“Leaving all decisions to markets results in grave inequalities.” Has the free market model failed?

The world today witnesses grave inequalities where majority of world’s wealth is concentrated in the hands of a few. These handful of people are able to enjoy all luxuries of life when a significant number of people find it difficult to meet even their basic requirements. This acute disparity in distribution of wealth and income calls for certain remedial steps to be taken.

Leaving all decisions to demand and supply mechanism has its advantages and disadvantages:

Advantages:

1. Free economic model encourages healthy competition in the market by reducing monopolistic tendencies which helps the end consumer
2.  Lack of monopoly in the market ensures that the prices of products remain competitive and fair.
3.  Competition encourages better and faster growth.
4.  Minimum state intervention reduces chances of corruption. 
5.  Certain aspects associated with free markets like outsourcing and globalisation brings cost advantage and faster penetration of modern technology in less developed countries of the world.

Disadvantages:

1. Lack of government intervention can sometimes result in formation of strong corporate nexus which can eliminate competitive price advantage.
2. With no welfare measures by the government to ensure fair income distribution, it can widen the income gap between rich and poor.
3. In the absence of state intervention, development will take place and opportunities will be created only in the areas of wealth concentration and a person born in a poor family with have very little chance to alleviate his state of poverty.

Hence it is notable that free market has led to inequalities. The extent of failure may vary from country to country such as in India the inequality is grave and in developed countries it can be managed with minimum state interventions as in USA.

Hence the idea is to adopt and economic model that maintains a balance between the extreme right and the extreme left and follow a mixed economy where there is sufficient market factor and government intervention so that masses can live in "Shared Prosperity".

Massive coral bleaching is under way in many part of the world thanks to various factors. Here we examine these factors and explain the consequences of coral bleaching

Coral Bleaching, which refers to the coral polyps losing their color and becoming white, takes place under conditions in which zooxanthellae, the symbiotic algae that imparts color to the corals, cannot survive. When corals are stressed by changes in conditions such as temperature, light, or nutrients, they expel zooxanthellae living in their tissues, causing them to turn completely white. Such conditions often find their roots in the process of global warming and manifests in the following forms:

1. Increase (most commonly) or sometimes decrease in sea temperatures creates condition where zooxanthellae, the algae which imparts color to corals cannot survive.
2. Excessive fishing and persistent global warming causes depletion of microorganisms in sea water. This makes the survival of corals tough as there is little left for them to feed on
3. Change in water composition(salinity, acidification, bacterial levels etc.) due to increased industrialization also creates condition that are difficult for the algae to survive

Since coral bleaching is nothing but a reflection of global warming, it has following consequences:

1. Extensive bleaching would indicate an eventual extinction of coral polyps which forms the basis of food chain, thereby disturbing the entire food chain.
2. Consistently rising sea levels, which is also indicated by coral bleaching, will subsume the coastal regions and the resources therein.
3. Eventual fading away of coral reefs, which are home to more than 25% of the ocean life
4. Change in the ocean salinity, which will trigger a chain of events impacting human life, including ocean currents and atmospheric pressure too.

Critical examination of increase in instances of the number of carnivores attacking humans and domestic animals in and around some of India’s forest regions.

Man-animal conflict is on the rise throughout India. Increasing intensity of carnivores attacking domesticated cattle has drawn attention to the increasingly dominant role played by anthropogenic factors in modifying the natural landscape. Instances of carnivore’s attacks are on the rise due to:

• Demarcation problem- In India clear demarcation of forests and wildlife sanctuaries is absent. There is little or no fencing. This leads to unchecked cattle grazing and interference by human settlements into restricted forest areas giving rise to man-animal conflicts. There is high prevalence of illegal cattle grazing inside national parks and wildlife reserves, which makes them prone to attack by wild animals.

•  Habitat depletion- With depleting habitat and forest cover, carnivore are often forced to look for food and water in outer regions. In National Parks like Bandipur and Nagarhole, the intense competition for prey and territory coupled with increase in population density of carnivores has led to the ejection of weak and old animals from the core areas into outer areas with lesser prey. These old and weak carnivores the stray into human landscape in search of prey. They begin to stalk and prey on domestic cattle grazing inside the forests which become easy kill for such ejected animals.
• Absense of stringent laws- Collection of forest produce like tendu leaves, mahua, firewood etc is still prevalent in many forest areas. Due to lack of enforcement of restrictive laws by forest officials, villagers are able to  go deep into forest areas for collection of produce which leads to increased encounters with wild animals.
• Unsatisfactory resettlement plans- Little attention is given by government to the people living in such areas. Many communities of grazers rely on a steady supply of grass for their cattle and are forced to take such risks in absence of pastures, leading to frequent attacks

To prevent such attacks, state administration and forest officials have to work hand in hand to adopt certain remedial measures. Rapid deforestation must be stopped. Environment clearances to industrial projects must be given keeping in mind the extent of damage it will cause to the natural habitat of wild animals. Stringent laws should be there to ensure that the buffer zone between forest area and human settlement is respected. The government must show initiative in providing better opportunities and resettlement packages to these marginalized communities.

