OUR TOPICS

Economy

An economy is the realized social system of production, exchange, distribution, and consumption of goods and services of a country or any area. A given economy is the end result of a process that involves its technological evolution, civilization's history and social organization, as well as its geography, resource endowment, and ecology, among other factors. The economy also based on industry production (IIP), farming growth, mining, contruction (Real Estate Growth), service sector, finance and technology.

Today, Economy depends on four sectors :- Primary Sector, Secondary Sector, Tertiary Sector and Quaternary Sector.

Primary Sector of the economy :- It involves the extraction and production of raw materials, such as corn, coal, wood and iron. (A coal miner and a fisherman would be workers in the primary sector).

Secondary Sector of the economy :- It involves the transformation of raw or intermediate materials into goods e.g. manufacturing steel into cars, or textiles into clothing. (A builder and a dressmaker would be workers in the secondary sector).

Tertiary Sector of the economy :- It involves the provision of services to consumers and businesses, such as baby-sitting, cinema and banking. (A shopkeeper and an accountant would be workers in the tertiary sector).

Quaternary Sector of the economy :- It involves the research and development (R&D) needed to produce products from natural resources.

There are a number of ways to measure economic activity of a nation. These methods of measuring economic activity include:

Consumer spending, Exchange Rate, GDP (Gross Domestic Product), GNP (Gross National Product), Interest rate, National Debt, Rate of inflation, Unemployment, Balance of trade.

World Economy Facts

The world economy grew 5.2% in 2007 powered by growth in China (11%), India (9%) and Russia (8%). The global economy faces a real risk of 1970s style stagflation however, with resource constraints tighter than ever before.

But nowadays, the global economy has been hit by some financial crisis which may occur the stage for stagflation to make a come-back. It started with the sub-prime crisis in the US, caused by loans to risky or ‘sub-prime’ mortgagees who did not have strong credit histories. While house prices were rising there wasn’t a problem. But as house prices slowed and then crashed to earth, default rates started to rise. To add fuel to the fire, sub-prime loans had been packaged and re-packaged in a range of derivative financial instruments such as Collateralized Debt Obligations (CDOs). It was not always clear what the contents CDOs consisted of, as they were combined, sliced and re-sold between financial institutions and funds, and which in some cases allowed risky debt such as sub-prime loans to be packaged as part of low-risk instruments. Vast swathes of CDO investments had to be written off, and banks became suspicious of investment, borrowing and lending, since it was not always clear what the underlying security was. Once banks stopped lending the Credit Crunch hit. We then witnessed extraordinary scenes of government regulators in US and UK having to help save collapsing banks in order to avert a meltdown of the financial system, and to Sovereign Wealth Funds (SWFs) from the developing world taking large stakes in venerable western banks like Citibank and UBS in return for keeping them liquid. With house prices having fallen more than 20% in many areas of the United States, even prime mortgage holders now find themselves with negative equity. The federal government has been forced to step in and assume responsibility for both Fannie Mae and Freddie Mac, who between them back over half of all American mortgages.

The second issue involves the rise of commodity prices. Just before the dawn of the 21st century, oil average $16 a barrel. By July 2008, less than 10 years later, oil hit a high of $146/barrel – a stunning rise of more than 800%. From early 2007 to mid 2008 alone the price has risen more than threefold from the $40. The price of food has also increased. Rice and other grain prices have doubled from 2007 - 2008, leading to food riots in a score of developing markets. Most agricultural and farm produce prices have been going through the roof. In fact almost all commodities, including those used for energy, construction and consumption, have been rising rapidly. Price rises have been fueled by the demands of the emerging markets, particularly the BRIC nations, who together account for nearly 3 billion people. In order to maintain their high rates of growth and help lift more of their populace out of poverty, they require more and more commodities. A bigger worry for economists, however, is whether the natural resources exist to meet these burgeoning demands.

A similar crisis was faced in the 1970s. After a period of strong global economic growth, when the world economy was averaging 5% a year GDP increases, the world hit supply constraints in oil and food. For the next fifteen years, global GDP growth slowed to an average of 3.2% per year. This became known as the stagflation era. Growth opportunities were limited, but prices continued to rise with a continued lack of supply.

World Economic Statistics at a Glance

World GDP (PPP): $65 trillion
GDP Growth Rate: 5.2%
Growth Rate of Industrial Production: 5%
GDP By Sector: Services- 64% Industry- 32% Agriculture- 4%
GDP Per Capita (PPP): $9,774
Population: 6.65 billion
The Poor (Income below $2 per day): 3.25 billion (approximately 50%)
Millionaires: 9 million (approximately 0.15%)
Labor Force: 3.13 billion
Exports: $13.87 trillion
Imports: $13.81 trillion
Inflation Rate – Developed Countries: 1% - 4%
Inflation Rate – Developing Countries: 5% - 20%
Unemployment – Developed Countries: 4% - 12%
Unemployment & Underemployment - Developing Countries: 20% - 40%

Sources: CIA World Factbook, IMF, UNDP

Economy of India

Large, dynamic and steadily expanding, the Indian economy is characterized by a huge workforce operating in many new sectors of opportunity.

The economy of India is large as its depends on the major sectors including manufacturing industries, agriculture, textiles, handicrafts and services. Agriculture and service sector are the major components of the Indian economy, as over 76% of the Indian population earns its livelihood from this area. The fact that the English speaking population in India is growing by the day means that India has become a hub of outsourcing activities for some of the major economies of the world including the United Kingdom and the United States. Outsourcing to India has been primarily in the areas of technical support and customer services. In general, the Indian economy is controlled by the government, and there remains a great disparity between the rich and the poor. Ranked by the exchange rate of the United States Dollar, the Indian economy is the twelfth largest in the world. In Purchasing Power Parity GDP, the figure for India was 1.5 trillion US Dollars in 2008. The per capita income of India is 4,542 US Dollars in the context of Purchasing Power Parity. This is primarily due to the 1.1 billion population of India, the second largest in the world after China. Recent trends have seen India exporting the services of a numerous information technology (IT) professionals. IT professionals have been sought for their expertise in software, software engineering and other financial services. Other areas where India is expected to make progress include manufacturing, shipping construction, pharmaceuticals, aviation, biotechnology, tourism, nanotechnology, retailing and telecommunications. Growth rates in these sectors are expected to increase rapidly.

But today, India is in line with other developed countries as they are suffering from rapidly increase in the crude and commodity prises. India's inflation rate has grown from 8.75% at the end of May to 12.89% at the end of August, a 48.2% increase. The Reserve Bank of India (RBI) had set a target for Whole Price Index inflation to be 4.1% in 2008, but currentl levels are almost three times that amount. Government economic advisors expect inflation to stay in double digits into 2009.