REAL TIME GROSS SETTLEMENT ECONOMICS AND THE ECONOMY

REAL TIME GROSS SETTLEMENT 

Real-Time Gross Settlement (RTGS) is one of the processes that settle payments to the recipient on an instant basis without having to wait for some time for the settlement to happen. RTGS services are irrevocable once the settlements are done.

● Prelims points:-

1. Transfer amount – 2 lakhs to 2,000 crores.
2. Target customers - Businessmen wanting high value transactions instantly.
3. Settlement mechanism – Instant settlement.
4.  Timing – only working days 8am to 5:30 pm (SBI)
5. Charges = Person has to pay Fee and GST.
6. Only bank can provide this facility as it requires IFSC branch code.

NATIONAL ELECTRONIC FUND TRANSFER.

National Electronic Funds Transfer (NEFT) is an electronic funds transfer system maintained by the Reserve Bank of India (RBI).

NEFT enables bank customers in India to transfer funds between any two NEFT-enabled bank accounts on a one-to-one basis. It is done via electronic messages.

● Prelims points :-

• Transfer amount - upto 10 lakhs.
• Target customers - Ordinary retail customers.
• Settlement mechanism - Settles net amount between banks at interval of 30 minutes.
• Charges = Fee + GST.
• Only Banks can provide this facility as it requires IFSC branch code.

ECONOMICS AND THE ECONOMY

The relation between economics and the economy, simply saying, is that of theory and practice.While the former is a discipline studying economic behaviour of human beings, the latter is a still-frame picture of it. 

Economics will come out with theories of market, employment, etc., and an economy is the real picture of the things which emerges after the application of those theories.

● Important points :-

• Economics has less diversity than the Economies.
• There will not be any exaggeration   
• if we say that no two economies of the world are exactly the same .

IMMEDIATE PAYMENT SERVICE - IMPS.

Immediate Payment Service (IMPS) is an instant payment inter-bank electronic funds transfer system in India. IMPS offers an inter-bank electronic fund transfer service through mobile phones. 

The sender requires to know the bank account number and the Indian Financial System Code of the beneficiary to transfer money.

● Prelims points :-

• Transfer amount - 1 lakh to 2 lakhs.
• Target customers - Ordinary retail customers .
• Charges - GST and Fees.
• Settlement mechanism - Instant settlement.
• Banks, mobile-wallet companies like Phonepe, Mobikwik provide this facility.

CHALLENGES OF THE ECONOMIES 

The main challenge of any economy is to fulfil the needs of its population. Every population needs to be supplied with some goods and services for its survival and well-beings. 

These goods might include basic needs such as food, shelter, garments, etc., while it might also consist of refrigerators,air conditioners, cars, medicines, computers, etc.

● Important points :-

• The process of fulfilling the needs of the population becomes a never ending phenomenon.
• The standard of living of one set of  population varies from another.

DISTRIBUTION NETWORKS MODELS

In the arena of distribution network,we have three historically existing models—state, market and state-market mix.

In the first type of distribution system, the state (i.e., the government) takes the sole responsibility of supplying goods and services required by the population with no payments being done by the consume .

In second system, goods and services  

are made available in the market and on the basis of their demand and supply, their prices are determined in the open market and fnally they get distributed to the population.

The third and the most prevalent mode of distribution, the state-market mix, developed out of the experiences of the former two systems.

● Prelims points :-

• The former Soviet Union and Communist China being the best example of State Network.
• Market Network was the distribution system of the capitalist economies— the whole of Euro-America .

WASHINGTON CONSENSUS

The term 'Washington Consensus was coined by the US economist John Williamson 7 (in 1989) under which he had suggested a set of policy reforms which most of the offcial in Washington thought would be good for the crisis-driven Latin American countries of the time.

● Important points :-

The policy reforms included ten propositions:

 

•  Fiscal discipline 
• A redirection of public expenditure priorities toward fields offering both high economic returns and the potential to improve income distribution.
• Tax reform.
•  Interest rate liberalisation 
• A competitive exchange rate 
• Trade liberalisation 
• Liberalisation of FDI inflows 
• Privatisation 
• Deregulation   
• Secure property rights

SECTORS OF AN ECONOMY

The economic activities are broadly  classified into three broad categories - 

1. Primary Sector

This sector includes all those economic activities where there is the direct use of natural resources .

2. Secondary Sector  

This sector is rightly called the manufacturing sector, which uses the produce of the primary sector .

3. Tertiary Sector 

This sector includes all economic activities where diferent 'services’ are produced .

● Important Points :-

• Primary sector is the case in India.
• Since manufacturing is done by the industries, secondary sector is also called the industrial sector .
• Tertiary sector is also known as the services sector.

TYPES OF ECONOMIES

There are following 3 Types of Economies- 

1. Agrarian Economy  

An economy is called agrarian if its share of the primary sector is 50 per cent or more in the total output (the GDP) of the economy.

