Economics is the science which studies human behaviour and aims at meeting maximum objectives with the help of limited resources. It is the art and science which deals with the economic problems of the people living in a society.

Economics, as applied to industrial undertaking has two main divisions:

1. Micro Economics
2. Macro Economics

Microeconomics can be defined as, “the branch of economics where the unit of study is a firm or an individual.” It is the main concept and a numerical tool for economics concerning industries. The Micro-Economics deals with smaller units of the economy like the behaviour of the individual customer, plant, or industrial undertaking.

Macro Economics deals with the whole economy and studies the growth of national income and the economic environment as a whole. It plays an important role in forecasting and other factors relating to marketing.

Economics is a subject of interest to the engineers, as they are to deal with the economic problems related to increasing the production, reducing the efforts, increasing the wealth, improving the living standard, reduction in the cost of products etc.

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Income

Income  (personal) is defined as those incomings which are in the form of money or payment in kind. Whereas income from the business is found by deducting the outgoings (expenditure on material, labour and other overheads etc.) from gross income. Income can be derived either from personal services or from the property.

National income is either

(i) the money value of all goods and services produced during a particular period, generally one year, or

(ii) the sum of all personal incomes derived from economic activity during this time.

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Investment

In business, investment is made on:

1. Land and buildings
2. Procurement of raw materials, tools, instruments etc.
3. Purchase and installation of machinery
4. Internal services like material handling devices, transport vehicles, light, water, gas, power etc.
5. Administrative and selling services.
6. Works related to productivity improvement, cost-reduction etc.
7. Payment of wages to the employees.
8. Other works related to running the business and its development.

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Reserves

Reserves for working capital are very necessary for sound financial management. It ensures stability and financial soundness of enterprise. This helps, to cover credit, losses, to liquidate debts, to expand, for replacement of machinery, for taxes, to meet contingencies like fire, theft, strikes etc.

Reserves are of two types, namely revenue reserves and capital reserves. Revenue reserves are required to meet future commitments such as distribution of dividends, research and developments etc. Whereas capital reserves are made for increasing the capital.

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Some more Important Elements of Economics are:

• Assets
• Liabilities
• Utility
• Market
• Money
• Trade Cycle
• Profit
• Price
• Cost
• Value
• Want
• Demand

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Today we take money for granted. We use coins, bills, checks, and credit cards without giving them a second thought. We depend on our money to hold its value and to buy things for us when we need them. The history of money spans thousands of years from bartering and the first coins to credit cards and electronic money.

Bartering

The oldest way of doing business did not involve any money at all. People would trade goods. For example, if a person wanted a chicken, they would offer another good, perhaps a dozen apples in exchange. Once both parties agreed, they would make the trade. This form of trading was difficult and inefficient.

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Early Money

As advanced civilizations developed, people around the world began to use the money. Different regions used different types of items as history of money includes cowry shells, salt, cattle, beads, grains, and durable metals. Over time, many societies began to use metals such as gold and silver for money. Metals were durable and could be weighed to verify their value.

The First Coins

Between 600 and 700 BC, larger cities and civilizations began to use coins made from medal. Early coins were made of all sizes and shapes. Some coins had holes in the center so they could be carried on a string. Eventually, coins were minted by the local ruler or king. These coins were more precisely made and had a stamp on them saying that they were backed by the king. These coins allowed for easier commerce as they didn’t have to be constantly weighed.

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The First Paper Money

Paper money was first invented around 600 AD in China. However, it wasn’t commonly used as money in China until around 1000 AD. It took a lot longer before paper money was first used in Europe. Banks began to issue banknotes in the 1600s in Europe. At first, a banknote was really just a promise that the bank would give the bearer a certain amount of coins. Eventually, the banknotes began to be used as history of money.

