have multiple faces. It is the sum of non availability of income, shelter, health, education and drinking water. Its is the most vulgarous social and economic face of a nation. Mainly it is caused by the absence of resources. The largest number of people living below poverty line is in India. 2260.3 million people is said to be poor. 193.2 million is from villages and the rest 67.1 form cities. According to Tendulkar Committee, in Kerala there 19.7 % people who are below poverty line.

     According to food security act going to be implemented, only BPL families will get free good grains. But it remains as an unquestionable truth there are millions of poor people who are above poverty line only in the records. However it is the best time for the govt. for a rethink to make available this facility to those kinds of people also. To achieve the purpose we have to develop in a good public distribution system (PDS). A well developed public distribution system can resist food inflation to certain extent. In India the basic living facilities that is got by a poor, and a lower middle income citizen is almost the same.

     A untited nations backed study conducted by Oxford University revealed that poverty in atlas 8 Indian States Bihar, Ulttarpradesh, Rajasthan, West Bengal, Orissa, Madhya Pradesh, Chhattisgarh and Jharkhand were worse than in some of the poorest countries of Sub Saharan Africa. These Indian states and some of the African countries whose multy dimensional poverty index (MPI) was equal to or greater than .32. (The MPI was calculated 104 countries ranging from 0 to 0.64). These states along with 26 African countries fall below that cutoff. For West Bengal, the MPI value is .32 in which 58% of people are poor. Actually the intensity of poverty In African countries is high. The population weighted MPI for 26 African countries is 0.43 where as for these Indian states it is 0.39. Even though there are signs of wiping out of poverty, one thing is sure that India has to wait many more years for the complete liberation from this curse. Perhaps Paul Octopus in Germany can predict how many years India has to wait.

Monday, March 15, 2010

GLOBAL WARMING...... WILL WE EXIST...............?????


          A combination of light and heat energy from the sun reaches earth and warms the land, oceans, and air. When earth’s surface warms up, it radiates heat which rises towards the sky. A few gases in the atmosphere called greenhouse gases (water vapor, carbon dioxide, methane, ozone etc) absorb this heat and prevent it from escaping into space, thus warming earth. Greenhouse gases keep earth warm for all living things to survive; without this warmth , earth would be about 33*C colder than it is today! However when the levels of greenhouse gases in the atmosphere increase, they trap the excess heat. Over time this results in global warming, i e , an increase in the temperature of the earth. Since 1880, large scale burning of fossil fuels and the other human activities led to an increase in the level of greenhouse gases in the atmosphere. As a result earth has warmed by 0.8*Celsius.

         Since 1980 earth has experienced 19 of its 20 hottest year on record. The sea levels are rising faster , threatening to flood coasts, wetlands and many low-lying islands. On an average, rainfall and snowfall patterns have changed across the globe. Around the world, glaciers are melting rapidly. Raised temperature has also triggered the extinction of many animal and plant species.

         It is projected that the Arctic summers might become ice free by 2040. This could prove dangerous for animals like polar bears that rely on ice for hunting. According to a report, “two thirds of the polar bear population will become extinct by 2050.” In order to survive rising temperature, all the animals and birds will be forced to adapt to their changing habitat. If the warming is gradual, many of them will be successful in doing this. If it is sudden, most of them will be unable to adapt and will become extinct. As the earth heats, 25% of earth’s species would vanish by 2050. The population of Antarctic Emperor penguins has dropped by 50 % over the past 50 years. The Himalayan glaciers are the source of some of Asia’s biggest rivers. They provide water to one third of the world’s population. Now these glaciers are receding faster than glaciers anywhere else in the world. According to Intergovernmental Panel on Climate Change, the melting of glaciers caused by climate change could seriously affect half billion people in the Himalaya-Hindu-Kush region. Warmer temperature also increase air and water pollution. Therefore 2*C rise in temperature or more will result in health problems. According to World Health Organization, conditions directly related to climate change cause 5 million illnesses each year.

Monday, March 1, 2010

IMPORTANCE OF SAVINGS AND INVESTMENT IN ONE’S LIFE

Every branch of knowledge has its own contributions that made a turning point in the historical lanes of human beings. In mechanics it is wheel, in science it is fire. In political science it is vote and in economics it is money. Money is the queen among all these fundamental discoveries. Money is anything that is generally acceptable as a means of exchange and that at the same time act a store of value. So there is no question in the fact that money is important and money does matter.

Until the middle part of twentieth century, the whole economic system was run on the basis of classical economic principles associated with the names of Adam Smith, David Ricardo, T R Malthus, J B Say, Alfred Marshall etc. their economic doctrines enjoyed wide spread authority during the late eighteenth and nineteenth century. According to them, money acts as a medium of exchange. It means that money has only one function that is transaction. But after the Great depression of 1930’s, an intellectual giant John Maynard Keynes, a favorite student of Alfred Marshall in Cambridge University came with a new set of thoughts and ideas. He published a book named ‘General Theory of Employment, Interest and Money’ in 1936. it has created a great revolution in economic history and became a landmark in modern economic thinking. In this theory Keynes examined the sore of value function of money along with transaction function. According to him demand for money arises due to three motives. They are transaction motive, precautionary motive and speculative motive.


