Indian Economy Quiz (5 Questions)

Hard Currency

• Hard currency is a currency widely accepted around the world as a form of payment for goods and services.

• A hard currency is expected to remain relatively stable through a short period of time and to be highly liquid in the forex market.

• A hard currency generally comes from a nation with a strong economic and political situation.

• The most common hard currencies include the U.K. pound (GBP), the euro (EUR) and U.S. dollar (USD).

• Hard currencies have high stable exchange rates and typically experience only minor short-term fluctuations in the foreign exchange market.

• Hard currencies are frequently used to denominate commodities and serve as a benchmark for foreign exchange markets. As a result, instability in hard currencies can lead to a loss in confidence with worldwide effect on markets.

• Free convertibility is a major feature of a hard currency. Freely convertible currencies have immediate value on the foreign exchange market, and few restrictions on the manner and amount that can be traded for another currency.

Balance of Invisibles

• Trade in services in balance of payment is denoted as invisible trade because they are not seen to cross national borders.

• The invisible balance or balance of trade on services is that part of the balance trade which refers to services and other products that do not result in the transfer of physical objects.

• Examples include consulting services, shipping services, tourism, and patent license revenues. This figure is usually generated by the tertiary sector.

• For countries that rely on service exports or on tourism, the invisible balance is particularly important.

• For instance the UK and Saudi Arabia receive significant international income from financial services, while Japan and Germany rely more on exports of manufactured goods.

Universal Basic Income (UBI)

• A Universal Basic Income (UBI) is a periodic cash payment unconditionally delivered to all on an individual basis.

• It is not an entitlement but a right by virtue of being a citizen of a country.

• UBI is a step towards more equal society as it would promote social equity, reduce poverty directly, and reduce risks related to unemployment, health etc. by providing a safety net.

• But, in India's context the most important benefit would be in terms of addressing misallocation, exclusion and leakages which grapples plethora of schemes run by government to root out poverty and inequality.

• Misallocation is due to administrative incapacity and inefficient delivery. Exclusion is a natural consequence of misallocation and leakages are due to big and complex delivery system.

• However, UBI would only reduce risks associated with unemployment. It would not decrease unemployment.

There’s even a debate on whether it will be a moral Hazard: Would A UBI reduce labour supply?

It is argued that free money makes people lazy and they drop out of the labour market because their income levels have increased.

UBI for women empowerment

• It is worth considering because women suffer worse prospects in almost every aspect of their daily lives – employment opportunities, education, health or financial inclusion.

• Simultaneously, the higher social benefits and the multi-generational impact of improved development outcomes for women.

• A UBI for women can, therefore, not only reduce the fiscal cost of providing a UBI (to about half) but have large multiplier effects on the household.

• It will increase their bargaining power; reduce concerns of money being splurged on conspicuous goods.

• By factoring in children in household higher UBI can be provided to women.

Implications of digitalisation of economy

Digital economy will help to enhance our current banking system. There will be increased access to credit for people who did not fall in any banking network. Thereby, increasing financial inclusion.

All the transactions that are done can be monitored and traced back to a given individual. Hence, it will be really difficult for someone to evade tax. Increasing tax net is very important for any government, which will be one of the important outcomes of digitalisation of economy. Thus, widening of tax net is also one of the implications.

Hence, all except curbing identity theft are the implications of digital outcomes.

Demonetisation

Demonetization is the act of stripping a currency unit of its status as legal tender.

It occurs whenever there is a change of national currency: The current form or forms of money is pulled from circulation and retired, often to be replaced with new notes or coins. Sometimes, a country completely replaces the old currency with new currency.