Glass Ceiling Effect in Indian Labour Market

Panchanan Das
Professor of Economics
University of Kolkata
(financial blog on behalf of GLARiUS Markets Intelligence – www.glarius.com) GLARiUS Platform 

Fair Trade, Organic Farming and Farmers’ Income: A Recent Innovation in Developing Countries

Fair trade and organic farming are recent innovations playing a significant role for agriculture in developing countries. These innovations are mutually reinforcing as fair trade opens up new market prospects for organic products. Organic products have price premiums and the demand for these products is growing recently at a rapid rate globally primarily because of the health and nutritional benefits of organic food. The expansion of organic agriculture is income enhancing particularly for small and marginal farmers because they are not able to use chemical fertilizers and other chemical inputs in farming. Participation in organic farming and fair trade networks is beneficial in reducing farmers’ livelihood vulnerability. This type of farming has a potential to improve soil fertility, biodiversity and other environmental content of the ecosystem.

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Domestic markets for certified organic products in developing countries are much less developed till today, with the exception of China (IFAD, 2005), while exports of organic and fairtrade products from developing countries are increasing. Fair trade buyers or importers pay a price premium for fairtrade-certified products. Fair trade is beneficial for the vulnerable farmers in developing countries because it reduces the risk generated from price fluctuations as observed in the free trade. However, farmers selling certified organic or fairtrade products may not receive substantial financial benefits. This is because, although prices of organic and fairtrade certified products are greater than those of conventional products, yield of organic products is smaller than that of conventional products and thus, total revenue from organic and fairtrade products is lower than revenue from conventionally grown crops (Tina and Zeller, 2011).

One of the major challenges of organic farming is the creation of domestic demand for organic products in developing countries. While Australia, Europe and the US are the leading importers of organic products, Latin America, Asia and Africa where small land holders are predominating are the principal producers of organic and fairtrade products (Willer and Kilcher, 2011). Nevertheless, access to markets, certification, and labelling organic products still challenges in developing countries. The third-party certification systems in organic agriculture is also problematic in these countries. Organic agriculture has to be certified in accordance with the standards laid by the International Federation of Organic Agriculture Movements (IFOAM). In contrast, the fair trade standards have been taken care of by the Fair trade Labelling Organizations (FLO) International.

Organic agriculture is a feasible option in regions where labour is abundant. India is a country with high potential of expansion of organic agriculture because of its predominance of small and marginal farmers. Proper organic policy and institutional frameworks at the national and subnational level can facilitate access to domestic and export markets for certified organic products.

In India, agricultural credit is facilitated by the National Bank for Agriculture and Rural Development (NABARD), through commercial banks (50 percent), cooperative banks (43 percent) and regional rural banks (7 percent). Private sector partnerships are the key source of financing for the organic supply chains. Private companies in the supply chains, such as buyers, provide their own funding to support their partners’ activities and those companies collaborating in fairtrade agreements.

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The post-harvest operations include handling, processing, packaging, storage and display operations need to be separate from conventional products to ensure that the organic product does not come in contact with nor have other ingredients added that might compromise its organic certification. Efficient and timely post-harvest operations at the farm and rice mill and attention to storage and transportation conditions are critical to ensuring optimal quality of the organic rice at the point of sale and for consumption. As special care is required for the storage, processing, transport and marketing of organic rice, handling costs are considerably higher than those associated with conventionally grown rice.

Fair trade organizations distribute or import products that comply with fair trade specifications. In some cases, producers sell their products to a primary cooperative, which then sells to secondary and tertiary cooperatives that subsequently export the products. At each step of the process, producers and cooperatives have to meet the standards set by the Fairtrade Labelling Organizations International (FLO).

References

IFAD. (2005). Organic agriculture and poverty reduction in Asia: China and India focus. Thematic evaluation. Report 1664. Rome, International Fund for Agricultural Development.

Tina D. Beuchelt, Manfred Zeller. (2011) Profits and poverty: Certification’s troubled link for Nicaragua’s organic and fairtrade coffee producers. Ecological Economics, 70, 1316–1324.

Willer, H. and Kilcher, L. 2011. The World of Organic Agriculture. Statistics and emerging trends 2011. Bonn, Germany, IFOAM and Frick, Switzerland, FiBL.

