Exports and depreciation...

There has been a stable relationship between domestic currency depreciation and exports all over the world. Every time countries in the developed world are stuck in low growth period they try to give the growth a push by increasing money supply and depreciation. Even in INDIA the recent (2013) depreciation of the Indian currency to 68 pushed exports to 13%. Importers generally follow Nominal–Effective-Exchange-Rate to demand more for exports. The central bank tries to maintain NEER close to its REER or a little depreciated to increases demand for exports. But, it is not possible if the external conditions are not favorable. It is also constantly not possible because countries start complaining about trade deficit as with the US and China. China made its exports competitive by using a loose monetary policy, (but, now tightening)… NEER has a large value of inflation which is likely to go down with a consistent and credible monetary policy and REER will go up... The central bank wants to build a good foreign exchange reserve and it should also be done with a view to make exports competitive. Therefore, if our trading partners do not oppose, then the central bank must seize the opportunity to build reserves. Every-time the central bank will buy dollars it will depreciate the currency but more dollars will reduce our demand and Indian currency will start appreciating. And, all the central has to do is to push the Indian currency back to last depreciation every-time it reaches the REER… 

Black-Money, INDIA…

Money that do not go through tax-net or on which taxes are not paid in a shadow or black-economy is black-money. It is generally the money, of which, sources are not known to the government or are hidden by it by the tax-payer or attributed to wrong sources. And, many times it goes through the money laundering. Tax-evasion has been a trend all over the world and there are countries which we proudly call tax-havens. Cyprus and Switzerland are among the examples of tax-havens of the world… Black-money is not always the money which leaves the country which is a privilege of the very-rich and there is also a huge amount of it within the country which is stashed under the carpet and unknown places. We can easily expect a similar amount of black-money in and out side the economy. Nevertheless, recently the estimates of black money has come-up around  $ 2 trillion ( 2 lakh crores) deposited in Swiss bank-accounts and as we have said there is a similar magnitude of black-money with-in the country which is lot money, if unearthed, could be spent on development of the Indian economy. However, the above figures are just estimates and the actual amount must be much higher. There is also a great amount of black-money invested in gold and realty within the economy. Moreover, a lot of black-money is deposited in banks with fake sources… According to a former RBI governor the responsibility to stop the generation of black-money is with the government and tax authorities…  

The quantum of black-money is so high that it equals the half of INDIA’s GDP in terms of purchasing- power-parity (around $ 4 trillion). The amount is so high that if it is brought to the economy back and is invested in the economy the growth-rate of the economy may easily touch 10 % with out government’s support (fiscal-policy). The high growth rate, above 9%, we experienced not long back was also the result of loose fiscal-policy and higher fiscal-deficit of the UPA government. At least the above plan will not increase fiscal-deficit and hurt the country’s rating in investors’ eye. Moreover, this is likely to improve the country’s fiscal position; if taxes are paid on the black-money government revenue will go up… Recently Assocham advised the government to tax the black money around 40% and allow it to bring back to the country with a six-month dead-line… But what is the difference? Money is deposited abroad because the subjects do not want to pay taxes and even at the cost of interest rates. The interest rate on swiss bank accounts are very much low than the Indian interest rates… The only benefit of the Swiss banks is that they often do not inquire about the sources… Many banks in INDIA also do not inquire about the sources or real sources which many time help making black-money white…  

It is important for the government to incentivize bringing the black-money back to INDIA. The owners of black money are not willing to pay taxes, but the amount is so huge that it would definitely undermine the country’s growth rate and development in the long-run and the government may be forced to come to terms of the black-money owners or the government should adopt stricter rules for having deposits abroad, under complete supervision. In year 2011, the founder of wiki-leaks Julian Assange gave the government of INDIA a list of 782 Indian people having-black money in Swiss accounts, but the government did not disclose the names for confidentiality. Therefore the above figures of black money in Swiss accounts are just estimates and the Swiss banks never issued any list or disclosed any amount of Indian money deposited in their banks. The figures we have are just informed guess work. The Assocham figure’s of $ 2 trllion black-money deposited in Swiss banks is a figure for black-money out-side the country and, again, as said above we must have a similar amount of black money in INDIA, too. Therefore, now, the figure we arrived at is $ 2 trillion inside the country and $ 2 trillion out-side the country, which together now equals INDIA’a GDP in PPP terms. Therefore, the conclusion we derive from the above discussion is that the Indian economy has an equal shadow or black or parallel economy running along with its white economy which can undoubtedly contribute to supply the needs of the economy… China has officially $ 4 trillion in its reserves and it is the fastest growing economy and if the Indian economy has to catch pace with the Chinese economy then the Government must try to unearth the black money, inside and out side the Indian economy and must purposefully invest that money for the welfare of Indians. Unknowingly the economy has created a big reserve…    

German growth depends on its currency...

