Economics

Economics — No Comments
2
Feb 12

Advantages and Disadvantages of FDI

FDI means foreign direct investment; FDI is always a tricky issue for any government because some people support it while others are in opposition and therefore whenever government decides to allow FDI in a country it has to face many questions. Given below are some of the advantages and disadvantages of FDI –

Advantages of FDI

  1. It brings lot of new investment into the country which can be a catalyst for growth because we all know without investment no country can sustain high levels of growth.
  2. It is quite helpful for the customers because due to it the competition between domestic and foreign corporations leads to companies offering products at very competitive rates and therefore customers can have high quality products at cheap rates.
  3. For starters it will create new job opportunities because foreign players have to employ local staff in order to run their business which would mean plenty of employment prospects for youngsters of the country.

Disadvantages of FDI

  1. Since foreign firms will bring new technologies and money with them which would result in lot of small businessman and domestic companies going out of business as foreign companies have advantage of scale of operations and also top talent with them. The proverb big fish eat little fish scenario may happen due to foreign direct investment.
  2. Since these companies will also have more technology and they will use capital intensive methods, it will affect the jobs of many people because eventually after some time they might not be needed.
  3. Chances of these foreign firms becoming monopolies due to their large size and then charging exorbitant rates from consumers cannot be ruled out and therefore government should ensure that they have proper policies and systems in place to keep a check on such practices.

It is due to above advantages and disadvantages any government has to walk a tight ropeway when it comes to allowing FDI into the country.

Economics — No Comments
27
Jan 12

Veblen Goods Examples

Veblen goods are those goods, the demand for which increases as the price of those goods increases and it falls when the price of it falls. Hence Veblen goods are an exception to the law of demand in economics which states that as he price of good falls the demand for it increase and vice versa. In simple words Veblen goods are bought because they are perceived to be high status goods.  Given below are some of the examples for Veblen goods –

  1. Luxury cars like Ferrari and Mercedes which are bought because they are expensive.
  2. Diamonds or precious stones
  3. Antique collection of items
  4. Designer clothes and handbags
  5. Cosmetics items like perfumes
Economics — No Comments
15
Jan 12

Causes of Inflation

Inflation is the biggest worry or cause of concern for government and economists across the world because this is one problem which can destroy the whole economic system if it goes out of hand. Even high growth rate gets shadowed by inflation as is the case with countries like china and India which have been facing a very high inflation in the past 2 years and that is the reason why these markets have been big under performers despite having growth rate of above 7 percent. There are many reasons or causes of inflation, given below are some of the causes of inflation –

  1. High energy prices in the form of crude oil and also higher prices of commodities like copper, steel etc… tend o push up the inflation because these commodities are the lifeline for any economy and any increase in their prices will have an impact on the whole economy.
  2. When the income of people increases it leads o more expenditure by them and since the means of production are limited the mismatch of demand and supply leads to too much money chasing too few goods and which in turn leads to rise in prices of most of the products.
  3. Government policies is another cause for inflation because if government has been following a policy where it s printing more money and increasing the government expenditure without any corresponding increase in production, it also leads to inflation in the long run.
  4. Central banks also plays its part when it comes to inflation because central banks by their policies can make money dear by increasing the interest rates or make money cheap by decreasing the interest rates, the later will lead to spike in inflation rate of a country.
  5. Hoarding of essential goods and commodities can also lead to increase in food inflation and general rate of inflation in a country.

Apart from above there are many other factors which can lead to high inflation because every country has different set of problems and reasons for price rise.

Economics — No Comments
19
Dec 11

Advantages and Disadvantages of Socialism

Socialism as the name suggests is something which is for the benefit of all the people rather than small group of individuals. Under socialism economic system it is the government which possess majority of the factors of production and rest lies with private sector or capitalist as we call it, given below are some of the advantages and disadvantages of socialism –

Advantages of Socialism

  1. Under socialism since it is the government which owns majority of factors of production the chances of consumer being charged more is reduced as government will add minimum margin of profit on the produce unlike private companies.
  2. Chances of monopoly by few producers or people is next to nil under this system as government holds majority of resources, people are not in position to take control of resources and created monopoly like situation.
  3. The gap between poor and rich is there but it is not that gigantic as in the case of capitalist economic system.

Disadvantages of Socialism

  1. Imagine if in the race if there is no competition than you would not run with full speed but rather slowly in the same way under socialism economic system there is lack of competition which hampers the growth of the country.
  2. There is no incentive for people to develop entrepreneurship skill as they know it’s of no use, and we all know that entrepreneurs are essential if country wants to grow and compete with other countries of the world.
  3. It also suffers from delay in decision making on the part of government and bureaucratic attitude of government employees.
Economics — 2 Comments
16
Dec 11

Rupee Depreciation Effect

Rupee has been deprecating against the dollar for the past 4 months and many analysts are predicting it that it will depreciate further. Rupee depreciation means that India’s currency has lost its value in comparison to US dollar, now the question is what will be the impact of rupee deprecation, well at this point it is difficult to quantify it but given below are some of the possible effects of rupee deprecation –

  1. Inflation which has been haunting Indians for past 2 years will rise as India is a net importer, and crude being primary import, the cost of importing crude will rise even if the price of crude falls in international markets. Hence inflation will be the key risk due to deprecation of rupee.
  2. Indian corporate sector which import raw materials from abroad will also be hit hard as they have to pay more for imports and therefore their profit margin will be hit hard.
  3. Small importers will also be in pain as they too have to pay more for dollar, which in turn would make some smaller importers to go out of business or may even lead to bankruptcy.
  4. Exporters like IT companies will be benefited because of rupee deprecation as they will receive more rupees per dollar which improve their bottom line and hence more profits for them.
  5. Other people like non resident Indians who remit dollars to India will also benefit out of this, and also foreigners coming to India will find it cheap to come to India which will in turn benefit the hospitality sector.
  6. Students going abroad for further studies and Indians going to foreign travel will be pinched hard due to his movement in rupee.

Rupee deprecation has more disadvantages than advantages and if this fall is not controlled in time than it can have serious effects on the Indian growth story and also it can lead to downgrading of Indian economy by rating agencies all over the world.

 

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