CH: 20 - POPULATION

Dear Students of IGCSE Grade VIII,
Get population data for any 5 Developed Economy & other 5 Developing country on 29/11/2011(Tuesday).
Its Compulsory for every one as we are going to do a class room activity on the same. 

BEST OF LUCK

Dear IGCSE students,

Wish you all the best for your 1st terminal Exam & wishing you a happy Navratri Utsav

MARKET FAILURE

Market Failure

What is market failure?

Market failure occurs when freely-functioning markets, fail to deliver an efficient allocation of resources. The result is a loss of economic and social welfare. Market failure exists when the competitive outcome of markets is not efficient from the point of view of society as a whole. This is usually because the benefits that the free-market confers on individuals or businesses carrying out a particular activity diverge from the benefits to society as a whole.

There are many instances when the free market fails to deliver an efficient allocation of resources.

Market failure results in

• Productive inefficiency: Businesses are not maximising output from given factor inputs. This is a problem because the lost output from inefficient production could have been used to satisfy more wants and needs

Allocative inefficiency: Resources are misallocated and producing goods and services not wanted by consumers. This is a problem because resources can be put to a better use making products that consumers value more highly

CAUSES OF MARKET FAILURE

Markets can fail because of:

1.     Negative externalities (e.g. the effects of environmental pollution) causing the social cost of production to exceed the private cost.

2.     Positive (or beneficial) externalities (e.g. the provision of education and health care) causing the social benefit of consumption to exceed the private benefit

3.     Imperfect information means merit goods are under-produced while demerit goods are over-produced or over-consumed

4.     The private sector in a free-markets cannot profitably supply to consumers pure public goods and quasi-public goods that are needed to meet people’s needs and wants

5.     Market dominance by monopolies can lead to under-production and higher prices than would exist under conditions of competition

6.     Factor immobility causes unemployment hence productive inefficiency

7.     Equity (fairness) issues. Markets can generate an ‘unacceptable’ distribution of income and consequent social exclusion which the government may choose to change

HOW MARKET FAILURE CAN BE CONTROLLED?

Options for government intervention in markets

There are many ways in which intervention can take place – some examples are given below

Government Legislation and Regulation

Parliament can pass laws that for example prohibit the sale of cigarettes to children, or ban smoking in the workplace.

The laws of competition policy act against examples of price-fixing cartels or other forms of anti-competitive behaviour by firms within markets.

 Employment laws may offer some legal protection for workers by setting maximum working hours or by providing a price-floor in the labour market through the setting of a minimum wage.

Regulation may be used to introduce fresh competition into a market – for example breaking up the existing monopoly power of a service provider.

Fiscal Policy Intervention

Fiscal policy can be used to alter the level of demand for different products and also the pattern of demand within the economy.

1.     Indirect taxes such as changes in VAT and excise duties can be used to raise the price of demerit goods and products with negative externalities designed to increase the opportunity cost of consumption and thereby reduce consumer demand towards a socially optimal level.

2.     Subsidies to consumers will lower the price of merit goods such as grants to students to reduce the internal costs of staying on in full-time education and subsidies to businesses employing unemployed workers on the New Deal programme. They are designed to boost consumption and output of products with positive externalities – a subsidy causes an increase in market supply and leads to a lower equilibrium price (see the separate revision focus article on producer subsidies).

3.     Tax relief: The government may offer financial assistance such as tax credits for business investment in research and development. Or a reduction in corporation tax designed to promote investment and employment.

4.     Changes to taxation and welfare payments can be used to influence the distribution of income and wealth – for example higher direct taxes on rich households or an increase in the value of welfare benefits for the poor to make the tax and benefit system more progressive. 

FREE MARKET ECONOMY

This is specially for IGCSE grade 8.
This will help you to understand FREE MARKET ECONOMY  .............

Features

• All resources are privately owned by people and firms.
• Profit is the main motive of all businesses.
• There is no government interference in the business activities.
• Producers are free to produce what they want, how much they want and for whom they want to produce.
• Consumers are free to choose.
• Prices are decided by the Price mechanism i.e. the demand and supply of the good/service.

