We need to apply the potential of social business to solve problems of inequality and unemployment
Background: >The article talks about the problems faced by humanity in the form of poverty, unemployment and inequality and the failure of the current economic system to find a solution to them. >The article puts forward the idea of a new economic system known as ‘social business’ to achieve a more just and equitable society. The idea is invented by Muhammad Yunus of Bangladesh, who won a Nobel Peace Prize in 2006. What is the problem related to Poor? >Low-income people in the world’s richest nations suffer from the same problems the poor faced in poorer nations: >lack of institutional services >health care >inadequate education >substandard housing, and so forth.What is the reason of Failure of Government’s Program. Crisis of Capitalism >The present period of unparalleled prosperity has failed to solve the crisis of billions who suffer from poverty, hunger and disease. .The establishment of the MDGs led to significant progress on several fronts in the battle against poverty, however it fell short of achieving the desired goals. .>The year 2008 will go down in history as the year of a rude awakening about the gross weaknesses in our capitalist system. >It was the year of the food price crisis, the oil price crisis, the financial crisis, and the ever-worsening environmental crisis. >The continuing high food prices have created tremendous pressure in the lives of poor people, for whom basic food can consume as much as two-thirds of their income. >The central problem with capitalism as it is now practised is that the system recognises only one goal — the selfish pursuit of individual profit. What is social business? >Social business was defined by Nobel Peace Prize Laureate Professor Muhammad Yunus. >Social business is a cause-driven business. >In a social business, the investors/owners can gradually recoup the money invested, but cannot take any dividend beyond that point. >Purpose of the investment is purely to achieve one or more social objectives through the operation of the company, no personal gain is desired by the investors. >The impact of the business on people or environment, rather the amount of profit made in a given period measures the success of social business. Economics of Social business >Millions of people around the world are eager to pursue social goals, including the elimination of poverty, unemployment, and environmental degradation. >All three can be dramatically reduced if we simply begin designing businesses with these goals in mind. And that is where social business plays a crucial role. >Social business offers advantages that are available neither to profit-maximising companies nor to traditional charities. >The freedom from profit pressures and from the demands of profit-seeking investors helps make social businesses viable even in circumstances where current capitalist markets fail. >And because a social business is designed to generate revenues and thereby become self-sustaining, it is free from the need to constantly attract new streams of donor funding. >Thus, the economics of social business can be simple and sustainable. >It’s time to apply the potential of social business to solving the problems of inequality, unemployment and environmental decay. The Way Forward >We owe it to future generations to begin moving towards a world of three zeros: zero poverty, zero unemployment, and zero net carbon emissions. A new economic system in which social business plays an essential role can enable us to achieve this goal.
The faltering economy
Context Last week, the current account deficit (CAD) widened to a four-year high. A set of weak economic numbers has left the Central government scrambling to do something to set things in order. Finance Minister Arun Jaitley last week promised appropriate action to revive the economy. What is data of weak Economic Activities? The expansion in gross domestic product slowed to a multi-year low of 5.7% in the first quarter of 2017-18, >Industrial output growth dropped to 1.2% in July, compared to 4.5% a year earlier. >In addition, retail price inflation jumped to a five-month high of 3.36% in August from 2.36% in July, further dimming the prospects of a monetary stimulus from the Reserve Bank of India to help boost the economy. >To complicate matters, we have a widening Current Account Deficit. >A number of factors could be responsible for this: >Merchandise exports: One of the major reasons for the current deficit is the greater increase in merchandise imports than exports >Increase import of Gold: Imports increased because of a rise in demand for gold(almost threefold) due to the upcoming festive season and tweaks in trade pacts with countries such as South Korea >Services -Fall in exports of Services due to domestic industry issues and increased protectionism worldwide. >Lower farm growth and government expenditure. >The prolonged effect of demonetization >The consequences of new tax regime(Introduction of GST) What could be done to revive the economy?>There is talk that increased fiscal spending to the tune of Rs. 50,000 crore or more may be approved by the government to make up for lack of private investment. >A fiscal stimulus would revive spending in the short term and will not address any of the production bottlenecks in the economy >In addition, the imports of Gold need to be checked. Tweaks in FTA’s with foreign countries should be corrected to check illegal trade from third parties. >The example of in the current scenario is that of the Illegal imports from South Korea that is not even amongst the world’s major producers or exporters of gold and related products. >The various rigidities in the market for land and labour have been holding back the economy for decades now, stopping investors from risking their capital on large-scale projects needed to boost growth. This needs to be addressed to find a viable solution to the problems. >Further, the overall unease involved in doing business in the country and the even larger uncertainty looming around the rules that govern the conduct of business have seriously held back growth. >Effects of new tax regime should be carefully watched. >Incentives to exporters and increase in budget expenditure to their interest. >India should be prepared for the impending tightening of monetary policy regime in U.S. and other countries as India has survived the current deficit on account of a strong capital account surplus. >Also, India should seek to resolve the impending issues with other countries and organizations such as EU(regarding IPR regime and others) so that the India-EU FTA process could be hastened which could prove to be a major boon for services sector.Similarly, India’s push for a Services pact along with a goods pact in RCEP is a step in the right direction.
