1
Summary
Economics Class 33

INTRODUCTION (01:03 PM)

  • A brief overview of the previous class.

CURRENCY MARKET (01:07 PM)

  • Insider trading and Rajat Gupta issue
  • IPO and Tobin tax
  • Qualified institutional buyers- entities like banks, mutual funds companies, etc which already have the experience of stock markets.
  • OPTIONS, SWAPS, FUTURES, FORWARDS:
  • Bear is an investor who believes that the market would go down.
  • Bull is an investor who believes that the market would go up.
  • NSE- Nifty 50, Sensex, BSE.
  • Risk - systematic risk, unsystematic risk
  • Beta is related to the risk assessment of companies. 

DEPOSITORY RECEIPTS (01:52 PM)

  • Depository receipt is a negotiable financial instrument or certificate issued by a bank to reflect the security of foreign companies' publicly traded securities that are exchanged on a local stock exchange.
  • Depository receipts are receipts used by foreign companies to raise money in the international market through the route of a depository.
  • ADR (American depository receipts), European depository receipts, and Indian depository receipts are among the few types of depository receipts. When a firm wants to list its publicly traded shares or securities on an international stock exchange it has to first approach a depository in a country where it wants to raise money.
  • American depository receipts (ADR):
  • These are negotiable instruments that are stocks of foreign companies which are traded in the US market. ADRs are issued by a US depository bank and it offers investors in the US to invest in foreign companies.
  • They are a great option for foreign companies to attract investors from the US. 
  • Sweat equity share:
  • Non-monetary contribution that the individual or founders of a company make towards the company.
  • Angel investor and angel tax. 
  • Qualified Foreign Investor (QFI).
  • Shares Mutual Funds ETF (Exchange-traded funds)
    Risk is high  Risk less Diversification of risks 
    Returns high Returns low  Example Bharat 22
    Financial market exposure  Cant be sold in the secondary market   

PUBLIC DISTRIBUTION SYSTEM (PDS) (02:40 PM)

  • Food security- availability, affordability, stability, nutrition.
  • Availability- MSP support, irrigation facility
  • Affordability- through targetted PDS (TPDS), RPDS
  • Stability- FCI, buffer stock.
  • Nutrition- NFSA, ICDS
  • PDS during 1940- 1965: PL 480 food program from the US. 
  • PDS during 1965- 1975: Institutionalisation of PDS (FCI), BACP (later CACP), Buffer stock, and operational stock.

FOOD SECURITY:

  • Concept of PDS: PDS can be distinguished from private distribution in terms of control exercised by public authority and the motive predominantly being welfare rather than private gain. Broadly the system includes all the agencies that are involved from the procurement stage to the final delivery of goods to the consumer. 
  • The agency involved in the process of procurement, transportation, storage, and distribution is FCI. At the state level, it is the state civil supplies department and fair price shops which are agencies involved in the provision of PDS. Fair price shops (FPS) are the last link in this process which are mostly owned by private individuals. Procurement of cereals is undertaken by FCI on behalf of the central government.
  • Some state government agencies also procure grains for the central pool as well as their own account. Allocation to different states is made by the government. Fair price shops (FPS) are not allowed to sell other than government-supplied essential commodities.
  • Specific quantities are allocated to each FPS depending on the number of ration cards attached to the FPS. The prices of these commodities are fixed by the government and a fair price shop dealer has to procure a license to run it.  

EVOLUTION OF PDS (03:20 PM)

  • The growth of PDS in India can be grouped into three time periods:
  • 1945- 1965
  • 1965- 1975
  • 1975 to present
  • In this period up to mid-1960 PDS was seen as a mere rationing system to distribute scarce commodities and later it was seen as a fair price system in comparison with private trade. Rice and wheat occupied a very high share in food grain distribution. The need for extending PDS to rural areas was realized but not implemented. The operation of PDS was irregular and dependent on imports of PL 480 with little internal procurement.
  • In effect, imports constituted a major proportion of the supply of PDS during this period. The procurement prices offered were not remunerative. By the mid 60's it was decided to look much beyond management of scarce supplies in critical situations. The stoppage of PL480 imports forced the government to procure grains internally.
  • In effect, India took a quantum leap in the direction of providing a more sustainable and institutional framework for food security. The setting up of FCI and the Bureau of agricultural cost and Prices (BACP) in 1965, marked the beginning of the second phase. The food security system during this period evolved as an integral part of the development strategy to bring about a striking technological change in selected food crops, especially rice, and wheat.
  • In the third period, there was an increase in good production the buffer stock accumulation also increased in FCI and hence the initial emphasis on buffer stock maintenance shifted to an increase in PDS supply. During the 5th and 6th five-year plan government focussed on plans like Garibi Hatao (poverty alleviation) along with reducing overstocking of food grains.
  • The imports gradually declined and India became a net exporter by 1975. Till the late 1970's PDS was largely confined to the urban population and did not guarantee adequate food security to the rural poor.
  • During the early 1980's some state governments extended the coverage of PDS to rural areas and introduced targetted grouping approach (Tamil Nadu, Andhra Pradesh, Gujarat, Kerala). Thus PDS which started to meet crisis situations was transformed into an instrument for efficient management of essential consumption goods necessary for maintaining stable price consideration.
  • PDS has been designed and implemented by both central and state governments. The central government mainly deals with buffer stock operations and controls the internal and external trade of food grains. State government focuses on identification and distribution.

The topic for the next class is PDS (to continue).