Advantages

• Free market responds quickly to the people’s wants: Thus, firms will produce what people want because it is more profitable whereas anything which is not demanded will be taken out of production.
• Wide Variety of goods and services:  There will be wide variety of goods and services available in the market to suit everybody’s taste.
• Efficient use of resources encouraged: Profit being the sole motive, will drive the firms to produce goods and services at lower cost and more efficiently. This will lead to firms using latest technology to produce at lower costs.

Disadvantages

• Unemployment: Businesses in the market economy will only employ those factors of production which will be profitable and thus we may find a lot of unemployment as more machines and less labour will be used to cut cost.
• Certain goods and services may not be provided: There may be certain goods which might not be provided for by the Market economy. Those which people might want to use but don’t want to pay may not be available because the firms may not find it profitable to produce. For example, Public goods, such as, street lighting.
• Consumption of harmful goods may be encouraged: Free market economy might find it profitable to provide goods which are in demand and ignore the fact that they might be harmful for the society.
• Ignore Social cost: In the desire to maximise profits businesses might not consider the social effects of their actions.

  

Functions of stock exchange

Stock Exchange

It is an organized market for the sale and purchase of securities such as shares, stocks and bonds. Stock exchanges are like markets where buyers and sellers of shares, stocks and bond meet. These are known as secondary market. Once shares are issued by companies, these can again be bought or sold through a Stock exchange.

Role of Stock exchanges

Stock exchanges have multiple roles in the economy, this may include the following:

Raising capital for businesses

The Stock Exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public.

Mobilizing savings for investment

When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in a stronger economic growth and higher productivity levels and firms.

Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion.

Redistribution of wealth

Stocks exchanges do not exist to redistribute wealth. However, both casual and professional stock investors, through dividends and stock price increases that may result in capital gains, will share in the wealth of profitable businesses.

Corporate governance

By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government.

Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors.

Government capital-raising for development projects

Governments at various levels may decide to borrow money in order to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning money to the government.

Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.

BALANCE OF PAYMENT FULL NOTES

MEANING :

Balance of payment can be defined as systematic record of all economic transactions between the residence of one country and the residence of another country during a given period of time.Economic transactions can broadly be categorized in to four heads which are:

1. VISIBLE ITEMS : visible items include all those tangible goods which can be imported and exported. These are visible as they are made up of some matter or material. this is known as merchandise also.

2. INVISIBLE ITEMS: invisible items include all types of services like shipping,banking,tourist etc.

3. UNILATERAL TRANSFERS: These are those payments which are made without expecting anything in return of it like donations ,gifts etc.

4. CAPITAL TRANSFERS: Capital transfers are concerned with capital receipts and capital payments. It includes the transfer of assets.

COMPONENTS OF BALANCE OF PAYMENT:

1. CURRENT ACCOUNT: current account deals with the movement of exports and imports of goods and services. Merchandise may be private or government .It is the major item of the current account. Items of current account are as under:

A Exports and imports of visible items i.e. goods. It is also known as balance of trade.

B invisible items

C services

D unilateral transfers

E miscellaneous- commission, advertisement, royalties, patent fee etc.

Each one of these items has credit and debit depending on the principle of double entry book keeping.

2. CAPITAL ACCOUNT: deals with financial transactions between one country and rest of the world. These financial or capital transactions can be private ,government or institutional. It can be classified as short term and long term capital movements. These capital movements are of two types:

1. Autonomous capital : refers to those capital flows which take place because of economic considerations such as earning of interest income, dividends and other income by foreign investment etc. e.g. if MNCs are making investment in India ,this is done with the objective of earning income.

2. Accommodating capital : It takes place to bring the BOP in equilibrium.e.g. if there is current account deficit in BOP. This deficit is settled by capital inflows from abroad either by borrowing from abroad or by running down cash balances by the government.

