Economics as we all know has acquired an acronym of a ‘social science’ essentially because the science deals which making choices, which in turn depend on individual behavior that forms the sovereign as a whole. It is indeed individual psychology that derives a response to the politics and incentives that the government brings forth the masses. Hence, it becomes extremely essential to study this human psychology to respond to the externally provided environments and the particular subjects under the ambit economics that studies this human behavior is called ‘Behavioral Economics’.

Behavioral economics and the related field, behavioral finance, study the effects of psychological, social, cognitive, and emotional factors on the economic decisions of individuals and institutions and the consequences for market prices, returns, and the resource allocation. It typically integrates insights from psychology, neuroscience, and microeconomic theory. There are three prevalent themes in behavioral economics, firstly there is ‘Heuristics’ that is, people almost always make decisions based on rules of thumbs and not strict logic. Second component is ‘Framing’ which is a collection of anecdotes or stereotypes that make up the mental emotional filters individuals rely on to understand and respond to events. Thirdly, there is ‘Market Inefficiencies’ which includes mispricing and non-rational decision making.

Standard economics theory suggest that as long as people understand the full consequences of their actions, they tend to act in their self-interest i.e. they try to maximize their utility and profits. However, this is not always possible. However it becomes difficult to study human behavior in response to the policies implemented by the government or the central bank sometimes due to the presence of number of other factors that equally influence each other.

Behavioral Economics an interesting matter if interest.

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Have you ever been to market and squandered money on goodies you didn’t intend to buy? Well, id that’s true then you are an impulsive buyer. So now question that arises is that what an impulsive behavior is? Psychologists define it as ‘behavior that is not regulated and that results from an unplanned spontaneous impulse. In particular, impulsive purchasing involves getting a sudden urge to buy something without advance intention or plan.

For example, say your favorite jean is ragged and you go to the supermarket to buy one. After choosing the perfect substitute of your old jean your happen to look over the rack of tees next to it at only ‘Rs.399’ tag. Then you see a bag full of scarf of ‘Rs.49’ tag only. Your fisrt reaction is ‘oh god that is cheap!’. You link it with the long skirt you bought at Delhi Hatt. So now you end up buying a blue jean, a black top and 2 Scarves.

Our culture of consumption enables us to succumb to temptation and purchase something without considering the consequences of the buy. Is that a bad thing? Psychologists believe it is. Impulse buying is related to anxiety and unhappiness and controlling it could help improve your physiological well-being. But first we must see as to what motivates impulsively buy products.

Knowing what motivates impulse buying and whether these motivators are affecting you can help you spend less money on impulse. Ultimately, an easy way to tell if a purchase is impulsive is to ask “Did I plan to buy this?” If no then you’re probably experiencing impulsive buying. By pitting that product back on the shelf and refusing to purchase it, you’re doing something to help yourself. In doing so, you’ll not only get to keep more of your money, but you’ll become a smarter consumer and possibly a happier person.

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Later in first quarter, a review was made of revenue and income trends in the corporate results for the first quarter i.e. Q1 of the 2015-16. It is suggesting that some specific industries are doing better. But these are basically those which were doing earlier also pretty well. But overall industry recover is lacking . In this blog, I will share some facts which will prove the slow growth and will bring out a conclusion.

Overall sales revenues and net profits has hardly changed in the Q1. Net sales has been of Rs.8,07,083 crore which is stagnated with a nominal 0.4 percent rise in Q1 in 2015-16. in year 2014-15, Rs.8,04,164 crore sales was experienced. Hence, we can say that there is no extraordinary increase.

The profits rise has been of about just 0.3 percent. In year 2014-15,it was Rs.75,878 and in year 2015-16, it rose just to Rs. 76,099. The worrying part is non-banking business as it has experienced a 1.5 percent fall in net sales whereas its cost has increased up to 14 percent.

But there is one part of market that has done remarkably good and is still continuing well. It is automobiles sector. 8 automobile manufacturers registered a 42 percent improvement in profits and 12 percent improvement in sales. Automobiles and Tyre manufacturer have also done well. Another sector of interest is finance majors such as HDFC. LIC Housing, Dewan Housing etc which delivered enhanced profits up to 18% and better sales up to 17% increase. But information Technology sector  and pharma industries have experienced normal growth only. With the former registering a 6.7 percent rise in profits and latter registered 7.8 percent rise in profits.

Summarizing this quarter we can say only two sectors had expanded well i.e. automobile sector and Financial Sector. But weakness persist across the core sector, such as manufacturing etc. Hence, special attention is required.

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Without further Fiscal Reforms, the Indian government may find it difficult to sustain the increase in public investment spending, according to a report, titled India’s Fiscal Roadblocks could stall infrastructure progress, that Standard & Poor’s Ratings Services published.

“Although India’s budgetary performances have strengthened in recent years, its hard-won fiscal improvements could yet unwind because of the financial or commodity shock,” said Standard and Poor’s credit analyst Kim Eng tan. Another constraint is the heavy government debt. The report notes that the central government budget deficit in India has fallen in recent years, relative to GDP. However, the latest-year deficit reduction didn’t come easy.

