Showing posts with label Economics. Show all posts
Where the Rupee comes from and goes out
The major part of the government's revenue comes from borrowings. Consequently, the biggest chunk of expenditure is on interest payments.
Out of every rupee that enters the government's coffers, 29 paise is from borrowings and other debt, with corporation tax contributing 22 paise and income tax another 12 paise.
Of the remaining, customs and excise duties account for 10 paise each, with another 10 paise coming from non-tax revenue. Service taxes amount to six paise, while non-debt capital receipts contribute one paise.
On the expenditure side, 20 paise of each rupee spent is on interest payments. Then another 18 paise is on central plan outlay.
The central government has to give states 15 paise for their share of taxes and duties. Other non-plan expenditure accounts for 14 paise.
Defence accounts for 13 paise, while subsidies on food, fertilisers and energy costs nine paise.
Expenditure on state and union territory plan and non-plan assistance are seven and four paise, respectively.
Out of every rupee that enters the government's coffers, 29 paise is from borrowings and other debt, with corporation tax contributing 22 paise and income tax another 12 paise.
Of the remaining, customs and excise duties account for 10 paise each, with another 10 paise coming from non-tax revenue. Service taxes amount to six paise, while non-debt capital receipts contribute one paise.
On the expenditure side, 20 paise of each rupee spent is on interest payments. Then another 18 paise is on central plan outlay.
The central government has to give states 15 paise for their share of taxes and duties. Other non-plan expenditure accounts for 14 paise.
Defence accounts for 13 paise, while subsidies on food, fertilisers and energy costs nine paise.
Expenditure on state and union territory plan and non-plan assistance are seven and four paise, respectively.
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Economics
Lessons from Lehman Brothers crisis
LATELY, I have been thinking a lot about the Lehman crisis। Spendingmoney that they didn't have and going beyond their means is one of themain reasons for their situation today। In fact that is the cause forthe current economic crisis in the US .
When I see all this happening, I can only remember the good old days.Then, 'karz' was bad. People looked down upon those who took loans.
Parents would not give their daughter's hand in marriage to a man withloans.But of course, the times have changed now. Everyone I know has a loan.The buzz word is EMI (equated monthly instalment) . Today, you canbuy everything on EMI - a house, a television, an I-Pod. In fact Iknow of someone who just bought a fancy BMW 3 series on EMI, insteadof buying a cheaper car outright with cash. I mostly prefer to takepublic transport, but then am I an old man with old thoughts!
Anyway, coming back to what caused the crisis:
Imagine having Rs. 2-lakh in your bank account, no regular income, yetbuying a house worth Rs. 65-lakh, in the hope of selling it for ahigher price.Even if the price of the house fell by just 5 per cent(that is Rs. 3-lakh), you will go bankrupt!!!
This is what Lehman Brothers did- with around USD 20 billion they wentand bought assets worth over USD 600 billion. Isn't it suicidal andsimply foolish?
I am sure things would have been different, had I been the head ofLehman brothers. But who wants conservative man like me to heada complex financial institution. But there are a few lessons that wecan learn:
1. Live a balanced life and avoid overspending.
2. Don't buy things we don't need.
3. Don't be so specific to go for Branded goods.
4. Don't buy excess Food, Cloths, Cosmetics, Footwear, electronics andFashion accuracies just think before you buy (Tip: World still has alot of growth ahead and the future holds immense opportunities for us.Let us make the most of it and save and invest it wisely instead ofwasting our precious little on things we don't need).
5. Try to balance life with work; no one is happy in their profession.
6. Don't stress out your self, after work try to do some extraactivities like swimming, yoga, walking, running where you can divertyour mind from stress. A thumb rule: Health is more important than money.
7. Try to understand each other (wife and husband) in financialmatters and help each other (Tip: As soon as you get your monthlysalary, set aside a fixed amount, usually 35 per cent, for insurance,savings and investments and may spend the rest).
8. Not all loans are bad. Loans that are 'need-based' (home loans,education loans) can always find a place in your finances againstthose that are largely 'want-based' (credit cards, personal loans, carloans).
9. Borrow only if repayment is financially comfortable. A thumb rule:Keep EMIs within 35 to 45 per cent of your monthly income.In that respect, there is one American who I really respect- WARRENBUFFET. He has lived in the same ordinary house for over threedecades, drives his own medium sized car and leads an extremelyregular 'middle class' life. If that's all it takes for the richestperson on earth to be happy, why do all of us need to take extrastress just so that we can get things which aren't even essential?
Life is like a cardiogram; you live till it has ups & downs and diethe moment its steady॥ So welcome every ups & downs - live strong.
When I see all this happening, I can only remember the good old days.Then, 'karz' was bad. People looked down upon those who took loans.
Parents would not give their daughter's hand in marriage to a man withloans.But of course, the times have changed now. Everyone I know has a loan.The buzz word is EMI (equated monthly instalment) . Today, you canbuy everything on EMI - a house, a television, an I-Pod. In fact Iknow of someone who just bought a fancy BMW 3 series on EMI, insteadof buying a cheaper car outright with cash. I mostly prefer to takepublic transport, but then am I an old man with old thoughts!