1. Transaction motive
It refers to the demand for money for the current transaction of the people. People hold cash in order to bridge the interval between receipt of income and the expenditure. This amount will depend upon the interval at which income is received. The businessmen and entrepreneurs also will keep a portion of their resource in ready cash to meet the current needs. Keynes calls this as business motive. The amount hold in liquid form will depend upon the business turnover. Transaction demand for money is independent of rate of interest and it will remain constant at a particular level of income.

2. Precautionary motive
It refers to the desire of the public to hold cash balances for meeting unforeseen or unpredictable contingencies such as unemployment, sickness, accidents etc. The amount of money hold under this motive will depend on the nature of individuals’ income.

3. Speculative motive
It refers to the desire to hold one’s resources in liquid form in order to take advantage in market movements regarding future changes in price and rate of interest. There is an inverse relation between rate of interest and people’s tendency to spend money.

Precautionary and speculative motive induce people to save money. When people save, banks will lend this amount to businessmen for investment. Thus there is a very close relationship between savings and investment. While we understand the importance of savings and investment in one’s life it is very essential to understand the interconnection between them.

Savings refers to that part of income which is not consumed. On the other hand by the term investment we mean an addition to the stock of physical capital. Savings and investment are two crucial economic variables by which we can measure a person’s physical quality of life and standard of living. Everyone can agree that saving money as early as possible will help one and his family to achieve more stable life than someone who has no savings. Long term habit of saving money is a way of protecting someone from natural adversity that comes in his life.

According to Warren Buffet, world’s second richest person, if a person has to become a millionaire at the age of 65, then he has to save $10 per day if he is at the age of 25. If he has 35 year old, he must save $22 in a day. If he is at the age of 45, his savings requirement is $55 per day. If he wait until the age of 55, he has to save $182 per day. He assumes the saved amount of money generate 8% returns per year. This example shows the importance of savings in one’s life. The importance of savings may be analyzed on the basis of the reasons by which people are induced to save.

1. To meet unexpected expenditure in life: According to a modern monetarist Milton Friedman, people’s current income has two components namely permanent and transitory component. Transitory component refers to the amount of income generated accidentally and unanticipated. It may be positive or negative. If it is negative people’s current income will decrease and they will become unable to meet their needs. At this time savings plays a crucial role in compensating this adverse situation and rescue them from borrowing.

2. Savings act as an inducement for investment: If a person has considerable savings, he will have a feeling that he is able to meet some unexpected expenditure and to face moderate risk. This feeling induces him to make investments. Savings can provide an excellent source for future business ventures as capital. It also allows for exploring sleeping talents and other interests that may increase one’s income.

3. Makes a felling of rationality: Every normal human beings are rational in behavior. It means that they try to maximize their satisfaction with minimum spending. It induces them to save a part of their income.

4. Children’s education: One of the most important things a person can do is to educate his children. In today’s world education is very essential and so expensive. Therefore savings is very important on the side of education also. Quality based education will provide a great sense of accomplishment and peace of mind foe a person.

5. Achieve a feeling of self reliance: A habit of savings give people the ability to enjoy independence and power to do things.

6. Security of the family: Even though in the process of income determination, we take income of an individual over his entire life span, death is an accidental fact. Everyone fears death. So they are always aware of the stability and security of their family. It forces them to save a portion of their income.

Savings and investment are mutually interconnected economic variables. When we examine the importance of savings, it is very essential to understand what is the role of investment in one’s life. Keynes’s psychological law of consumption shows that income is not equal to expenditure and it makes a gap between income and consumption. It can be filled in by additional investment only. If additional investment does not take place, income and employment will inevitably fall.

According to classicals, level of investment depends on the rate of interest only. But Keynes has introduced some dynamic variables such as expectation and Marginal Efficiency of Capital. Marginal Efficiency of Capital ( MEC ) is the expected returns fro additional unit of investment. An investor will decide to invest only if the expected profit is higher than the rate of interest he has to pay. According to Keynes, out of these determinants of investment, MEC is of crucial importance. Keynes has assumed that rate of interest changes quickly and remains more or less constant. Then if MEC is higher than rate of interest, investment will be higher and vise versa. Fluctuations in the investment are due to fluctuations in the MEC. Profit is essential to induce businessmen to take risk. The probable risks are from competition and business cycles. Great the risk, higher will be the level of profit which the entrepreneur will expect. An entrepreneur is not influenced by current rate of profit but the expected rate of profit.

In modern times people prefer to invest in human capital than non human assets. It is because they have convinced that man power is the richest asset. Benjamin Franklin says “an investment in knowledge always pays the best interest”. According to Census Bureau, the agency responsible for taking the census, provide demographic information in United States, people with a bachelor’s degree earn on average nearly twice as much as people with only a high school diploma. College may be expensive but it is one of the best investments we can make. We have to invest in man power that turn the dreams we have into realities. Only an educated society can transform the world. Only a person with confidence, competence, responsibility and honesty can become a good businessman or investor. Everyday thousands of people become unemployed by working under untruthful entrepreneurs. Good investors create the backbone of the society.

In order to achieve higher growth in savings and investment, banking system has a important role to play. Banking institutions have been playing a vital role in economic development of different countries of the world. An efficient and diversified banking system is must for promoting savings and canalizing them into investment and helps to achieve a faster rate in economic growth. Thus the good health of an economy is reflected in the good health of its banking system. In modern economies banks are considered to be the dealers of money as well as leaders of development.