Disappointing tax collections, especially services tax collection, dragged estimated total revenue for the fiscal year ended March 2015 6.3% below the central government’s initial budget projection. The government had to cut spending by a similar proportion to prevent the budget shortfall from widening. Since the subsidy bill came in above expectations, the government made significant cuts to capital investments to bring spending down.

The central government’s willingness to cut spending to rein in the budget deficit indicates the high priority of fiscal prudence on its agenda. From an institutional and governance point of view, this supports the sovereign creditworthiness. The large interest payments and subsidy spending in budgetary expenditure are signs of fiscal risks because they leave little for the central government to spend at its discretion, after necessary social services expenditure.

Further constraining public infrastructure financing is the government’s relatively small share GDP that it collects as revenue. This is why public investment has been persistently lower than that of some other developing countries. The central bank looks intent to change this.

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I recently came across a statement stating that RBI has forecasted that  2015-16 India’s Economic Growth will be 7.9%. I researched over it that what are the deductions over what basis they are saying so.

Economic growth, calculated in terms of gross value added(GVA), at base price, is expected to increase by 7.9 percent in 2015-16, led by a 10.1 percent growth in service sector, according to RBI’s estimates based on inputs from professional forecasters. Agriculture and allied activities and services are expected to grow by 1.1 percent and 10.6 percent respectively.

In terms of probability, forecasters ascribed maximum 57 percent chance that GVA growth in 2014-15 will be in the range of 7-7.4 percent, and another 27 percent probability that it will be in the range of 7.5-7.9 percent. For the year 2015-16, GVA growth in 7.5-7.9 percent is the most probable outcome.

Private Final Consumption has been projected to increase by 12.9 percent in 2014-15 and further by 13.0 percent in 2015-16. Gross saving rate is projected at 30 percent GNDI in 2014-15 and is expected to improve to 31 percent of gross disposable income in 2015-16. Forecasters expect gross fixed capital formation rate at 28.6 percent of GDP in 2014-15 to 13 percent in 2015-16.

Gross saving rate is expected is projected to grow from 30 percent in 2014-15 to 31 in 2015-16. Both money supply and bank credit growth expectations declined in this round. While money supply (M3) is expected to increase by 12.3 percent in 2014-15 and further by 13.5 percent in 2015-16, bank credit is expected to expand by 12 percent in 2014-15 and further by 14 percent in 2015-16.

Hence, with all these figures we conclude that Indian is awaiting a boom in the economy and move towards development.

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One of the most important problem from which India is fighting is poverty prevailing in country. Hence, in this blog I would like to share my information and ideas on how the methodology changed with in estimation of poverty.

The Planning Commission is the nodal agency in the Government of India for estimation of poverty.
It constitutes Groups from time to time to revisit the methodological issues related to the measurement of poverty so as to make the estimates more relevant to the contemporary economic situation.

Hence, with the time planning commission had many expert groups which worked to evolve a better system for estimating poverty in India.

The first was group was WORKING GROUP 1962. It recommended that the national minimum consumption expenditure should be Rs.20 per capita per month in rural areas and Rs. 25 in urban areas; in terms of 1960-61 prices. The poverty line excluded expenditure on health and education. It took recommendations of ICMR norms of 1958.

Next came TASK FORCE 1979 under Y.K. Alagh. They estimated poverty line separately for the all-India rural and urban areas as a population–weighted average of the age-gender-activity specific calorie allowances recommended by the Nutrition Expert Group (1968) by reference to the 1971 population Census. The estimated calorie norm was 2400 kcal per capita per day in rural areas and 2100 kcal per capita per day in urban areas. The monetary value being Rs.49.09(2400kcal) per capita per month in rural areas and Rs.56.64(2100 kcal) per capita per month in urban areas.

Then came EXPERT GROUP 1993 under lakdawala. Some Improvements were done by them. It disaggregated the national poverty lines defined by the Task Force (Alagh) into state-specific poverty lines in order to reflect the inter-state price differentials. Their estimation was based on pro-rata adjustment of NSS and NAS data. These were updated for subsequent years using state-specific price indices like CPIAL and CPIIW.

But it has some limitations too. With the time, the discrepancy in the data and result increased many fold. Every state had different prices hence a uniform poverty line could not have been a true indicator.

Today we have Rangarajan Committee working towards same goal. It is working very efficiently to measure poverty in India.

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In my last blog i had shared my views on SQA proposition and its economic benefits. In this blog I will explain u about how this SQA works and how can it be successful.

Firstly we should know that Integration testing under SQA are all consultancy sservices. We know there are many consultancy firms like EY which outsource their expertise in specific field.

Integration testing means testing two or more modules together. When two modules work individually we do not get an eroor. Problems start coming when they are integrated and some unforeseen interactions leads to bigger issues. Hence, integration testing assures that the whole system operates in a planned way.

