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HANDOUT ( ECO SANJIV VERMA)

1. US CRISIS 2008 & 2011
2. EURO ZONE CRISIS
3. CYPRUS CRISIS
4. DIFFERENT ACCOUNTS BY NRIs
5. ECONOMICS OF ANIMAL REARING













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1. US CRISIS 2008 & 2011
The largest economy of the world went through two major crises in the recent time and
the worst since the great depression 1929-33. The crisis of 2008 was a financial
sector crisis, the genesis which was sowed in the inverted financial system, highly
over leveraged, as an inverted pyramid. The mechanism of the overleveraging was
through complex financial derivative products (products deriving value from an
underlying financial assets) which had excessive risk. Globalization of the financial
system had happened even earlier to the economic globalization, resulting in a broad
global financial architecture covering banks, investment banks, pension and insurance
funds, housing finance companies, hedge funds all finely inter meshed with each other
difficult to differentiate the financial products and the holders of such products. These
products were traded over the counter, outside the stock exchanges resulting in their
being unregulated or any kind of supervision on their trading.
It was also driven by consumption led growth especially through housing loans making it
relatively easy for people to get mortgage backed loans which were then sliced and
diced as multiple risky derivative products. In 2008 the total outstanding of mortgage
loans was around USD 15 trillion, more than the GDP of US and the financial
derivatives market was of over USD 600 trillion. A default in the mortgaged loans
brought down the financial system, resulting in an overnight shut down of around 140
banks, financial institutions, crashed the stock market resulting in the crisis also known
as the Global meltdown and also as subprime crisis.
The US crisis of 2011 was a fiscal crisis, arising out of reckless fiscal spending over
the past decade with deficit to GDP climbing to double digit in less than a decade. This
was due to compulsions of the US of mounting expenditure of social security and the
crisis of 2008 only making matters worse, in terms of recession and also rising
unemployment of one of the highest in the history of US, requiring increased spending
besides monetary easing. At the same time, taxes were never reviewed with tax rates
virtually unchanged and on the contrary, as a response to the crisis in 2008, tax rates
were lowered for boosting consumption in an attempt to revive growth.
The fiscal crisis occurred when the US hit the ceiling of the overall level of debt of USD
16.4 trillion, which meant that deficit could not be sustained through increased
borrowing as done in the past. Further with fears of breaching the cap, there also arose
the likelihood of a default as bonds due for payment could not be done through more
borrowing, unless the cap was raised.
This resulted in the first ever down grade of the US rating by Standard & Poor in 2010.
The Senate realizing the gravity of the problem passed a resolution of suspending the
cap but with strict austerity measures in government spending and roll back of tax

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concessions given effective December 2012, resulting in a fiscal cliff, of the relative
inability of the government to reduce spending and also raise taxes, in the wake of the
growing un employment rates and marginal growth of the US economy. The US govt
has to cut expenditure by USD 1.2 trillion over a 9 year period beginning December
2012. In view of the fiscal cliff, US congress has further extended suspension of the
debt ceiling till May 19, 2013. The fiscal crisis of the US has not been resolved but only
postponed and the fiscal cliff would resurface in May 2013.
2. EURO ZONE CRISIS
Earlier European Union represented one economic market as an economic union with
free trade with each other. The Euro Zone came into existence with the signing of
Maastricht treaty signed in 1992, of a monetary union, one Central bank and single
currency, replacing country specific currencies in the European Union. As a result The
Euro as common currency came into existence in 2002, but of the 27 member countries
only, 17 members of the EU accepted Euro as the common currency and became part
of Euro Zone.
Some of the members not opting for Euro (10) especially Sweden, UK, Switzerland
which while accepted Euro, also had their own respective currency and not part of the
Euro zone even though part of European Union. There are 6 other countries which have
Euro as their currency but are not part of the Euro zone resulting in 23 countries in the
world having Euro as their currency with 17 as part of Euro Zone.
The Euro zone had structural problems ever since it came into existence:
a) Of a union of dissimilar economies, difference in sizes, economic activities,
resources, technology, levels of development and incomes. On the one hand the
stronger economies of Germany, France and Italy and the other peripheral
economies like Greece, Portugal, Spain etc.

b) Some of the Euro Zone member had strong currency before Euro came into
existence like Deutsche Marks (Germany), French Francs and the Italian Lira,
while other had a weak currency like Greece (Drachma), Portugal (Escudo) and
Spain (Peseta). Thus monetary union was not across similar monetary strengths
of economies.

c) The larger economies especially Germany had a current account surplus while
others had a current account deficit largely with Germany.

d) There was a Growth with Stability Pact amongst Euro zone members which
was more of an understanding rather than a fiscal union of debt to GDP not

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exceeding 60% and deficit to GDP of not exceeding 3%, which was never
adhered to by the member countries resulting in fiscal excesses, high levels of
deficits resulting in large borrowings especially by what is referred as PIGS
economies, comprising of Portugal, Ireland, Greece and Spain.