Main Components of Captial Account :

1. FOREIGN INVESTMENT : It has two sub parts (a) Foreign direct investment : it refers to the investment undertaken in the firms belonging to other countries by acquiring control over them. e.g. purchase of a firm by reliance in a foreign country.

(b) Portfolio investment : It refers to the form of investment under which companies and residents of a country purchase shares of foreign companies or buy bonds issued by foreign governments.e.g. purchase of shares of a company by reliance in foreign country.

2. LOANS :

(a) Commercial borrowing

(b) Borrowing as external assistance

(c) Banking capital transactions

DISEQUILIBRIUM IN BALANCE OF PAYMENT :

When there is either deficit or surplus balance of payment it is said to be in disequilibrium.When a country is incurring more payments from abroad than it has to make then it is considered favourable balance of payment which is in surplus. Contrary to it if a coubtry makes more payments abroad than what it receives then BOP is said to be unfavourable because it is in deficit.

The main causes of adverse BOP are:

1. Fall in export demand: When demand for the country’s goods fall in the foreign market

Due to changes in the taste and preferences of the consumers export decreases and the BOP will be unfavourable.However the deficit in BOP due to fall in export demand is more inclined in underdeveloped countries than advance countries.

 2. Growth of population : In underdeveloped countries aggregate consumption demand rises due to rapid growth of population consequently imports of goods increases and the export decreases.This creates the deficit in the balance of payment of less developed countries.

3. Inflation: Increase in prices due to higher wages and higher prices of raw materials etc.makes export costlier.The export in this case decreases and at the same time demand for imports increases .This results in deficit BOP.

4. Huge international borrowings : Acountry may tend to have an adverse BOP when it borrows heavily from other country while the lending country will tend to have a favourable BOP.

5. Development programmes :The other reason for adverse BOP in developing countries is a large investment in development schemes. These development schemes require import of huge quantity of capital goods ,technical knowledge and essential raw materials. This increases imports which makes BOP unfavourable.

6. Change in foreign exchange rates : When external value of the domestic currency goes up imports become cheaper and exports costlier.Thus imports encouraged and exports discouraged leading to disequilibrium of BOP.

7. Demonstration effect : It is another most important factor causing deficit in BOP of a country especially of an underdeveloped country. When people of underdeveloped countries come into the contact with those of advanced countries they start adopting western style and pattern of consumption. Due to this reason their import increases and it leads to adverse BOP.

METHODS TO CORRECT BALANCE OF PAYMENTS :

There are several methods to correct BOP disequilibrium. The methods can be classified in to two groups:

1. Monetary methods : Monetary methods of correction effect the BOP by changing the value or flow of currencies both domestic and foreign. Following are the monetary methods:

    (a) Deflation : Deflation means a reduction in the quantity of money so as to bring about a fall in the prices and the money income of the people .Falling prices encourage exports and discourage imports .Hence deflationary policy restores equilibrium in BOP.

Deflation is not considered as a suitable method of correcting adverse BOP because it reduces income and causes unemployment in the country

    (b) Devaluation: It means decreasing the value of domestic currency in respect of a foreign currency. Devaluation is done by the government of the country which has unfavourable BOP. It is done deliberately to get its advantages . The government officially declares devaluation indicating the extent of decrease in the value of currency. specific currency will be determined with which it is devalued. Devaluation is irreversible. The country can not change the value of currency frequently.

With a decrease in the value of its currency the country has to pay more in exchange for a foreign currency. In this case the export becomes cheaper at the same time import becomes expensive. With this export increases and import decreases. However the success of devaluation depends on the following:

(i) The elasticity of demand for the country’s export should be high.

(ii) The elasticity of demand for country’s import should be fairly elastic

Devaluation as a method of correcting adverse BOP suffers from the following defects:

(i) It reduces the public confidence in country’s currency as it is an indicator of country’s weakness.

(ii) It increases the burden of public debt

(iii) It encourages inflationary tendencies in the home country.