The system testing is an internal part of intergration testing. System testing ensures the successful unification of integrated components to form a functional system and the subsequent marriage of the system under test to one or more other systems in a comman.

System testing ensures system functionality and performance matches specification, it proves interoperability and architecture, ensures business critical processes perform to specification and reduces costs by removing possible system redevelopment costs at live stage

The coordination of Testing requires specific management and technical skills. SQA Consulting professionals have these skills and extensive experience in implementing the desired skill set within specific market areas. SQA Consulting has a documented methodology for Systems Testing for both Bespoke and Packaged Software development

Our approach begins with the business definition and requirements capture. The approach continues by evaluating, selecting and implementing the best testing tools to carry out end-to-end system testing to ensure performance meets requirements. This ensures the system and allied processes meet the initial business objectives.

Hence we can say that SQA solution works to improve tge condition of firm Economically and quality wise.

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Today is a fast growing and competitive world. Every firm aims to provide its customers defect free services at minimum cost. Hence, a new trend of outsourcing has started in tge economy. All those things in which the firm does not expertise, it takes those services from outside at a lower cost.

Today IT sector is also facing a major issue of quality assurance and tight time lines. It is becoming difficult for them to make a balance between them. Hence, many times businesses are compelled to risk on quality because of tight time lines.

Hence, now a new outsourcing facility has started i.e. Software Quality Assurance services. This proposition is of a great help to IT firms. After this service they will have to concentrate on only building up of systems and its validating can be done by its outsourcing allies.

Hence, it will bring economic appraisal to the firm as not setting a unit for validating software and getting it cheaply done from outside. This proposition is very useful for new firms. They fave economic uncertainty and instability hence such services will lead them to low expenditure on infrastructure and hence can work on expanding their business.

SQA normally includes services like system testing, integration testing, performance testing, web testing, agile testing etc. Merits of this service are like cost benefits, increased end user delight, improved performance, improved security, commitment on quality etc.

Hence, introduction of SQA value proposition has lead to improvemnet of IT sector and has also lead to more reliability on their work.

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The Important Question in this dispute is ‘How should we determine the correct price of coal?’

I am not going to analyze the arguments given by NTPC, CIL and the different experts but I am going to to highlight a fundamental and very important economic point – that the market process is the only correct way of discovering the correct price of any good. The Law of  Price says that at every hypothetical price that one may take up, every buyer demands a certain quantity of the good in question while every seller is ready to supply a certain quantity of the good.

But Coal is a producer good hence it may be that the Valuation of goods can be done is an another way. Prices of producers’ goods are also eventually determined by the subjective valuations of all the individuals who constitute the market. Its valuations as producers based on their subjective assessment of the demand schedules of consumers’ goods further determine the prices of producers’ goods.

The reason of dispute between the two bodies is very simple. The market process has been disrupted by the establishment of two massive monopolies on the two sides of the coal exchange market . CIL and NTPC are both government entities with a monopoly on the supply of coal and the production of coal-based thermal power respectively. Hence, there is no real free market in coal. In the absence of a free market for coal, there cannot be a market process for the discovery of the price of coal. The act of creating these two monopolies is against the market process. Problems related to the pricing of coal are an inevitable outcome of such subversion.

The real solution would require breaking the monopoly of NTPC and CIL over their respective product markets. This breaking of monopolies will lead to emerging of private bodies. When there will be fragmentation in the markets of supply and demand of coal, it will lead to correct market process. It will leave the these private entities to decide the correct price. Hence, there will be lot of contradictions for such a solution but if we want to end this dispute of pricing then we need to adopt the market process.

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All those who are updated with the financial news they would have heard that there is a decrease in the Repo Rate by 25 basis points. Hence, I will share my thoughts on this decision from an economic view point.

Let me first explain you the Repo Rate in short. The repo or repurchase rate is the interest charged by the RBI to banks when they approach it for short term loans. The repo rate is linked to the interest rate borrowers pay when they take loans from banks because the latter always charges inters which is higher than the existing repo rate.

Our repo rate has seen many ups and downs. Here I present my work of research on fluctuations of Repo rate since Oct’05 to present.

With 25 basis points down, the banks can get the short term loans at a low price hence this will lead to reduction in  interest on further loan provided by the banks to its customer. Hence, this will boost the economy also. Now with the lower interest rate more manufacturers will be willing to take loans and expand their business. This is a step towards ‘MADE IN INDIA’ campaign and to again encourage the industries to grow.  But this is possible only in short run.

In the long-run, reducing Repo and Reverse Repo rates is harmful for the economy as it is just a means to lend reserves to banks, enabling them to engage in far bigger inflation to undertake much more credit expansion through FRB. While this lending will have some short-term positive effects, in the long-run, it creates and worsens the inflationary boom of the familiar boom-bust cycle. It also sets the conditions for the inevitable raising of interest rates thus pricking the inflationary bubble and triggering the depression.

Hence, I feel Repo Rate should be kept under examination always so that it never turns harmful our economy.

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