Economics Assignment

What is Macro-economics and why is it important? If you happen to have an interest in the
economic health of your country than these are the questions you should be looking at.
Macro-economics refers to changes in the economic output of a country, its inflation, its
exchange rates, etc. In simple words, aspects such as employment and sustainable growth
are all dependent on the monetary and fiscal policies of macro-economics. It helps us to
examine the forces which are responsible for the growth of a country and helps us to reach
the highest level of it and sustain it. But recently the global economy got hot by a
phenomenon which plunged it into darkness. The phenomenon was COVID-19. India was no
exception to it and we were one of the most wrecked economies because of it. In the post-
independence period, India's national income has declined only four times before 2020 – in
1958, 1966, 1973 and 1980 – with the largest drop being in 1980 (5.2%). The GDP which had
seen a growth of about 4.2% in the 2019-2020 period got hit by a 7.7% reduction in it in the
2020-2021 period. If one delves into the data, it can be seen the wealth and income
inequality has been on the rise. More than 42.5% of the total wealth was held by the top 1%
of the population. During the national lockdown, individual income decreased by more than
40%. In retrospect, one can compare it to losing 3 months of salary. Unemployment had
been at all time high due to the crisis with younger population dominating the personnel as
they make up the majority of the population. One of the major sectors which was hit was
the manufacturing sector. Due to the ban on non-essential items during the lockdown,
companies were operating in lesser size and numbers, thus leading to diseconomies of scale.
Add to it the global disturbance in the logistics, procurement of raw materials got harder
and expensive. As we know, when we talk about macro-economics, its inter-dependent on a
global level and the manufacturing sector is an apt example of it. Similarly, oil production
was reduced in the OPEC countries which caused inflation and increase in the prices of fuel
in India, adding further to the burdens of the Government. But India’s policy and grants
response robust and managed to mitigate the damage to some level. One can get an idea as
to how macro-economic works- how it affects various parameters such as employment,
wealth accumulation, GDP, growth, etc., how global incidents affect our economy, how our
incidents affect other economies and how the steps taken by the government affects us and
others. To further elaborate on the point, below are 5 news articles which sows how COVID-
19 and global factors affected our economy, was it good or bad, what could have been
done, etc.
 News Articles

1. “India warns of high oil prices hurting global economic recovery”- The Economic
Times

Link- https://economictimes.indiatimes.com/industry/energy/oil-gas/india-warns-of-
high-oil-prices-hurting-global-economic-recovery/articleshow/87164512.cms

Written by-Press Trust of India, Date- Oct 20, 2021

 Analysis- Organization of the Petroleum Exporting Countries also known as

OPEC led by Saudi Arabia works as an association and fixes prices in a
favorable band.
 They have the muscle to bring down oil prices by increasing the production or
vice versa.
 Reasons contributing to slow production are many such but some of the
main ones are- In 2020 due to restrictions on travel, etc. due to the
pandemic, the production was halted. But as the economy started to recover
later, instead of a sharp increase in production, the OPEC countries are
increasing the production gradually, much lesser than the demand.
 Disruptions caused by Hurricane Ide caused supply issue of natural gas.
 Impact on India- Increased oil prices will increase India’s import bill and
interrupt its current account deficit.
 Increased oil prices may lead to inflation.
 Increased trade deficit
 Suggestions- Appeal to OPEC countries to increase production and supply oil
faster as it could deprive the Global Economy of its growth rate.
 Countries should dig into their oil reserves and make us of it until the
scenario with OPEC is resolved and production is brought back to the desired
level.
 Excise cut and VAT reduction.
2. “Gadkari asks automakers to start producing flex-fuel vehicles in 6 months”-
Business Standard

Link-https://www.business-standard.com/article/current-affairs/govt-asks-
automakers-start-producing-flex-fuel-vehicles-in-6-mnths-gadkari-
121122700821_1.html

Written by-Press Trust of India, Date- December 27, 2021

 Analysis- The Government of India has asked Automobile Manufacturers in

India to manufacture Flex Fuel Vehicles (FFV) and Flex Fuel Strong Hybrid
Electric Vehicles (FFV-SHEV) which also complies with BS-6 Norms.
 The action will help to reduce the demand for petroleum products thus
easing pressure on the import bill.
 Since the process uses ethanol, it will provide additional jobs pertaining to
making ethanol and also increase the revenue of farmers.
 Suggestions- The Government of India should impose a time stamp as to
when the cars should be in the market so as to speed up the process.
 Incentivize the automobile manufacturers from domestic and foreign
markets who are already into this segment to set up factories here, so as to
increase employment opportunities and generate revenue.
 Should act on it as soon as possible as currently India imports more than 80%
of its petroleum requirements and therefore contributes majorly to its cash
outflow thus increasing the import bill.
3. “DAP fertilizer crisis may pinch farmers, put pressure on govt finances”- Business
Standard

