Tag: market

CAPITALISM

Capitalism is a political and economic system where a country’s trade and industry are controlled by private owners and not by the state. It is basically a system where there is private ownership of property. Capitalistic ownership means owners control the factors of production and derive their income from their ownership. That gives them the ability to operate their companies efficiently. It works for profit maximisation rather than public benefit. Capitalism needs a free market to work efficiently and succeed.   In a capitalist society, the distribution of goods and services is according to the laws of demand and supply. According to the law of demand, when the demand for a particular product increases then it also leads to an increase in its price. In a capitalist society there are a number of competitors. When these competitors realise that they can make a higher profit since the demand is high then, they increase production . The greater supply reduces prices to a level where only the best competitors remain.

EMERGENCE OF CAPITALISM

Capitalism emerged during the 16th century and expanded during the Industrial Revolution, pushed forward by colonialism, the nascent factory system, and the Atlantic Slave Trade. This system generated wealth and prestige for owners, but also exploited people who had very little or no power like the workers in the factory and people indigenous to Africa and the Americas. The expansion of Capitalism in America in the 19th-century relied on economic growth and was generated through the labour of enslaved people on land that were forcefully taken from Native Americans.

The United States is one example of capitalism. The other examples of capitalist countries are: Singapore, New Zealand, Australia, Switzerland, Ireland , United Kingdom, Canada, Denmark etc.

HOW CAPITALISM WORKS

In a capitalist society the owner of supply competes against each other to earn the highest profit by selling the goods at the highest possible price while keeping their costs as low as possible. Competition keeps prices moderate and production efficient, although it can also lead to worker exploitation and poor labour conditions. As there are a number of options for the consumer in the market due to competition then the consumer has a lot of choices.

Another component of capitalism is the free operation of the capital markets. The laws of supply and demand set fair prices for stocks, bonds, derivatives, currency, and commodities. Capital markets also  allow the companies to raise funds to expand.

According to the  economic theory Laissez- faire it argues that the government should take a hands-off approach to capitalism and should only intervene to maintain a level playing field. The government’s role is to protect the free market. It should prevent the unfair advantages obtained by monopolies or oligarchies. It ought to prevent the manipulation of information, making sure it is distributed equitably.

ADVANTAGES OF CAPITALISM

  • It creates healthy competition in the market.
  • Due to the number of companies and products in the market consumers have more choices.
  • Since the consumer’s demands are high and they will pay more for what they want, Capitalism results in the best products for the best prices.
  • It results in efficient production. In a capitalist system, firms have incentives to be productively efficient by cutting costs to improve competitiveness and productivity. If firms don’t remain productive and efficient they will run out of business.
  • Capitalism encourages trade between different nations and different people which is a mechanism for overcoming discrimination and bringing people together.
  • It raises the standard of living.
  • As the capitalist economy is dependent on the push factor of individuals, there is no limit to the level of wealth an individual can accumulate through progression within the economy.
  • Through capitalism, firms and companies are inclined to produce with greater efficiency, by cutting cost and improving efficiency. This is done with an aim to prevent losses in an industry where competition is high, bettering the economy as a whole.

DISADVANTAGES OF CAPITALISM

  • Private ownership of capital enables firms to gain a monopoly power in product and labour markets. Firms with monopoly power can exploit their position to charge higher prices.
  • Social benefit is ignored, as the owner cares about profit maximisation, public good is ignored, the poor people who cannot afford expensive products have no option.
  • A capitalist society argues it is good if people can earn more leading to income and wealth inequality. However, this ignores the diminishing marginal utility of wealth.
  • In a capitalist system where the means of production and distribution of goods and services are owned by just a few members of the society, the wealth of an entire nation could be controlled by just a few wealthy individuals and families and hence there is unequal distribution of wealth.
  • Due to the market being profit and demand driven, negative externalities such as pollution are generally ignored until they become a serious issue within the economy.
  • Socialists and communists are people who do not support capitalism. They say it hurts workers, because businesses make more money by selling things than they pay the workers who make the things. Business owners become rich while workers remain poor and exploited. 

Source: https://www.thebalance.com/capitalism-characteristics-examples

EFFECTS OF GLOBALIZATION ON INDIAN SOCIETY

Globalization has many meaning depending on the circumstance and on the individual who is talking about. There is one of the term of Globalization is a process of the “reconfiguration of geography, so that social space is not entirely mapped in terms of territorial distance, territorial places and territorial borders.” The simple term of globalization refers to the integration of economies of the world through uninhibited trade and financial flows, as also through mutual exchange of technology and knowledge. Ideally, it also contains free inter country movement of labor.