Mr. Panchanan Das
Professor of Economics,
University of Kolkata
Kolkata, West Bengal, India

Property Taxation in Indian Cities – Application of Unit Area Assessment

Property tax is one of the major fiscal instruments of local governments in urban areas for raising their own revenues. Two popularly used tax bases of property taxes in India are annual rental value of the property and the capital value of the land. Most of the urban local governments use the notional property rental values as the base for assessing property taxes. In the notional property rental method, the tax base becomes stagnant, and an upward adjustment of tax rates is the only way to increase revenues from the property tax (Bagchi 1997, Rao and Ravindra 2002).

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Local governments at the cities are responsible for designing instruments to finance their activities with the 74^th Constitutional Amendment Act (1992). Many urban local governments have initiated reforms to improve the property tax system. The reforms in property tax focus primarily on improving the tax base and the administrative mechanism on of the tax. The municipal governments in a number of Indian cities have adopted the capital value of property method since 2004. In this method, values per unit of land are estimated, and the tax base is the product of this unit value and land area, plus the value of the property determined by some multiplicative factors.  It is highly unlikely that the potential gains of the new method have been fully realised partly because of the absence of a well-functioning real estate market for accurate information on property values and high transaction costs that adversely affect land prices.

Historical prices of real estate worldwide (45 countries) can be found on www.glarius.com.

The Kolkata Municipal Corporation (KMC) and Newtown Kolkata Development Authority (NKDA) have adopted recently the Unit Area Method of Property Tax. The urban local bodies of Delhi, Bangalore and Pune also have introduced the capital value system in their property tax assessment. This system is simple and transparent, and property owners can assess their tax and submit the returns. In this system, tax for a particular property is based on the annual value of the property obtained by multiplying unit area value assigned to the localities by the covered area of the property and the multiplicative factors for occupancy, age, structure and use. Multiplicative factors account for the wide heterogeneity among properties within a conceptual block. This system is expected to reduce disparity in assessment of similar properties within the same locality and thereby ensures equity to the taxpayers, efficiency in tax collection, neutrality in resource allocation, and accountability of tax officials. Equity in property taxation is horizontal or vertical. Vertical equity refers that a tax should be progressive in income or wealth. Horizontal equity, on the other hand, refers that taxpayers with equal ability to pay ought to have similar tax burdens.

Daily movements in stock markets, 10-year and 25-year averages of the main stock market indices like IBOVESPA, BSE Sensex, RTSi, Dow Jones and 40 more can be followed on www.glarius.com

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References

Bagchi, A. (1997). “Reforming the Property Tax Base: Need for a New Direction.” Economic and Political Weekly, 32(47): 3005-3010

Rao, U.A.V and A. Ravindra, (2002). Reforming the Property Tax, New Delhi: UNDP

Mr. Panchanan Das
Professor, Department of Economics
University of Calcutta

Goods and Services Tax in India: Some Basic Issues

Goods and Services Tax (GST) is a multi-stage indirect tax levied on local consumption. It involves collection by registered vendors throughout the production and distribution chain before the goods or services reach end-consumers. Under the GST framework, each registered vendor charges GST on his sales in the form of output tax, and reclaims credits for the tax paid on his purchases as input tax. The input tax credit method allows GST-registered businesses to claim tax credit to the value of GST they paid on purchase of goods or services as part of their normal commercial activity. It is similar to value added tax because at every stage, tax is being paid on the value addition. Taxable goods and services are not distinguished from one another and are taxed at a single rate in a supply chain till the goods or services reach the consumer. The total amount of GST paid to the tax authority by all the vendors in the production and distribution chain is equal to the amount of tax finally borne by the consumer. 

The GST is a system of indirect taxation introduced from July 1, 2017, in India merging most of the existing taxes into single system of taxation. It was proposed first by the finance minister in the budget speech in 2007 and introduced by The Constitution (One Hundred and First Amendment) Act 2016. The Constitution Amendment Bill, 2014, (GST Bill), by considering the present federal structure, proposed dual GST model in which both the central and the state governments have power to collect tax in the following manner: The Central GST (CGST) and Integrated GST (IGST) are the domain of the central government, while the State GST (SGST) is to be collected by state governments. The CGST and SGST are applicable in the case of intrastate trade of commerce, but in interstate trade the IGST is applicable. The transaction may be liable to be taxed under GST if the total turnover (of all transactions all over India) exceeds the threshold limit.