First U.S. Money

The first U.S. paper money was Continental Currency which was printed to help finance the Revolutionary War. After the war, the Continental became worthless and coins continued to be the main form of money. During the Civil War, coins became scarce and the government began to print paper money again. This money was printed with green ink on one side and became known as greenbacks. At first, people still didn’t like using paper money, but then the government said they would back the money with gold and paper money became more commonly used.

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Credit Cards

Credit cards were first issued in the 1950s and 1960s. In 1958, Bank of America issued a card that would later become Visa. A number of other banks launched a rival card, MasterCard, in 1966. Credit cards have since become one of the most common forms of payment.

Interesting Facts About the History of Money

• The term “credit card” was first used in the 1888 science fiction novel Looking Backward.
• The first minted coins are thought to have been made in Ancient Turkey in the Kingdom of Lydia around 600 BC.
• Some early Chinese paper money is said to have had the warning “all counterfeiters will be decapitated” printed on it.
• In Ancient Japan, wealth was measured using the koku, which was a unit of rice equal to what one man would eat in a year.

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Facts About Indian Currency

Currency Notes & Coins

Valuable facts about Money

All economies are going through a constant cycle of changes. This cycle can be described by a series of stages. You’ve probably heard people say things like “the economy is booming” or “we are in a recession.” These are some of the various stages of the economic cycle. It is sometimes called the business cycle.

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Stages of the Economic Cycle

We will describe four of the basic stages of the economic cycle below:

• Expansion
• Slowdown
• Recession and
• Recovery

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Expansion

The expansion is a time of strong economic growth. People tend to be the most optimistic during the expansion stage. Some economists called the expansion stage the “boom” stage. Indicators of the expansion stage include:

• New businesses opening and people investing in the stock market
• Wages increasing allowing people to make more money
• Lots of new jobs are created and unemployment drops
• Overall consumer confidence is high

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Slowdown

At some point, the rapid growth of the expansion stage has to come to an end. When the economy starts to slow, but is still growing, this is called the slowdown stage. Sometimes economists call a slowdown a “downturn” in the economy. Indicators of an economic slowdown include:

• Interest rates on loans rise
• Prices on goods may rise causing a higher rate of inflation
• Stock market prices drop
• Consumers begin to worry, causing them to save more and spend less
• Businesses stop hiring new employees

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Recession

A recession is when the economy stops growing. Economists define a recession as two-quarters in a row where the GDP (Gross Domestic Product) gets smaller. A lot of times a recession is started by some sort of major negative event. It could be something like a number of banks failing, a stock market crash, or even a terrorist attack (like in the 2001 9-11 attack). Indicators of an economic recession include:

• Increase in companies going bankrupt
• Increase in people losing their jobs and unemployment
• Inflation slows down because people aren’t spending their money
• A decline in consumer confidence
• A rise in the government deficit

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Recovery

When the economy starts to come out of a recession and begins to improve, this is called the recovery stage. Indicators of an economic recovery include:

• Unemployment rates start to improve
• An increase in new job openings
• People start to increase their spending
• Low-interest rates
• Companies begin to make better profits

How long does each stage of the cycle last?

There is no set time on how long each stage will last. Sometimes countries languish for years in a very slow recovery. Sometimes they experience a quick expansion and then immediately enter into a slowdown. In some cases, an economic cycle can skip the recession stage altogether and just enter into a long slowdown state. Economists call this a “soft landing.”

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Economic Survey of India 2015-16

Fiscal Policy

Monetary Policy

Inclusive growth is a concept which advances an equitable allocation of resources during the process of economic growth with benefits incurred by every section of society.

According to Dr. C. Rangarajan Committee (2008):

“Financial inclusion is the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups, such as weaker section and low-income groups, at an affordable cost.”

Another definition by Dr. K. C. Chakrabarty (2009):

“It is the the process of ensuring access to appropriate financial products and services needed by vulnerable groups (weaker sections and low income groups) at an affordable cost in fair and transparent manner by main stream institutional players.”