    (c) Exchange Depreciation : Depreciation refers to decline in the rate of exchange of one currency in terms of other currency. It is similar to devaluation but not done by the government. It is done in the exchange market with the help of demand and supply of the currency. It takes place in a flexible exchange rate system.It is automatic and can correct the adverse BOP of the country.But method of exchange depreciation suffers from following defects:

(i) It is not suitable for a country which has adopted a fixed exchange rate system

(ii) It makes international trade riskyand thus reduces the volume of trade.

(iii) The terms of trade go against the country whose currency depreciates

(iv) Depreciation may generate inflationary pressure by making the commodity more expensive.

    (d) exchange control : It is the most widely used method for correcting adverse BOP. It refers to the control by the central bank over the use of foreign exchange. In this method all the exporters are directed by the Central bank to surrender the foreign exchange earnings and it is rationed out among the licensed importers, It means only license holders can import goods.

  Exchange control, does not remove the process of adverse BOP, It simply does not allow the situation to worsen. Hence it is not considered a proper method to correct adverse BOP.

    (e) Capital movement: In flow of capital from the individuals and government of other countries as well as borrowings from international financial institutions like World bank,IMF etc. can be used to correct the deficit in BOP.

    (f) Pegging operation: Pegging down the value. The central bank depending on the need may artificially increase or decrease the value of currency temporarily. Pegging operation can be done any no. of times. It is reversible. It offers the flexibility to the government to manage the currency of value for its advantage.

2. Non monetary measures : Non monetary measures deal with the real sector for correcting disequilibrium in BOP. Following are the important non monetary measures:

    (a) Export promotion : To control adverse BOP the country may adopt export promotion measures which are as follows:

(i) Cash assistance and subsidies can be given to exporters to increase export

(ii) Export duties may be reduced to encourage exports.

(iii) Goods meant for exports can be exempted from all types of taxes

(iv) Export oriented industries can be encouraged by providing better infrastructure, better raw material, making favourable loan facilities etc.

    (b) Import substitutes : The economy can develop technology of import substitution. Industries producing import substitutes can be encouraged by capital goods ,better technology etc. Policy of import substitution can help the country to become self reliant.

    (c) Import licensing : The government can have strong control over the exports by having strict rules and regulations for providing licenses to importers

    (d) Import quotas : Fixing import quotas may be a better device for correcting the adverse BOP as they have the immediate effect of restricting imports .Import quotas are important non tariff barriers. They are positive restrictions on incoming of goods.

    (e) Tariff : It is a tax duty imposed on imports .The objective is to make imports expensive .It reduces the demand for imports and the deficit in BOP gets corrected.

    (f) Monetary policy: The central bank can reduce the volume of credit by raising the bank rate, by selling securities in open market and by increasing cash reserve ratio. This will make borrowing from commercial banks costlier .It will lead to fall in investment and hence fall in income and employment and output. Any such decrease in income decreases the demand for imports and disequilibrium in BOP can be corrected.

    (g) Fiscal policy: A restricted fiscal policy can also be used to wipe out BOP deficit by reducing the total expenditure in the economy and increase in direct taxes will reduce the disposable income and hence there will be reduction in demand for imports. The decrease in government expenditure will also have the same effect on decreasing the demand for imported goods.

Every country has to use the combination of monetary and non monetary methods to correct BOP disequilibrium and also prevent retaliation from any developed country.

BALANCE OF PAYMENT MUST ALWAYS BALANCE :

In accounting sense BOP of a country is always in equilibrium. It is because of the reason BOP is prepared in terms of credits and debits based on the system of double entry book keeping. Under this system each transaction gives rise to two equal entries. One credit entry and one debit entry. Thus total debits and total credits must be equal. Similarly an international transaction generates two equal entries and sum of all international receipts are equal to sum of international payments. Surplus on current account can lead to the grant of loans to other countries by the government or it can lead to increase in the country’s foreign exchange reserve. Contrary to it a deficit on current account can be met by borrowing from abroad or by running down country’s foreign exchange reserves. Thus the two sides are necessarily balanced.