Indian society drastically changes after urbanization and globalization. The economic policies has direct influence in forming the basic framework of the Indian economy. The government shaped administrative policies which aim to promote business opportunities in every country, generate employment and attract global investment. In which the Indian economy witnessed an impact on its culture and introduction to other societies and their norms brought various changes to the culture of this country as well. The developed countries have been trying to pursue developing countries to liberalize the trade and allow more flexibility in business policies to provide equal opportunities to multinational firms in their domestic market. The International Monetary Fund (IMF) and World Bank helped them in this endeavor. Liberalization began to hold its foot on barren lands of developing countries like India by means of reduction in excise duties on electronic goods in a fixed time Frame.

Globalization has several aspects and can be political, cultural, social, and economic, out of Financial integration is the most common aspect. India is one of the fastest-growing economies in the world and has been predicted to reach the top three in the next decade. India’s massive economic growth is largely due to globalization which was a transformation that didn’t occur until the 1990s. Since then, the country’s gross domestic product (GDP) has grown at an exponential rate.

Indian government did the same and liberalized the trade and investment due to the pressure from the World Trade Organization. Import duties were cut down phase-wise to allow MNC’s operate in India on an equal basis. As a result globalization has brought to India new technologies, new products and also the economic opportunities.

Despite bureaucracy, lack of infrastructure and an ambiguous policy framework that adversely impact MNCs operating in India, MNCs are looking at India in a big way, and are making huge investments to set up R&D centres in the country. India has made a lead over other growing economies for IT, business processing, and R&D investments. There have been both positive and negative impacts of globalisation on social and cultural values in India.

Economic Impact:

1. Greater Number of Jobs: The advent of foreign companies led to the growth in the economy which led to creating job opportunities. However, these jobs are concentrated in the various services sectors and led to rapid growth of the service sector creating problems for individuals with low levels of education. The last decade came to be known for its jobless growth as job creation was not proportionate to the level of economic growth.

2. More choice to consumers: Globalisation has led to having more choices in the consumer products market. There is a range of choices in selecting goods unlike the times where there were just a couple of manufacturers.

3. Higher Disposable Incomes: People in cities working in high paying jobs have greater income to spend on lifestyle goods. There’s been an increase in the demand for products like meat, egg, pulses, organic food as a result. It has also led to protein inflation.

Protein food inflation contributes a large part to the food inflation in India. It is evident from the rising prices of pulses and animal proteins in the form of eggs, milk and meat. With an improvement standard of living and rising income level, the food habits of people changed. People tend toward taking more protein intensive foods. This shift in dietary pattern, along with rising population results in an overwhelming demand for protein rich food, which the supply side could not meet. Thus resulting in a demand supply mismatch thereby, causing inflation.

In India, the Green Revolution and other technological advancements have primarily focused on enhancing cereals productivity and pulses and oilseeds have traditionally been neglected.

• Shrinking Agricultural Sector: Agriculture now contributes only about 15% to GDP. The international norms imposed by WTO and other multilateral organizations have reduced government support for agriculture. Greater integration of global commodities markets leads to constant fluctuation in prices.

• This has increased the vulnerability of Indian farmers. Farmers are also increasingly dependent on seeds and fertilisers sold by the MNCs.

Globalization does not have any positive impact on agriculture. On the contrary, it has few detrimental effects as the government is always willing to import food grains, sugar etc. Whenever there is a price increase of these commodities.

• Government never thinks to pay more to farmers so that they produce more food grains but resorts to imports. On the other hand, subsidies are declining so the cost of production is increasing. Even farms producing fertilizers have to suffer due to imports. There are also threats like introduction of GM crops, herbicide resistant crops etc.

• Increasing Health-Care costs: Greater interconnections of the world have also led to the increasing susceptibility to diseases. Whether it is the bird-flu virus or Ebola, the diseases have taken a global turn, spreading far and wide. This results in greater investment in the healthcare system to fight such diseases.

• Child Labor: Despite prohibition of child labors by the Indian constitution, over 60 to a 115 million children in India work. While most rural child workers are agricultural laborer’s, urban children work in manufacturing, processing, servicing and repairs. Globalization most directly exploits an estimated 300,000 Indian children who work in India’s hand-knotted carpet industry, which exports over $300 million worth of goods a year. The many effects of globalization of Indian society and has immense multiple aspects on Indian trade, finance, and cultural system. Globalization is associated with rapid changes and significant human societies. The movement of people from rural to urban areas has accelerated, and the growth of cities in the developing world especially is linked to substandard living for many.

Sources: https://www.clearias.com/effects-globalization-indian-society/

Council raises GST on low-cost footwear, garments to 12%

In its first physical meeting in two years, the GST Council on Friday effected several long-pending tweaks in tax rates including an increase in the GST levied on footwear costing less than ₹1,000 as well as readymade garments and fabrics to 12% from 5%.

The new rates on these products, a decision on which had been deferred by the Council over the past year owing to the pandemic’s impact on households, will come into effect from January 1, Finance Minister Nirmala Sitharaman said.