2. Industrial Economy 

If the secondary sector contributes 50 per cent or more to the total produce value of an economy, it is an industrial economy.

3. Service Economy  

An economy where 50 per cent or more of the produced value comes from the tertiary sector is known as the service economy.

● Important Points :

• Service economy with the primary sector's contribution falling to almost 18 per cent .
• In the last decade (2003–04 to 2012–13), growth has increasingly come from the services sector .

THE IDEA OF NATIONAL INCOME 

As income of a single person can be measured, it can be measured for a nation and the whole world, although the method of calculation may be a little bit complex in the latter’s case. In due course, four ideas/ways to calculate the income of a nation13 developed, which are the subject matter of the national income accounting’.

● Important Points :- 

• There are four ways to calculate the ‘income’ of an economy, although diferent from each other in some ways, are the concepts of GDP, NDP, GNP and NNP.
• Gross Domestic Product (GDP) is the value of the all final goods and services produced within the boundary of a nation during one year period.
• Net Domestic Product (NDP) is the GDP calculated after adjusting the weight of the value of 'depreciation’.

ECONOMIC GROWTH 

A term coming from the life sciences, ‘growth’ in economics means economic growth.An increase in economic variables over a period of time is eco growth. Te term can be used in an individual case or in the case of an economy or for the whole world. The most important aspect of growth is its quantability, i.e., one can measure it in absolute terms .

● Important Points :- 

• To calculate the growth rate of an economic variable the difference between the concerned period is converted into percentage form.
• Though growth is a value neutral term, i.e., it might be positive or negative for an economy for a specific period, we generally use it in the positive sense.

HUMAN DEVELOPMENT INDEX

The dilemma of measuring the developmental level of economies was solved once the United Nations Development Programme (UNDP) published its frst Human Development Report (HDR) in 1990. Te report had a human development index (HDI) which was the frst attempt to defne and measure the level of development of economies.

● Important Points :- 

• The HDR measures development by  combining three indicators—Health, Education and Standard of Living—converted into a composite human development index, the HDI.
• The Education component of the HDI is now (since HDR-2010) measured by two other indicators– 

1.  Mean of years of schooling (for adults aged 25 years)
2. Expected years of schooling (for  children of school entering age)

• The Health component is measured by the life expectancy at birth component of the HD Iand is calculated using a minimum value of 20 years and maximum value of 83.57 years.
• The Standard of Living component is measured by GNI (Gross National Income/ Product)

INTROSPECTING DEVELOPMENT 

As the western world came to be regarded as developed, having top twenty ranks on the HDI, social scientists started evaluating the conditions of life in these economies. Most of such studies concluded that life in the developed world is anything but happy 

● Important Points :- 

• It means development had failed to deliver them happiness, peace of mind, a general well-being and a feeling of being in good state.
• Whenever economists from the outset talked about progress they meant overall happiness of human life.
• Social scientists, somehow have been using terms such as progress, growth, development, well-being, welfare as synonyms of 'happiness’.

THE MEANING OF HAPPINESS

Happiness is an aspiration of every  human being, and can also be a measure of social progress. WHR argues that both approaches were, at least in part, motivated by a desire to consider progress and development in ways that went beyond the mere comparison of GDPs , and to put people at the centre.

● Important Points :- 

• The world has become a slightly happier and more generous place over the past five years.
• Improvements in quality of life have been particularly notable in Latin America and the Caribbean, while reductions have been the norm in the regions most afected by the financial crisis .

RE- IMAGING THE IDEA OF HAPPINESS

Search for a ‘happier’ life for humanity has been the ultimate aim of not only saints, seers and philosophers, but of economists too. The whole gamut of economics literature on progress, growth and development is ultimately aimed at bringing more ‘happiness’ into the lives of human beings .

● Important Points :-

• A time also came when many scholars and world leaders raised the ultimate question— are we happier today? 
• The UN resolution of 2011 which invited member countries to measure the happiness of their people and to use this to help guide their public policies.

INSIGHTS INTO HUMAN BEHAVIOUR

The World Bank in its latest report (World Development Report 2015: Mind, Society, and Behaviour) said that development policies become more efective when combined with insights into human behaviour. It further adds that policy decisions informes by behavioural economics can deliver impressive improvements in promoting development and well-being in society.

● Important Points :-

• It sites some examples from India in areas of healthcare and education: 
• The Open defecation dropped 11 cent from very high levels after a Community- Led Total Sanitation (CLTS) programme was combined in some chosen villages with the standard approach of subsidies for toilet construction and information on the transmission of diseases.  
• The likelihood of default on loans became three times less with a simple change in the periodicity of meetings between microfinance clients and their repayment groups to weekly rather than monthly.

SOCIAL NORMS , CULTURAL AND DEVELOPMENT 

Economic development is not only dependent on fiscal policy, monetary policy and taxation, but is also rooted in human psychology, sociology, culture and norms. In economics, there has been a bit of resistance in emphasising other aspects of development, because it is thought of giving ground to the neighbouring disciplines .