The Euro Zone crisis is a Soverign debt crisis as it is government debt outside the
country. (please refer to slides uploaded for class 8 & 9)
3. CYPRUS CRISIS
The Crisis Cyprus is a banking sector crisis, with volume of business many multiple of
its GDP, unregulated, high exposure to Greek bonds almost resulting in collapse of the
second largest bank necessitating a bail out by European Central Bank.

4. NRI - NRE/ NRO/FCNR a/c

NRE NRO

FCNR(B)

Which NRIs
All (except Residents of Nepal/Bhutan)
R/O Pakistan, Bangladesh require prior approval of RBI
Currency Rupee denominated
Any convertible
currency
USD/GBP/Euro/Yen

Type
Savings, Current or a Fixed / Term
Deposit
Term deposit
(1-5 years)
Is nomination
allowed?
YES
What is the status of
the account when
NRI returns to India
for good?
Converted to resident account


Redeemed



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What can be the
source of funds?
Funds remitted from
abroad, Funds from
another NRE / FCNR
account
Funds received
from within India

Funds remitted from
abroad
Repatriation YES NO YES
Can it be opened
jointly with a
resident?
NO YES

NO
What is the income
tax treatment of the
interest earned?
Tax free
Taxed as per
applicable slab
rate

Tax free
RFC(D) Account

5. ECONOMICS OF ANIMAL REARING
India is home to a large number of breeds of animals, as part of the eco system
converting waste into protein ( having multi functionality with agricultural activities
(ploughing and sowing), as means of transport of agricultural produce, their produce
used for consumption (milk), excreta providing source of energy(cow dung), directly
used for consumption and exports(poultry, meat products). Their skin used for multiple
purposes like clothing, footwear, wool, woolen wear etc (sheep, Yak).
But animal rearing in India is an informal secondary occupation. It is unscientific in
nature, as an ancillary, livelihood activity meeting requirements of rural families, their
produce over self consumption as surplus sold amongst the local population. There is
also the 70:70 feature of India, of 70% of the animals held by 70% of the rural
population, largely comprising of women and landless/small/marginal farmers in rural
areas.
It is not seen as a science, but driven more out of need, experimentation and
experience. They play a complementary inter-linked activity to farming and other allied
activities, not allowing understanding of it being a potential source of Multiple Income
Earning Opportunity (MIEO) for the rural poor.
Cooperatives set up for milk and products through National Dairy Development Board
(NDDB), Anand Milk Union Limited (AMUL)and others represent the first attempt of
economics of animal rearing as a viable business model of not only providing means of

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livelihood but remunerative means of income enabling prosperity amongst farmers
engaged in this activity. Goat milk sale price is much higher than price of milk from
buffaloes and cows and can be seen as commercial activity.
There are significant opportunities, as standalone economic activities in areas like
processing of meat, piggery and poultry products, fish farming, animal skin and
commercial use of waste as fertilizers and also for meeting energy needs for local
community besides meeting domestic needs. There is scope for increased processing
and value addition and strong linkages with the food processing industries to establish
full economics (viability) of animal rearing. Animal rearing as an organized activity
reduces pressure on agriculture, allowing income opportunities outside agriculture but
yet connected to villages not requiring the rural population to move out for seeking
employment.
India has been the largest exporter of beef products and India is presently in the throes
of pink revolution signifying a great potential for meat products. But, this will require
modern and automated abattoirs, greater thrust on hygiene and processing and cannot
be confined as an informal activity any more. It will also require developing local
infrastructure in terms of adequate power, refrigerated storage and transport and an
efficient logistics.
Similarly poultry hatchery, eggs are fast emerging as viable businesses given the
growing demand and changing consumption habits towards protein oriented diet
globally. Sheep and Yak rearing can provide linkages to the woolen industry.
But more than opportunities, it has number of structural issues which need to
addressed, one to look at them as sound business proposition and the other ensuring
long term viability and sustainability of this untapped area in rural areas. First it requires
dissemination of the science of animal rearing, feed and fodder, newer technologies of
breeding and cross breeding and health management.
Two, this would also require veterinary support through doctors and accessible animal
care hospitals. It is also a fact that this may a distant cry given the low level health care
for the rural human population.
Three, there is also a need to link this activity to formal sources of institutional credit and
insurance, which is linked but for specific activities only. Lending for animal rearing in
general should be included as part of priority sector lending by banks.
Fourth it will also have to contend with challenges of being a potential breeding ground
of germs, managing epidemics and human health (swine flu) associated with different
breeds and species.

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Fifth, one should be alive of the water requirement especially in processing of meat
products which require multiple washing, manifold more than that required for humans,
needing investment in water treatment plants.
Finally, with the right direction, policy support and matching inputs through adoption of
scientific methods, this relatively unknown and untapped potential has the powers to
usher in a new era for rural India of livelihood means, multiple income opportunity and
improving living conditions of the rural masses.


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