During the past decade Germany has relied on low prices and wages, in sum-up internal devaluation, to keep its exports competitive which can be said to be a good policy in international-trade. Both internal devaluation and depreciation of domestic currency affect prices to increase demand, but with a difference... The former directly lowers prices by a consistent monetary policy while the latter decreases prices relative to income by depreciating home currency to increase demand for exports...  However, the latter option was not available to the country since it is a part of currency union and shares its currency with many other countries... External devaluation was not possible... And, the trick, internal devaluation, did the job... Apart from China, Germany is another country which has considerable surplus in international-trade... Its foreign-trade policy can be said to be a success as far as its exports and surplus is concerned... But, lowering prices and wages are constrained by lower nominal price and wage rigidity, a corner-stone of the Keynesian Economics because it helps clear the markets and achieve full-employment, another goal of policies, after price-stability... But, the trend/pattern we have found that there is nominal downward wage rigidity but prices show no such pattern... there has been a consistent pressure on prices, in almost all the developed countries, to go down which has reasons, too... Because, in advanced countries, as compared with developing ones, where population growth rate and pressure is less, supply easily outstrips demand and in case of a deteriorating external environment, inventories easily start piling-up and economic activity slows-down and especially after the Minsky-moment which says there is an increase in risk-taking and debt after a period stability... Too much debt is responsible for low demand... Economists say that inflation erodes the value of debt because value of money goes down... It is good for the debtor, but bad for the creditor... Economists look to favor the debtor and ignore the creditor who has worked to earn that income; therefore, i think the economists should start favoring the creditor... Low real interest rates are good for investment, but bad for savings... Savings are discouraged and investment is encouraged... The question is how is this going to work because without savings how investment is possible...? To keep the savings match investment, or the other way, too... We need to keep savings attractive enough otherwise we will fall in the liquidity-trap because people will prefer accumulating reserves instead of bank deposits... therefore, to avoid liquidity- trap the central-banks must keep the bank deposits attractive... Very low levels of interest rates are not good for savings and investment, too... However without its own currency Germany will find it difficult to move from here... Further, internal devaluation will require Germany's own currency... In internal devaluation prices can not fall below the lowest denomination of Euro and for further fall in prices Germany will have to float a lower denomination of Euro... And, external devaluation is not possible without its own currency and the gains will be shared by the other countries in the Union...

Bihar’s agro-industry can give its per-capita income a push…

Bihar is mostly a service oriented economy; however the state has a vast agricultural holding. Nevertheless, manufacturing has worked positively since 2005, Bihar still has the lowest GDP per capita income in INDIA. The new government under Nitish Kumar has made several key social and economic reforms which resulted in improvement in the economy of the state. According to the Indian government’s Central Statistics Organization, between 2005 and 2009 Bihar’s GDP increased 11.03% which made Bihar the second fastest growing state after Gujarat. Bihar, now, is among the most feasible places for investment in INDIA. It has several important sources of minerals like iron-ore, coal and bauxite.

Bihar has a fertile soil and a large number of agricultural commodities – sugarcane, jute, paddy, wheat, lentils., etc., etc., are produced which serve as raw materials for industry. Bihar is the largest producer of vegetables and second largest producer of fruits in the country. It is a big grower of bhindi, cabbage, brinjal, cauliflower, and fruits like litchi, mango, banana and guava, Bihar produces 71% of all litchi production in INDIA, however, despite government’s support investment in irrigation and other facilities are far from sufficient. Many small and large businesses exist in rice-mills, sugar-mills, oil-refineries, mining and extraction, textiles, steel cement, fertilizers, and engineering and automobile products. Bihar is one of the biggest producers of vegetables and fruits in INDIA and there is a gap in investment in food-processing, and private sector initiatives are welcomed in processing and packaging for quality. To encourage investment in tea industry the government provides subsidy for setting up processing units.

Sugar industry is the largest agro-based industry in Bihar which generates a lot of employment in the sector. According to estimates, around 5 lakh farmers and their dependents are employed in the cultivation of sugarcane and around a half a lakh skilled and unskilled people, including trained and qualified technologists are employed in the sugar-industry.  There are a lot of investment opportunities in the sugar and allied industries in Bihar, in capacity expansion of the existing units, green field sugar mills, ethanol manufacturing, alcohol manufacturing, power generation, paper manufacturing, confectionary items manufacturing, engineering units and others. The sugar industry has developed in Bihar with the government’s effort to revive the industry. The industry is also helped by the weather conditions in the state which is good for producing good quality sugarcane and creates a lot of employment in the rural areas. Out of total 28 sugar mills in Bihar only 9 are working. The sugar mills are situated in Champaran, Chorma, Dulipati, Gopal ganj, Samastipur, Sitamarhi, and Supaul… The sugar industry can be divided into organized and unorganized sectors. Sugar factories fall under the organized sector and the unorganized sector comprise traditional sweeteners (gur and khandsari) which are a part of rural-industry. They are generally consumed by the village population in large quantities. To facilitate the sugar industry in Bihar the state government has proposed to privatize mills that are not running for many years. Moreover, the state government has approved 15 new sugar mills with an investment of around Rs. 3, 770 crore. The major agro based industries of Bihar are of rice, sugar, edible oil. The edible oil mills are located at Bauxer, and Lakhisarai at Munger district.  at Araria, Banmankhi in Purnia District. The rice mills are located at Bauxer Karbisganch in Purnia district, Araria. Sugar mills are located at Banmankhi in Purnia District, Bauxer, Madora in Saran District, Samastipur and Bihata in Patna District. 

The respective per-capita income of Bihar to the national average is same at the beginning of 12th Plan Period compared to the respective per-capita income of Bihar to INDIA when the Planning was commenced in 1951. The per-capita income of Bihar is 15, 268 which is 40.1% of the national average.  In the past few years Bihar has been able to reverse the trend and this is also because of double digit GSDP growth and low GDP growth at the national level. Till 2005 the per-capita income of Bihar was 30% of the national average which later increased to 40% in the year 2012. The speed with which Bihar’s per-capita income is increasing, it will take, atleast, 30 years to catch-up the national average. According to experts to speed-up the recovery in per-capita income Bihar must give thrust to the agriculture sector. Besides increasing the per-capita income, the agriculture sector would increase the demand for other products which is likely to push economic growth and GSDP. Industrialization should be promoted generally and agro-based industries more specifically. Experts believe that high population growth rate is also responsible for low per-capita income.  Sustained development of the agricultural sector is crucial for increase in farmers’ income because only industries can add-value to the agricultural products…