Link- https://www.business-standard.com/article/economy-policy/dap-fertiliser-crisis-may-
pinch-farmers-put-pressure-on-govt-finances-121110101639_1.html

Written by-Sanjeeb Mukherjee, Date- November 2, 2021

 Analysis- Farmers from numerous states such as Rajasthan, Punjab, etc.

facing shortage of fertilizers, especially Di-ammonium Phosphate due to
Covid-19 pandemic. Add to it that the Rabi season is upon us, there is
widespread panic.
 Reasons- The Covid-19 pandemic has halted and disturbed the global supply
chain of anything and everything which also includes fertilizers.
 Due to this, India has stopped importing fertilizers due to the hiked prices but
this has led to India depleting its reserve stock of fertilizers.
 The companies dealing in the manufacturing of fertilizers deemed the
subsidies given as insufficient due to which they have scaled down the
production.
 Suggestions- The main problem right now is the panic amongst the farmers.
The Government should ensure fast logistics in between the production
centers and the farmers so as to calm the situation down after which the
farmers wouldn’t mind delaying the sowing of crops by a week.
 Farmers should use a mixture of urea-single super phosphate in-stead of DAP
due to easier availability until the situation is under control.
4. “Industry players hail thrust on chip, display manufacturing in India”- Business
Standard

Link- https://www.business-standard.com/article/economy-policy/industry-players-
hail-thrust-on-chip-display-manufacturing-in-india-121121501043_1.html

Written by-IANS, Date- December 15, 2021

 Analysis- The significance of semiconductor chips has increased exponentially

from 20% two decades ago to 40% nowadays.
 The semiconductor manufacturing business is highly concentrated within a
few counties namely, Taiwan, Japan, etc. This along with the increasing
importance of chips has pushed countries into action into becoming
independent and treating it with a strategic importance.
 A major contributor to this realization has been COVID-19 which has pushed
all kinds of economic as well as daily activities into online mode.
 India is currently dependent wholly on imports and in the foreseeable future
the market is thought to be worth $300 Billion by 2025 from $24 Billion now.
 The Union Cabinet has recently allocated an amount of ₹76,000 crore for
supporting the development of a semiconductors and display manufacturing
ecosystem and launched the “Scheme for Promotion of Manufacturing of
Electronic Components and Semiconductors” also known as SPECS under
which Rs 3,285 crore is spread over a period of eight years for manufacturing
semiconductors.
 Challenges- The segment requires very high capital investments along with
being very risky, having long gestation and payback periods.
 The level of fiscal support or Government expenditure is minimum right now
as to what is required.
 Suggestions- Focusing India’s fiscal money on chip designing, testing facilities,
etc. as cover the distance easily in these segments rather then going into full
blown manufacturing.
 Government expenditure in the area of Research and Development should be
increased.
 Indian Public Sector Companies such as Bharat Electronics, etc. should tie up
with other foreign established companies thus increasing foreign investment
and employment opportunities here while also making use of the expertise
they will bring thus lessening the work-load.
5. “Cabinet approves Rs 4,445-cr PM MITRA Yojana to set up 7 mega textile parks”-
Business Standard

Link- https://www.business-standard.com/article/economy-policy/cabinet-
approves-rs-4-445-cr-pm-mitra-yojana-to-set-up-7-mega-textile-parks-
121100600827_1.html

Written by-Press Trust of India, Date- October 6, 2021

 Analysis- The Union Cabinet has approved the establishment of 7 Mega

Integrated Textile Region and Apparel (PM MITRA) Parks at an outlay of Rs.
4,445 crores.
 Aim is to integrate the whole textile industry segments.
 It will help in reducing logistics cost and strengthen the sector to make it
competitive on a global level. India had earlier witnessed troubles in
procurement of materials from China due to the COVID-19 pandemic.
 MITRA parks are expected to directly generate 7 lakh jobs and indirectly
generate a further 14 lakh jobs.
 Will be providing developmental infrastructure of Rs. 500 crore.
 Will attract more Foreign Direct Investment (FDI). The textile industry is only
responsible for 0.69% of total FDI.
 Suggestions- Government Expenditure in the field of power looms, subsidies,
etc. should be increased.
 Until the parks are established, focus should be on establishing a simple and
efficient logistics system.
 Focus should also be on the Man-made fiber segment like car belts, seat
covers, etc.