Impact of High tax rates on the performance of SEZs in India

The slow implementation and poor performance of Special Economic Zones (SEZs) can be largely attributed to the imposition of high rates of Minimum Alternate Tax(MAT) and Dividend Distribution Tax(DDT)

MAT is the tax imposed on the book profits of a company. Normally a company is liable to pay tax on the income computed in accordance to the provisions of the Income Tax Act. But profit and Loss Account of a company is prepared as per the provision of the Companies Act.

The Indian Income Tax Act provides a large number of exemptions and deductions from the Total Income. As a result, companies who otherwise show book profits in their P&L account and distribute huge dividends to their shareholders, are able to make use of such exemptions, deduction and other incentives under the I-T Act to reduce their taxable income to negligible levels.

To bring such companies under the purview to Income Tax, MAT was introducted in 1997-98, according to which all companies having book profits under the Companies Act will have to pay a MAT at 18.5%.

Dividend distribution Tax is the tax levied by the Indian Government on companies according to the dividend paid to a company's investors. This tax is paid out of the profits/reserves of the company declaring the dividend. At present the dividend distribution tax is 15% according to the Union Budget 2007, India.

DDT was imposed to make companies pay taxes that though making huge profits showed no taxable incomes as these incomes went away in dividend distribution to shareholders.

Though these taxes have enabled the government to reduce their forgone revenue, the high tax rates have proven to be major bottlenecks towards the development of SEZs in India. It has led to low participation from developers and investing companies in these tax-free enclaves. This sustained decline since the imposition of MAT on SEZs has resulted in exports from SEZs declining in 2013-14 for the first time since inception - by 6.61% to $82.35 billion from $88.18 billion the previous year.

Investing companies demand removal of both the taxes and say it affects their internal functioning. But it is immoral to work in a country and evade taxes by using deception. Taxes should be paid. This justifies the sustenance of both the taxes.

However, reduction in these taxes can provide a major boost to SEZs by renewing the interest of developers and investing companies towards these enclaves. Considering that India needs the investments badly to ramp up manufacturing, revive the SEZs and kindle up NIMZs as a part of 'MAKE IN INDIA' campaign, these taxes should be reduced to such levels that strike a healthy balance between company's needs and government’s claims.

Decoding the fall in Global Oil Prices

Cheaper oil is good for the global economy; for an energy-intensive economy such as India’s, which also depends on imported oil for meeting four-fifths of its needs, a fall in oil price is desired.
Yet, the biggest fall in the stock market in five-and-a-half years last week was triggered by crude oil piercing the $50 a barrel mark on its unrelenting downward journey. The fall was also due to fears such as Greece exiting the euro zone and slowdown in China.
A recent IMF study says that every $10 fall in oil price adds 0.2 percentage points to global GDP growth. And that should mean a boost of a over 1.2 percentage points to global GDP growth given that oil has dropped from around $115 a barrel six months ago to less than $50 a barrel now.


Reasons for fall in oil prices:

• Lower global demand is the main reason.
  
• The inability, or unwillingness rather, of the Organisation of Petroleum Exporting Countries (OPEC), which accounts for about 40 per cent of global oil output, to cut production to match the demand is a major factor.
  
• Saudi Arabia, which dominates the cartel with the highest share, appears determined to stay in a race to the bottom along with U.S. shale oil producers.
  
• The oil market was funded in a major way in the last few years by cheap dollars flowing out of the Federal Reserve’s quantitative easing programme. With interest rates at near zero, surplus funds flowed into the commodity markets, notably crude oil, driving their prices upwards.
  

Cheaper fuel prices will put more money in the hands of consumers which will, in turn, be either invested or spent elsewhere. And this would drive economic growth.

Rural Households in Debt

According to official survey by National Sample Survey Office, 52.9% of India’s agricultural households were in debt, with the average amount of unpaid dues being Rs 47,000.

About 40% of these dues are from non-institutional lenders - 25.8 per cent were from money lenders. With 60% of the loan dues were taken from institutional sources, about 42.9 per cent were from banks, 4.8 per cent from cooperatives and 2.1 per cent from the government, among other institutional sources.

Among the major states Andhra Pradesh has the highest number of indebted households in the country (92.9%), followed by Telengana(89.1%) and Tamil Nadu(82.5%).

Institutional lenders provide credit to these households at a moderate interest rate of 12-15%. On the other hand non-institutional lenders usually provide credit to households at interest rates of 20% or above.

The reasons for high debt is that majority of rural households have cultivation as their primary source of income, with fewer having alternate sources of incomes (like MGNREGA).Due to this high dependence on agriculture, the rural economy is prey to the fluctuations of the monsoons and hence off-seasons. To add to this, high input and labor costs associated with cultivation, increasing rural expenditure due to exposure to technology and education without a proportionate rise in income, the agricultural households have to depend on loans to meet their ends.

Due to limited scale of operations of institutional lenders in rural areas, most of the debt extended to rural households is by informal money lenders or non-institutional organizations. These loans are extended at high, unregulated rates and often come with unreasonable terms and conditions. Credit extended is usually for short term, renewed further at a higher rate of interest. This also adds volatility to the credit availed.

Loan borrowed at a high interest rate creates defaulters, and since they have no asset to repay the loan with, they further take a loan to repay the previous loan; thereby getting in a loan trap.

To gain independence and avoid exploitative money lenders, groups like the Self Help Groups are rising in number, following the principles of lending based on community and group trust.