Hospital mergers - The war of the wards - Investors are eyeing up hospitals around the world

http://www.economist.com/research/articlesBySubject/displaystory.cfm?subjectid=348978&story_id=E1_TGGQGPTD

All students must read this link & comment (Specify about the topic u can relate)

CASE STUDY (BASIC ECONOMIC PROBLEMS)

Tourism in a number of countries has been reduced as people are worried that they may be harmed by terrorist. Many governments have increased their spending on the police and armed forces, particularly at airports, but there is an opportunity cost of this policy.

(a)Explain the term ‘opportunity cost’ giving an example from your own experience.[4m]
(b)Describe which factor of production might be most significant in the operation of a luxury Tourist Resort. [4]

(c)Why are governments , and not the private sector ,usually involved in defense
expenditure?[4]
(d)Which sector of production in a developing country has a greater proportion of people working in it, and why? [3]

(e)Explain whether you think that an increase in expenditure on defense might conflict with other government aims.[5]

Paul Heyne quotes:

“The gap in our economy is between what we have and what we think we ought to have - and that is a moral problem, not an economic one.”

Very Good Case study to develop ANALYTICAL & APPLICATION SKILL. Solve it!!!
Alcohol and Government Policy
In the UK, the National Health Service often has to deal with the consequences of drinking alcohol. It is said that there is less trouble in other countries which have more relaxed licensing laws. In the UK, accidents caused by drinking alcohol result in 150 000 hospital admissions every year. Time taken dealing with these admissions prevents other treatment. There are about 22 000 deaths linked to alcohol-related illnesses every year.

There are also other consequences. Very many working days are lost each year because of
alcohol abuse which, it is estimated, cost the employers £6.4 million in lost production. There is also the cost of policing the city centres particularly at night and at weekends when excessive drinking causes riotous behaviour. It is argued that while police are controlling this behaviour it leaves property more vulnerable to burglary. Property owners, as a result, may have to pay extra insurance premiums and protect their property by paying for burglar alarms to be fitted. Then there are legal costs. If people are prosecuted for drink-related offences it involves court costs, lawyers’ costs and costs for the witnesses to attend court. There are also the costs of establishing centres that treat people who drink excessively and the costs of social workers who care for those who are victims of drink-related incidents.

One of the difficulties of trying to calculate the cost of alcohol use is how to estimate figures such as those above. How do we measure the cost of police time? How do we measure the costs of an emotional upset when someone is injured by a drink-related driving accident? How do we measure the effect of violence in the home caused by excessive drinking?

Yet there are benefits from alcohol. People gain pleasure from drinking: it is a social activity. Some alcohol is said to give health benefits. The government places a tax on alcohol and gains a large amount of revenue as a result. Many people are employed in the manufacture and distribution of drinks. Others are employed in clubs and bars that serve alcohol.

(a) (i) Define opportunity cost. [2]
(ii) Identify and explain one example of opportunity cost from the above extract. [2]
(b) You are asked to investigate the economic arguments for and against a ban on the sale and
consumption of alcohol. Discuss how helpful you would find the above extract and what
further information you would seek. [10]
(c) The government decides not to introduce a ban on alcohol. Instead it considers either raising
the existing indirect tax on alcohol or banning the advertising of alcohol. Discuss which of
these two approaches you would favour. [9]
[Total : 23]

Dear Students,
Following questions will help you to understand different types of tax that Indian pays. Can You relate each of them whether it is PROGRESSIVE, REGRESSIVE OR PROPORTIONAL?

1) Qus.: What are you doing?

Ans.: Business.

Tax : PAY PROFESSIONAL TAX



2) Qus.: What are you doing in Business?

Ans.: Selling the Goods.

Tax : PAY SALES TAX



3) Qus.: From where are you getting Goods?

Ans.: From other State/Abroad

Tax : PAY CENTRAL SALES TAX, CUSTOM DUTY & OCTROI



4) Qus.: What are you getting in Selling Goods?

Ans.: Profit.

Tax : PAY INCOME TAX



5) Qus.: How do you distribute profit ?