Who’s lending to Indian businesses?
Brief overview >Banks share in the new credit have fell in FY1. Corporate bond issuances have rose 56% and NBFCs have lent more. About RBI’s annual report >The banks are busy chipping away at their mountain of bad loans and operating on precarious levels of capital. >Reserve Bank of India’s recently released annual report for 2016-17 that shows that many new sources of finance are springing up. >Domestic businesses are increasingly turning to the bond markets, Non-Banking Finance Companies (NBFCs) and foreign direct investors to meet their funding needs. >RBI’s compilation on the ‘Flow of financial resources to the commercial sector’ shows that FY17 marked a watershed year for Indian banks’ share in commercial credit. Other impacts >In the four years ending FY17, domestic businesses have soaked up between 12 lakh crore and 15 lakh crore, per year in credit funding. Until FY16, the banking system met 50% or more of this requirement. >But in FY17, banks’ share in new credit slumped to 35%, while non-bank sources met 65% of the financing requirement. >Non-bank sources lent as much as Rs. 9 lakh crore to businesses, dwarfing bank credit flow of Rs. 5 lakh crore. Improvement in Bond market buoyancy >The bond market has seen a remarkable pickup in the last three years. >In FY17, public issues and private placements of corporate bonds (including commercial paper) raised Rs. 3.16 lakh crore for firms, a 56% jump from the Rs. 2.03 lakh crore in FY16. >This took care of 22% of the total funding requirements of commercial enterprises. >This number has almost doubled from Rs. 1.65 lakh crore in FY14. >This data only includes the bonds directly floated by commercial enterprises, and not the money raised by finance companies for on-lending. What has prompted the sudden takeoff of Public issues and private placements of corporate bonds? >On the borrowing side, firms have taken to bond issues to source more of their requirements because bond markets have transmitted the recent fall in interest rates much more quickly and effectively than banks. In the last couple of years, it has been much cheaper for high-quality corporate borrowers to tap bond markets. >On the lending side, retail savings flooding into mutual funds, insurance firms and pension funds have helped stoke the domestic institutional investors’ demand for bonds. >These trends, taken with active efforts by the RBI, suggest that bond markets may continue to remain a leading source of credit to businesses, offering stiff competition to banks. >The only caveat is that the bond market route is more accessible to large enterprises with good credit ratings, than SMEs or borrowers with low ratings. Scale-up by NBFC >Non Banking Finance Companies (NBFCs) have emerged as key financiers to businesses, especially MSMEs. >NBFC lending jumped 28% over FY16. >For long, it was a sore point with entrepreneurs that the large corporate borrowers ended up cornering the lion’s share of bank credit, with lending procedures effectively keeping out Micro Small and Medium Enterprises. >In the last three years though, wholesale NBFCs have aggressively stepped into the breach. >Leveraging their deep regional reach, closer relationships with customers and alternative credit appraisal systems, NBFCs have driven a manifold expansion in loans against property and unsecured business loans to MSMEs. Factors that led NBFCs to expand >A Crisil study in 2016 noted that NBFCs had gained a 3 percentage point share of overall credit pie from banks in the last three years as a result of their mortgage and MSME lending push, and would continue to gain share over the next three years. >Housing finance NBFCs have emerged as a major source of funds for real estate developers too, with financial institutions such as LIC, SIDBI, National Housing Bank and NABARD playing a complimentary role in funding other businesses. >Two factors have helped NBFCs expand their lending activities at the cost of banks – their comfortable capital adequacy ratios and their ability to borrow at lower costs due to falling interest rates. >In the last couple of years, NBFCs have been even more aggressive than corporate in tapping the bond markets for capital. >They have also augmented their resources by borrowing from banks and institutional investors through securitization deals. >Lately, there is worry the sluggish property market will force NBFCs to tread more cautiously on loans against property. >It is important that rather than External Commercial Borrowings or short-term credit, it is the more durable FDI money that is meeting this need. >It is essential to recognize that these cannot completely substitute for bank lending. >The other useful take away from the analysis is that one can no longer assume a one-to-one correlation between bank credit growth and the GDP growth numbers. >To really measure credit expansion in the economy, we need data on both bank and non-bank lending.
All you need to know about Graded Surveillance Measure
All you need to know about Graded Surveillance Measure