Anyway, coming back to what caused the crisis:
Imagine having Rs. 2-lakh in your bank account, no regular income, yetbuying a house worth Rs. 65-lakh, in the hope of selling it for ahigher price.Even if the price of the house fell by just 5 per cent(that is Rs. 3-lakh), you will go bankrupt!!!
This is what Lehman Brothers did- with around USD 20 billion they wentand bought assets worth over USD 600 billion. Isn't it suicidal andsimply foolish?
I am sure things would have been different, had I been the head ofLehman brothers. But who wants conservative man like me to heada complex financial institution. But there are a few lessons that wecan learn:
1. Live a balanced life and avoid overspending.
2. Don't buy things we don't need.
3. Don't be so specific to go for Branded goods.
4. Don't buy excess Food, Cloths, Cosmetics, Footwear, electronics andFashion accuracies just think before you buy (Tip: World still has alot of growth ahead and the future holds immense opportunities for us.Let us make the most of it and save and invest it wisely instead ofwasting our precious little on things we don't need).
5. Try to balance life with work; no one is happy in their profession.
6. Don't stress out your self, after work try to do some extraactivities like swimming, yoga, walking, running where you can divertyour mind from stress. A thumb rule: Health is more important than money.
7. Try to understand each other (wife and husband) in financialmatters and help each other (Tip: As soon as you get your monthlysalary, set aside a fixed amount, usually 35 per cent, for insurance,savings and investments and may spend the rest).
8. Not all loans are bad. Loans that are 'need-based' (home loans,education loans) can always find a place in your finances againstthose that are largely 'want-based' (credit cards, personal loans, carloans).
9. Borrow only if repayment is financially comfortable. A thumb rule:Keep EMIs within 35 to 45 per cent of your monthly income.In that respect, there is one American who I really respect- WARRENBUFFET. He has lived in the same ordinary house for over threedecades, drives his own medium sized car and leads an extremelyregular 'middle class' life. If that's all it takes for the richestperson on earth to be happy, why do all of us need to take extrastress just so that we can get things which aren't even essential?
Life is like a cardiogram; you live till it has ups & downs and diethe moment its steady॥ So welcome every ups & downs - live strong.
Saving is sin, and spending is virtue.
A friend of mine,in some groups posted this interesting article written by an Indian Economist Dr.Jagdish Bhagwati.
I found it very amusing yet apt and releavant in many situations.
Japanese save a lot. They do not spend much. Also Japan exports far more than it imports. Has an annual trade surplus of over 100 billions. Yet Japanese economy is considered weak, even collapsing. Americans spend, save little. Also US imports is more than it exports. It has an annual trade deficit of over$400 billion. Yet, the American economy is considered strong and trusted to get stronger.
But where from do Americans get money to spend?
They borrow from Japan, China and even India. Virtually others save for the US to spend. Global savings are mostly invested in US, in dollars. India itself keeps its foreign currency assets of over$50 billions in US securities. China has sunk over$160 billion in US securities. Japan's stakes in US securities is in trillions.
Result : The US has taken over $5 trillion from the world. So, as the world saves for the US, Americans spend freely. Today, to keep the US consumption going, that is for the US economy to work, other countries have to remit $180 billion every quarter, which is $2 billion a day, to the US! Otherwise the US economy would go for a six. So will the global economy. The result will be no different if US consumers begin consuming less.
A Chinese economist asked a neat question. Who has invested more, US in China, or China in US? The US has invested in China less than half of what China has invested in US. The same is the case with India. India has invested inUS over $50 billion. But the US has invested less than$20 billion in India.
Why the world is after US?
The secret lies in the American spending, that they hardly save. In fact they use their credit cards to spend their future income. That the US spends is what makes it attractive to export to the US. So US imports more than what it exports year after year.
The Result : The world is dependent on US consumption for itsgrowth. By its deepening culture of consumption, theUS has habituated the world to feed on US consumption.But as the US needs money to finance its consumption,the world provides the money.
It's like a shopkeeper providing the money to a customer so that the customer keeps buying from the shop. If the customer will not buy, the shop won't have business, unless the shopkeeper funds him. The US is like the lucky customer. And the world is like thehelpless shopkeeper financier. Who is America's biggest shopkeeper financier? Japan of course. Yet it's Japan which is regarded as weak.Modern economists complain that Japanese do not spend, so they do not grow.
To force the Japanese to spend,the Japanese government exerted it self, reduced the savings rates, even charged the savers. Even then the Japanese did not spend (habits don't change, even with taxes, do they?). Their traditional postal savings alone is over $1.2 trillions, about three times the Indian GDP. Thus, savings, far from being the strength of Japan, has become its pain. Hence, what is the lesson?That is, a nation cannot grow unless the people spend,not save. Not just spend, but borrow and spend.
Dr.Jagdish Bhagwati, the famous Indian-born economist inthe US, told Manmohan Singh that Indians wastefully save. Ask them to spend, on imported cars and, seriously, even on cosmetics!
This will put India on a growth curve. "Saving is sin, and spending is virtue."
But before you follow this neo economics, get some fools to save so that you can borrow from them and spend!!!
Written by Dr Jagdish Bhagwati an economist