The Council approved a special composition scheme for brick kilns with a turnover threshold of ₹20 lakh, from April 1, 2022. Bricks would attract GST at the rate of 6% without input tax credits under the scheme, or 12% with input credits.

While this will please States like Uttar Pradesh that had sought a special scheme for brick kilns, a decision on extending such a scheme for other evasion-prone sectors like pan masala, gutkha and sand mining was put off.


The Council also decided to extend the concessional tax rates granted for COVID-19 medicines like Amphotericin B and Remdesivir till December 31, but similar sops offered by the Council at its last meeting in June for equipment like oxygen concentrators will expire on September 30.

The GST rate on seven more drugs useful for COVID-19 patients has been slashed till December 31 to 5% from 12%, including Itolizumab, Posaconazole and Favipiravir. The GST rate on Keytruda medicine for treatment of cancer has been reduced from 12% to 5%.

Life-saving drugs Zolgensma and Viltepso used in the treatment of spinal muscular atrophy, particularly for children, has been exempted from GST when imported for personal use. These medicines cost about ₹16 crore, Ms. Sitharaman said.

Food delivery tax shift
The Council also decided to make food delivery apps like Swiggy and Zomato liable to collect and remit the taxes on food orders, as opposed to the current system where restaurants providing the food remit the tax.

Revenue Secretary Tarun Bajaj stressed this did not constitute a new or extra tax, just the tax that was payable by restaurants would now be paid by aggregators. Some restaurants were avoiding paying the GST even though it was billed to customers.

“The decision to make food aggregators pay tax on supplies made by restaurants from January 1, 2022, seems to have been done based on empirical data of under reporting by restaurants, despite having collected tax on supplies of food to customers,” said Mahesh Jaising, Partner, Deloitte India.

“The impact on the end consumer is expected to be neutral where the restaurant is a registered one. For those supplies from unregistered, there could be a 5% GST going forward,” he added.

Aircraft on lease
The GST Council has exempted Integrated GST levied on import of aircraft on lease basis. This will help the aviation industry avoid double taxation, the Finance Minister said, and will also be granted for aircraft lessors who are located in Special Economic Zones.

Goods supplied at Indo-Bangladesh border haats have also been exempted from GST.

Written by: Ananya Kaushal

What is an ipo?

IPO (Initial Public Offering) is a process by which a private company whose shares are only held by promoters goes public and offers its shares to public for holding or trading purposes for the first time. The shares get listed on stock exchanges of our country which are NSE (National Stock Exchange) or BSE (Bombay Stock Exchange).

Why does a company offers a IPO?

Every company needs money, IPO’s are usually offered when a huge amount of money is required by company because a lot of money is raised through an IPO. It may be for expansion of the company, repayment of debt, or for meeting general corporate purposes or any other reason. Getting listed on stock exchanges also increases liquidity, this opens up the path for stock options and attract traders. A public company can always issue more stocks. This makes acquisitions and mergers easy as the stocks can be issued as a part of the deal.

How does a company offer an IPO?

Companies hire investment banks to market, create demand, and set the IPO price and date, and more. The RDHP (red herring prospectus) is produced and submitted along with other documents, it is then verified by SEBI (Security and Exchange board of India). The RDHP file is most important document for retail investors and is a must read before applying for the IPO. A RDHP document contains all information about company like its profit, revenue, future plans, debt, etc.

Should we invest in the IPO?

Deciding for applying for an IPO of a new company is pretty much risky. Well, equity market itself is very much risky. So, how will be choose the right IPO for us, which will give us profit.

Since, there is no track record of past as company is going to list for first time. We can conduct background check on company. IPO prices usually fall after listing in gains, this is because of lock up period. A lockup period is period of time in which company executive and investors are not allowed to sell their shares, after end of lock-up period the share prices experience drops. Also, we can check up the valuations of the company like, on what P/E ratio they are trying to get listed, what is their segment and how much is their share in that segment market, who are its competitors? And etc. Do your own research on IPO but one should also consider asking his financial advisor or listening to the reviews of experts on things and one should consider their risk taking capacity and their risk to reward ratio.

How to apply for an IPO?

So, first of all if we want to apply for an IPO we need to have a demat account. Demat account is an account in which the shares purchased by an investor are held. One can open a demat account very easily as there are a lot of discount brokers present like Zerodha, Upstox, etc. The whole process of account opening is very easy and hassle free and an account can be opened within few minutes. Now, we can apply for the IPO via these apps or by Internet Banking through banks. If you use broker you need to pay through UPI, and if you apply via net banking the amount is blocked by bank in your account.

Conclusion:

Picking the right IPO poses a bit of a challenge to investor, but if one is able to successfully overcome it, IPOs could be very rewarding and can give you great returns. So, stay alert, stay aware and Happy Investing!!!