Ans : By way of dividend

Tax : PAY DIVIDEND DISTRIBUTION TAX



6) Qus.: Where you Manufacturing the Goods?

Ans.: Factory.

Tax : PAY EXCISE DUTY



8) Qus.: Do you have Staff?

Ans.: Yes

Tax: PAY STAFF PROFESSIONAL TAX



9) Qus.: Doing business in Millions?

Ans.: Yes

Tax : PAY TURNOVER TAX ?

Ans : No

Tax : Then pay Minimum Alternate Tax



10) Qus.: Are you taking out over 25,000 Cash from Bank?

Ans.: Yes, for Salary.

Tax : PAY CASH HANDLING TAX



11) Qus.: Where are you taking your client for Lunch & Dinner?

Ans.: Hotel

Tax : PAY FOOD & ENTERTAINMENT TAX



12) Qus.: Are you going Out of Station for Business?

Ans.: Yes

Tax : PAY FRINGE BENEFIT TAX



13) Qus.: Have you taken or given any Service/s?

Ans.: Yes

Tax : PAY SERVICE TAX



14) Qus.: How come you got such a Big Amount?

Ans.: Gift on birthday.

Tax : PAY GIFT TAX



15) Qus.: Do you have any Wealth?

Ans.: Yes

Tax : PAY WEALTH TAX



16) Qus.: To reduce Tension, for entertainment, where are you going?

Ans.: Cinema or Resort.

Tax : PAY ENTERTAINMENT TAX



17) Qus.: Have you purchased House?

Ans.: Yes

Tax : PAY STAMP DUTY & REGISTRATION FEE



18) Qus.: How you Travel?

Ans.: Bus

Tax : PAY SURCHARGE



19) Qus.: Any Additional Tax?

Ans.: Yes

Tax : PAY EDUCATIONAL, ADDITIONAL EDUCATIONAL &

SURCHARGE ON ALL THE CENTRAL GOVT.'s TAX !!!



20) Qus.: Delayed any time Paying Any Tax?

Ans.: Yes

Tax : PAY INTEREST & PENALTY

Highlights of Union Budget 2010-2011

Highlights of Union Budget 2010-2011

Finance minister Pranab Mukherjee began presenting the Union budget for 2010-11 in the Lok Sabha today after the Cabinet approved the document. Here are some of the highlights of his budget speech.