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Extent of Financial Exclusion in India

• 70,000 bank branches and 1.5 lakh post offices for about 600,000 villages.
• 51.36% of rural households are financially excluded.
• Only 44.9% of total earners have bank accounts.
• Only 28.3% of total earners (earning less than Rs. 50,000) have bank accounts.
• Only 54 persons per 100 have the savings account.
• Only 13% of total earners (earning less than Rs. 50,000) take credit from banks.

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Barriers to Financial Inclusion

• Wide geographical spread posing problems of out reach and scale.
• The Multiplicity of languages.
• Illiteracy of languages.
• Lack of personal and financial identity for the vast section of society.
• Infrastructural inadequacies.
• Limited man power resources.
• Lack of effective business models.
• Structural constraints of traditional commercial banks.
• Economic sustainability.

Interventions for Achievement of Financial Inclusion

• Goal of Financial Inclusion (FI) is difficult, but not unattainable:
•  State-Driven Interventions by Central, State, and Local Governments.
• Voluntary Interventions by Banks, Micro finance Institutions (MFI), Cooperatives, Self Help Groups (SHGs) and other social organizations.

Measures

• Harnessing advances in the Information and Computer Technology (I.C.T), like Smart Cards, Internet Kiosks, and Cell Phone Messaging.
• Developing, testing and implementing appropriate products and suitable delivery channels for financial service to be extended.
• Attention to the 5 Ps of marketing – Product, Price, Place, Process and Promotion.

Present Concerns of the Union Government

• Scaling up of Financial Inclusion Plan (F.I.P) to cover all of 6 lakh odd villages.
• Nationwide awareness on F.I. (Swabhiman Project) by banks.
• Disbursement of all social security benefits through Electronic Benefit Transfer (E.B.T.) to all rural areas.

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Case Study: Andhra Pradesh Smart Card Project

The Andhra Pradesh Smart Card Project has aimed to promote financial inclusion by ensuring the reach of Government benefits to the targeted groups through the use of smart cards. It has been a kind of test-bed to evaluate the potential of smart cards and of the processes involved in marrying technology to financial inclusion. Though the project has undertaken, proved successful, up-scaling the same to the entire state and the nation has its own challenges. The very fact that many of the smart card projects undertaken in various parts of the country have not gone beyond the pilot stage is a pointer to the daunting task ahead for the banks and the Government.

Salient Features:

1. A State Government driven intervention.
2. Last mile banking with a banking outpost at each Gram Panchayat (G.P.).
3. Disbursement of pensions, wages and other benefits without delay.
4. Bank authentication to eliminate bogus beneficiaries.
5. Disbursement of benefits at G.P. level by Banking Correspondents (B.C.).
6. Branchless Banking model – a major step towards F.I.
7. Entire infrastructure laid by Bank.
8. Government committed to pay 2% as commission on the total amount disbursed.

Project Implementation:

Pilot: One Bank – One Mandal (August 2006)

• Started in 6 Mandals in Warangal and 2 Mandal in Karimnagar Districts.
• Six banks (SBI, S.B.H., A.B., U.B.I., A.P.G.V.B. and Axis) participated in one for each Mandal.
• Enrollment started in March 2007 and payments started in April 2007 and are continuing.

Phase I: Bank-led Service Area Approach (S.A.A) (August 2007)

• Review of the pilot in August 2007 and decision to upscale to other districts.
• G.Ps in 6 districts allocated to 12 different banks based on SAA.
• Enrollment started from March 2008.
• Failed to enthuse any stakeholder and progress was tardy.

Phase II: One Bank – One District Model (August 2008)

• One District allocated to one single bank, irrespective of the service area.
• Enrollment started in November 2008.
• 17 districts brought under this phase.
• 7 banks operating in this model.

RBI has recommended one district – many banks – one leader bank model to be adopted for EBT implementation to avoid overlap and achieve convergence between Phase I and Phase II models. In this model, all the banks present in the district participate in EBT, through for administrative convenience the State Government deals only with one leader bank.