● Important Points :-

• The recent World Development Report of 2015 focuses on the behavioural and social foundations of development, and has been very well received.
• Government documents (generally, hard-nosed), usually, make no mention of the role of social norms and culture in promoting development and economic efficiency.

VALUES AND ECONOMICS

There is researcher in psychology and evolutionary biology which shows that morality, altruism, and other-regarding values are an innate part of the human mind, even though the social setting in which a person lives can nurture or stunt these traits.

● Important Points :-

• In talking about a nation’s economic progress, all attention, including both praise and criticism, is usually focused on the government.
• Honesty, punctuality, the propensity to keep promises, the attitude towards corruption are matters shaped in great part by norms, and social beliefs and the behaviour patterns can become  habitual.

Gresham LAW

• Gresham's Law states that bad money drives out good'.It means if in a country there are two currencies, the overvalued currency (cheaper one) will drive the undervalued (precious/expensive one) out of use.
• This is because people start hoarding the undervalued currency as a store of value and eventually, that will be eliminated from circulation.
• This law was named after an English Financier, Sir Thomas Gresham (1519-1579).

AT-1 bonds (Additional tier 1 bonds) are :

 Perpetual bonds [ No fixed maturity tenure ] have fixed Interest rate (But interest rate is usually set high, because AT-1 bonds are very risky)

Unsecured bonds : Not backed by any mortgage/physical asset or source of revenue are listed on exchange Issued to fulfil (capital adequacy Ratio under basel 3 Norms.

AT-1 bonds can be written down, if common Equity tier-1 capital of bank falls below 5.5% of Risk weighted assets

Monetary Policy Committee (MPC) of RBI is a statutory body under the RBI Act, 1934.

Repo Rate - 4% and Reverse Repo Rate - 3.35%.

Real (GDP) growth for 2021-22 : 9.5% and Consumer Price Index (CPI) : 5.7% .

Variable Rate Reverse Repos: 

Purpose is same as Reverse repo, but here Rate is variable and this is what makes it more attractive to Banks

Variable Rate == > higher yield prospects are there as compared to the fixed reverse repo rate mechanism.

SUPPLY SURVE :

It represents the relationship between the price and quantity of a product produced which the seller isready to supply in the market,keeping other variables to be constant.

Herein quantity of the product is plotted horizontally on x-axis and price of the same product on the y-axis.

DIFFERENT POINTS ON A CURVE 

Point X represents underutilization of resources;point Y represents infeasible option i.e. non-feasibility of the chosen combination (beyond the capacity);while points A, B and C represent the full utilization of resources.

PRODUCTION POSSIBILITY CURVE:

With the available amount of resources and technology, the various alternative combinations of production of a set of two goods are plotted to give a production possibility curve.

It is also known as Production Possibility Frontier or Transformation curve.The curve helps in deciding "what to produce".

Thus, the curve provides all the production possibilities available, out of which the most economically or physically viable one could be chosen to maximize profit and minimize the losses attached.

OPPORTUNITY COST

Value of the loss incurred on account of the next best alternative/choice forgone, in availing the best alternative available rather than the next best, is known as the opportunity cost of the chosen alternative.

In simple words, it refers to the value one decides to give up in availing any opportunity.

Or in other words, what have you lost while opting for an option is the opportunity cost of your choice.

ENVIRONMENT KUZNETS CURVE:

It shows the relationship between economic progress on one hand and environmental degradation over a period of time caused in lieu of that economic progress.

It says, as the economy starts the journey of development, pollution in first phase increases but with further development of the economy , pollution rates begin to decline. And eventually, both economic progress and environment maintenance go hand in hand.

KUZNETS CURVE:

Kuznets curve is based on a hypothesis forwarded by an economist Simon Kuznets.

According to the hypothesis, when a country starts developing, economic inequalities first increases for a period of time but after a threshold when a certain average income is attained, economic inequalities begin to decrease.

It is thus represented as an inverted U-shaped graph as shown below.

LAFFER CURVE:

Laffer curve represents the relationship between tax collection and levied tax rates by the state authorities.

It states that as the tax rate increases from the low level, tax collection also increases but as the tax rate increases beyond a critical limit, tax collection starts falling.

This can be due to lower profitability and higher incentive to cheat associated with higher taxes.

LORENZ CURVE 

Lorenz curve is graphical representation of income distribution in the society.

It was given by Max O Lorentz in 1905. It is used to analyze inequality prevailing in the population.

In this graph, the cumulative percentage of national income is plotted against the cumulative percentage of households.

The degree to which the curve sags away from the line of perfect equality is the measure of inequality in society.

It is given by Gini's coefficient.

It was given by A. William Phillips, a New Zealand economist.

According to this, there is an inverse and stable relationship between inflation and unemployment.

As one falls, other increase inflation-Phillips curve unemployment rate.