• The Indian economy was facing grave uncertainty. Growth had started decelerating when the interim and full budget for 2009-10 was presented.
• At home there was added uncertainty because of subnormal southwest monsoon.
• Yet, the economy now in a far better position than it was
  eight years ago.
• India weathered the economic crisis well and emerged from the global slowdown faster than any other country.
• First challenge before the government is to quickly revert to
  high GDP growth path of 9%.
• Expects 10% economic growth in the near future.
• Second challenge is to harness economic growth to make it more inclusive and consolidate gains.
• Third challenge is to overcome weakness in government's public delivery mechanism; a long way to go in this.
• Impressive recovery in the past few months. Can witness
  faster recovery in the coming months.
• Food security has been strengthened.
• But bottleneck of the public delivery mechanism can hold us back.
• Fiscal year 2009-10 was challenging for the economy.
• Focus shifted to non-governmental actors and an enabling government. Government now concentrates on supporting and delivering services to the poorer sections.
• Economy stabilised in the first quarter of 2009 itself.
• 18.5% manufacturing growth in December was the highest in two decades.
• Figures for merchandise exports for January encouraging
  after turnaround in November and December last year.
• Double digit food inflation last year due to bad monsoon
  and drought-like conditions.
• Government conscious of the price rise and taking steps to tackle it.
• Erratic monsoon and drought-like conditions forced supply-side bottleneck that fuelled inflation.
• Need to review stimulus imparted to economy last year to overcome the recession.
• Need to ensure that the demand-supply imbalance is managed.
• Need to make growth more broad-based.
• Need to review public spending and mobilise resources.
• Status paper on public debt within six months.
• Government hopes to implement direct tax code from April 2011.
• Earnest endeavour to implement general sales tax in April 2011.
• Government will raise Rs25,000 crore from divestment of its stake in state-owned firms.
• Kirit Parekh report on fuel price deregulation will be taken up by petroleum minister Murli Deora in due course.
• Nutrient-based fertiliser subsidy scheme to come into force from April 1 this year.
• Nutrient-based fertiliser subsidy will reduce volatility of subsidy and also reduce it.
• Market capitalisation of five public-sector undertakings listed since October increased by 3.5 times.
• FDI inflows steady during the year. Government has taken
  series of steps to simplify FDI regime. Intends to make FDI policy user friendly by compling all guidelines into one document.
• Government has decided to set up apex-level Financial
  Stability and Development Council.
• RBI considering issuing banking licences to private companies. Non-banking finance companies will also be considered if they meet the criteria.
• Government to provide Rs16,500 crore to public-sector
  banks to maintain tier-I capital.
• Government to continue interest subvention of 2% for one more year for exports covering handicrafts, carpets,
  handlooms and small and medium enterprises.
• Government to provide Rs300 crore to organise 60,000 pulse and oilseed villages and provide integrated intervention of watershed and related programmes.
• Rs200 crore provided for climate-resilient agriculture
  initiative.
• Government committed to ensuring continued growth of
  special economic zones.
• Need to take firm view on opening up of the retail sector.
• Deficit in foodgrains storage capacity to be met with private-sector participation.
• Period for repayment of loans by farmers extended by six months to June 30, 2010, in view of the drought and floods in some parts of the country.
• Interest subvention for timely repayment of crop loans raised from 1% to 2%, bringing the effective rate of interest to 5%.
• Road transport allocation raised by 13% to Rs19,894 crore.
• Proposal to maintain thrust of upgrading infrastructure in rural and urban areas. IIFCL authorised to refinance infrastructure projects.
• Rs1,73,552 crore provided for infrastructure development.
• Allocation for railways fixed at Rs16,752 crore, an increase of Rs950 crore over the last financial year.
• Government proposes to set up Coal Development Regulatory Authority.
• Mega power plant policy modified to lower cost of generation; allocation to power sector more than doubled to Rs5,130 crore in 2010-11.
• Government favours competitive bidding for coal blocks for captive power plants.
• Rs500 crore allocated for solar and hydro projects for the Ladakh region in Jammu & Kashmir.
• Clean Energy Fund to be created for research in new energy sources.
• Allocation for new and renewable energy ministry increased by 61% to Rs1,000 crore.
• One-time grant of Rs200 crore provided to Tirupur textile cluster in Tamil Nadu.
• Allocation for National Ganga River Basin Authority doubled to Rs500 crore.
• Alternative port to be developed at Sagar Island in West Bengal.
• Draft of Food Security Bill ready, to be placed in the public domain soon.