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Key Learning from Andhra Pradesh Smart Card Project

• Fast payment to real beneficiaries (in 4 days of fund transfer).
• People satisfied by banking services at the door step.
• Fool-proof identification and elimination of bogus beneficiaries.
• Simple technology for trained rural literates to operate banking outpost.
• Transaction records for effective monitoring, tracking and recovering of unspent.
• Potential for incorporation of other financial services.
• Biometric authentication for control of fraud and misuse.

Challenges in Nationwide Extension of Smart Cards

• Financial viability is the key to the success of any business model.
• Technology enabled models (including smart cards) are not viable as of date for banks and customer service providers.
• The success of the model in achieving financial inclusion depends on the volumes of transactions, diversity of products and profitability in the long run.

Observations:

• Integrated Point of Service (PoS) terminal is preferred.
• Current enrollment process needs refinement.
• A.P. Rural Employment Guarantee Scheme process needs to be revisited due to short disbursement cycle.
• Multi-vendor, multizonal, phased approach to be explored for scaling up.
• Spread the disbursement period for over the month when scaling up.
• Vendors to implement Service Management Processes based on standards and guidelines.
• Vendors should be ISO 27001 certified (Information Security Standard).
• Proper Management Information System for better management and analysis.
• List of pending enrollments.
• List of false acceptance and false rejection cases.
• List of rejected or incomplete enrollments.
• Data-wise, CSP (Customer Service Provider) -wise transaction details.
• Policies and Procedures established for exceptions like manual over-ride.
• Provision of  the financial services to make the business financially viable.

Author: Dr. Kameshwari Peddada, HOD, and Professor, MBA at JBIET Group, Hyderabad (this article was originally written  for Kurukshetra)

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The National Security Council (NSC)

National Payments Corporation of India (NPCI)

Know Your Customer(KYC)

Pradhan Mantri Vaya Vandana Yojana is a pension scheme for senior citizens aged  60 years or more which will guarantee assured returns to them.

Implementing Agency

Life Insurance Corporation of India is the sole implementing agency of the Pradhan Mantri Vaya Vandana Yojana.

Terms of the Scheme

1.The scheme will be available from 4th May 2017 to 3rd May 2018.

2.It can be purchased both online and offline from LIC.

Features of the Scheme

1.Pradhan Mantri Vaya Vandana Yojana will offer an assured return of 8% per annum for a period of 10 years on a single lump sum premium which is Rs.150,000(minimum) and Rs.750,000(maximum).

2.The pension will be paid monthly, quarterly or yearly depending upon the choice of senior citizens.Minimum Pension is Rs.1000/month and maximum pension is Rs.5000/month.

3.Statutory taxes shall be as per the Tax laws and the rate of tax as applicable from time to time. The amount of tax paid shall not be considered for the calculation of benefits payable under the plan.

4.It offers a loan facility up to 75% of purchase price amount after 3 policy years.

The rate of interest to be charged for loan amount shall be determined at periodic intervals. For the loan sanctioned in Financial Year 2016-17, the applicable interest rate is 10% p.a. payable half-yearly for the entire term of the loan.

Loan interest will be recovered from pension amount payable under the policy. The Loan interest will accrue as per the frequency of pension payment under the policy and it will be due on the due date of pension. However, the loan outstanding shall be recovered from the claim proceeds at the time of exit.

5. A premature exit from the scheme is allowed in case of liquidity needs due to the serious illness of pensioner himself or of the spouse.The amount refundable in that case is 98%of the purchase price.

6.On the death of the pensioner, the purchase price will be paid to the beneficiary.

7.On completion of 10 years of the scheme, entire purchase price along with any outstanding pension amount will be paid to the pensioner.

Analysis

In the period of decreasing interest rates in the economy, this scheme(Pradhan Mantri Vaya Vandana Yojana) is a big support of senior citizens so that they can get an assured amount of pension in their old age.

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