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The current indirect tax system, particularly the retail sales tax, covers normally goods but not services. Services sector, however, is faster growing part of the economy. The GST covers services as equally as goods extending the tax base of the country. The GST, a comprehensive consumption tax levied on the supply of all goods and services, can eliminate the multiplicity of taxes, the complexity in compliance obligations, and tax cascading. It is one point single taxation based on the principle of one tax one market across the regions in India. The GST eliminates the cascading effects of CENVAT and it is not simply a VAT plus service tax but an improvement over the previous system of VAT and disjointed service tax.

The GST, a multi-stage indirect tax levied on local consumption, as proposed by the union government in India has been a subject of intense debate and is reignited because of the heterogeneity of state laws on the present VAT (value added tax) system. There has been a lot of heterogeneity not only in VAT rates but also in the mode of compliance with different set of laws in different states. One of the major objectives of the proposed GST is to eliminate this heterogeneity across the states. Moreover, a number of positive impacts of GST have been claimed officially from the experience of the GST system already prevailing in more than 150 countries in the globe. While the most of the GST systems across the world have been using a single GST, a dual-GST model is proposed in India for its federal republic structure. Lot of debates have come up on GST in India particularly in the context of the state economies under the present federal structure.

As the GST is destination-based, there would be an outflow of tax revenue under this tax system along with goods and services produced in states with manufacturing industries to states that consume the goods and services. In this sense, GST may not be attractive particularly for manufacturing states. The central government has assured states of compensation for any revenue losses incurred by them from the date of introduction of GST for a period of five years.

Taxation on the consumption of goods and services is nothing more than an expenditure tax, very much similar to income tax. For GST, the tax base is expenditure, not income, and everyone who consumes goods and services cannot avoid this tax, as it is built into the price. As the lower income people have higher propensity to consume than the higher income people, the tax burden for the lower income people will be higher than for the higher income group. At least on equity ground GST should be linked to direct taxes. Tax reforms should be aimed at augmenting revenue to assure alleviation of poverty and creating a more equitable society.

Daily changes, 10-year and 25-year averages of the main stock market indices like IBOVESPA, BSE Sensex, RTSi, Dow Jones and 40 more can be followed on www.glarius.com

Mr. Panchanan Das
Professor of Economics,
University of Kolkata
Kolkata, West Bengal, India

Demonetization in India: Impact on the Economy

On November 8, 2016, the government of India took away the legal tender character of 500 and 1000

Rupee denomination of banknotes. As a result, 86 percent of the currency (nearly 11 percent of GDP) in circulation was reduced suddenly from the economy. The shortage of currency created a shock to the economy which has several implications. Of course, the capacity to spend by the people had affected directly reducing the consumption demand in the domestic economy. The unorganised sector operates substantially outside the formal banking channels and uses cash for its transactions. The unorganised sector affected badly sinking their production. This affects demand in the entire economy since. As this sector still produces 45 percent of the national output, it has significant contractionary effect in the economy.The rate of growth of the economy as a whole would come down.

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Demonetization reduces the cash in the economy. But, cash in the Indian economy represents only less than one fourth of total money supply. While the Reserve Bank of India supplies the cash circulating in the economy, the banking system as a whole creates more money by lending the deposits it gets to others. While the amount of currency in circulation sharply declines, the deposits with the banks increases although slowly. The money multiplier, the ratio of money in the economy to the cash that the central bank releases in the economy, rises as the people uses less and less of cash and more and more of the deposits with the banks. Cash held by the people is a leakage from the banking system and not available to be further circulated.

New Delhi: People queue up at out side of banks ATM to get money in New Delhi on Sunday. PTI photo by Vijay Verma

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It is argued that there are agents in the economy who are hoarding currency as a method for storing savings, especially by people earning unaccounted or illegal incomes. Demonetization has been introduced for reining in the unaccounted incomes or wealth in the economy. It is being argued that the part of wealth held by people as cash would be extinguished as a result of demonetization. There is artificial suppression of demand because of the cash crunch. After remonetisation with the new series of bank notes, consumption demand has started to rise, and if the items are in short supply because of the contraction in economic activity or because of supply chain management, inflation may go up.