• Outlay for social sectors pegged at Rs1,37,674 crore, accounting for 37% of the total plan allocation.
• Plan allocation for school education raised from Rs26,800 crore to Rs31,036 crore in 2010-11.
• 25% of plan outlay earmarked for rural infrastructure development.
• Plan allocation for health and family welfare increased to Rs22,300 crore from Rs19,534 crore.
• For rural development, Rs66,100 crore have been allocated.
• Allocation for National Rural Employment Guarantee Authority stepped up to Rs40,100 crore in 2010-11.
• Indira Awas Yojana's unit cost raised to Rs45,000 in the plains and Rs48,500 in hilly areas.
• Allocation for urban development increased by 75% to Rs5,400 crore in 2010-11.
• 1% interest subvention loan for houses costing up to Rs20 lakh extended to March 31, 2011; Rs700 crore provided.
• Allocation for development of micro and small-scale sector raised from Rs1,794 crore to Rs2,400 crore.
• Rs1,270 crore provided for slum development programme, marking an increase of 700%.
• Government to set up National Social Security Fund with initial allocation of Rs1,000 crore to provide social security to workers in the unorganised sector.
• Government to contribute Rs1,000 per annum to each
  account holder under the new pension scheme.
• Exclusive skill development programme to be launched for textile and garment-sector employees.
• Allocation for woman and child development increased by 80%
• Plan outlay for the social justice ministry raised by 80% to Rs4,500 crore.
• Plan allocation for minority affairs ministry raised from Rs1,740 crore to Rs2,600 crore.
• Financial-Sector Legislative Reforms Committee to be set
  up.
• Rs1,900 crore allocated for Unique Identification Authority of India.
• A unique identity symbol will be provided to the rupee in line with the US dollar, British pound sterling, euro and Japanese yen.
• Defence allocation pegged at Rs1,47,344 crore in 2010-11
  against Rs1,41,703 crore in the previous year. Of this, capital expenditure would account for Rs60,000 crore.
• Planning Commission to prepare integrated action plan for
  Naxal-affected areas to encourage "misguided elements" to eschew violence and join the mainstream.
• Gross tax receipts pegged at Rs7,46,656 crore for 2010-11, non-tax revenues at Rs1,48,118 crore.
• Total expenditure pegged at Rs11.8 lakh crore, an increase of 8.6%.
• Fiscal deficit at 5.5%.
• Fiscal deficit seen at 4.8% and 4.1% in 2011-12 and 2012-13, respectively.
• Non-plan expenditure pegged at Rs37,392 crore and plan expenditure at Rs7,35,657 crore in budget estimates. Proposed increase of 15% in plan expenditure and 6% in non-plan expenditure.
• Cash subsidy for fuel and fertiliser instead of previous practice of bonds to continue.
• Fiscal deficit pegged at 6.9% in 2009-10 as against 7.8% in the previous fiscal.
• Government's net borrowing to be Rs3,45,010 crore for 2010-11.
• Income-tax department ready with two-page Saral-2 returns
  form for individual salaried assesses.
• Personal income-ax rates pruned:
  Income up to Rs1.6 lakh — nil
  Income above Rs1.6 lakh and up to Rs5 lakh — 10%
  Income above Rs5 lakh and up to Rs8 lakh — 20%
  Income above Rs8 lakh — 30%
• Additional deduction of Rs20,000 allowed on long-term
  Infrastructure bonds for income-tax payers; this is above Rs1 lakh on savings instruments allowed already.
• Investment-linked tax deductions to be allowed to two-star hotels anywhere in the country.
• Weighted deduction of 125% for payments to approved associations doing social and statistical research.
• One-time interim relief to housing and real-estate sector.
• Businesses with a turnover of up to Rs60 lakh and professionals earning up to Rs15 lakh to be exempted from the obligation to audit their accounts.
• Housing projects allowed to be completed in five years instead of four to avail of tax breaks.
• Revenue loss of Rs26,000 crore on direct tax proposals.
• Central excise duty on all non-petroleum products raised to 10% from 8%.
• FM increases customs duty on crude oil to 5%, on diesel and petrol to 7.5%, and on other petroleum products to 10%.
• Structural changes in excise duties on cigarettes, cigars, and cigarillos.
• Clean energy cess of Rs50 per ton to be levied on coal produced in India.
• Concessional excise duty of 4% on solar cycle-rickshaws.
• Balloons exempted from central excise duty.
• Customs and central excise proposals to result in a net revenue gain of Rs43,500 crore.
• More services to be brought under the service tax net.
• Certain accredited news agencies exempted from payment of service tax.
• Net revenue gain from tax proposals pegged at Rs20,500 crore.

Dear students of IX-B & IX-E,

Solve the following questions as home work
Grade IX-B will email the answer (soft copy only) by 8th March 2011 &
Grade IX-E will email the answer (soft copy only) by 9th March 2011 to the following email id:

icharjee@indiatimes.com

Q. Three government policy aims are the redistribution of income, economic growth and price
stability.
(a) Explain what these aims mean. [6]
(b) What might a government do to try to redistribute income? [6]
(c) How might a government affect economic growth in a country? [8]