Follow economic performance of over 40 countries on www.glarius.com Main stock market indices, inflation, real estate prices, prognoses.

Mr. Panchanan Das
Professor of Economics,
University of Kolkata
Kolkata, West Bengal, India

Low Degree of Macro-Economic Volatility - BRICS Nations

In a study we observe that the positive growth effect on the real sector is reaped out from the financial integration in terms of integration of the financial markets (stock markets) among the BRICS nations. The fundamentals of the economies in the sample are attracting the foreign investment from among the nations in sample. Financial integration allows the capital to be invested in the market which is to give the highest return by reducing the barriers, hence the investors have the incentive to invest and consequently the entrepreneurs also gets the incentive in investing technological innovation. The ever expanding cross country capital flow in equity market is improving the production structure of the economies and influencing the growth of the real sector positively. Factors that fosters the investing in BRICS nations is the low degree of macro-economic volatility relative to the rest of the world. The growth rate of Brazil, China, South Africa and India is quiet high relative to the global market growth rate, especially aftermath of the crisis of 2008.

www.glarius.com – has 25 years of market data with analysis, prognosis.

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The global financial market has become very synthetic in terms of volatility. The member nations of BRICS nation have much more transparency of information and less asymmetry of information about the economy fundamentals and with regard to projects they are investing, since the financial intermediaries have easy access to all kind of information regarding the projects and economy fundamentals. So to reduce the uncertainties of investment the investors of BRICS nation are opting for cross-country investment within and between the BRICS nation. The positive impact of economic growth is found from the analysis, implies that the fundamental endowment of the BRICS nations are almost equal therefore, consequently the growth is taking place in terms of equalization of factor prices.

Daily changes, 10-year and 25-year averages of the main stock market indices like JSE/FTSE, IBOVESPA, BSE Sensex, RTSi can be followed on www.glarius.com

Related: Should You Add BRICS to Your Portfolio? - Nasdaq.com

Mr. Panchanan Das
Professor of Economics, University of Kolkata
Kolkata, West Bengal, India

Financial Integration and Real Sector Growth in BRICS Nations

by Panchanan Das
 
India - The 1980s and 1990s were characterized by substantial institutional change in financial markets that significantly increased global financial integration. These changes resulted in the emergence of new issues that were not present so far. As a result, we have seen a noticeable increase in the size and variety of studies dealing with these issues. This article is restricted to look into some interrelated issues on financial integration among the BRICS nations. BRICS is an association of five major emerging economies: Brazil, Russia, India, China and South Africa. These five countries together contributed roughly 1/5 of the GDP to the world economy with nearly 40% of the world population in 2015. Initially it was BRIC but later South Africa joined the family to be newly termed as BRICS. The immediate aftermath of the 2008 financial crisis didn’t had much effect on their economies as the emerging powers continued to grow.
Related: What is the state of the BRICS economies?

Image: REUTERS/BRICS Photohost/RIA Novosti

The BRICS countries have little in common in political terms and the degree of openness with regards to the level of globalization and liberalization. The unique and unifying factor is the scale of their economies in terms of gross domestic product (GDP) and their sustained growth rates in the past two decades. The shift from intensive technique to extensive technique way of extracting materials lead to a paradigm shift in development. Although there exists a huge number of studies that concentrate on measuring the level of financial integration and focusing on the issues related to it, there are relatively small number of studies that concentrated on these nations. However, the changing power structure of global economy calls for more attention to the emerging giants. The BRICS is a renewed global partnership for development. The BRICS member countries have converged to work on some common goal and priorities. Being the fastest growing and the largest emerging giants, the BRICS nations account more than half of the global population and contribute majorly in the world GDP growth. Daily changes, 10-year and 25-year averages of the main stock market indices like IBOVESPA, BSE Sensex, RTSi can be followed on www.glarius.com
Related: BRICS Face Their Own Challenges While Meeting As A Bloc

Mr. Panchanan Das is an Economics Professor at University of Kolkata Kolkata, West Bengal, India