finly_march
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Monthly magazine of Finstreet- Finance club of SIMSRTRANSCRIPT
DEMOGRAPHIC DIVIDEND
ISSUE No 42 MARCH 2015
FINly
Cover Story
17Educational Section
21Glimpses of Finstreet2014-15
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Trivia
Contents
ContributorsEditor in Chief: Irina
Editors:Irina, Shreya, Shweta and Tamoghna
Design: Rohit
IrinaDemographic dividendDemographic dividend refers to a period in which declining fertility rates lead to a change in the age structure of population, resulting in an increase in the work-ing age-group. This leads to an improvement in the dependency ratio which means that there may be an acceleration in the growth of the economy.
Dependency ratio = share of young and elderly population to total population
It is estimated that India’s dependency ratio will decline more sharply in the coming years.This means that there would be more working age population leading to more This means that there would be more working age population leading to more income, more savings and more growth. With effective public policies this time period of the demographic dividend can help facilitate more rapid economic growth and puts less strain on families as the number of dependents (children and elders) reduce. Also during this period, many women enter the labour force for the first time.
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Cover Story
The economic downside of the Indian demographic dividend
Note: Population dependency ratio is defined as 100-[Population ages 15-64 (% of total)]. This definition follows IMF (2006)
The chart shows the dependency ratio from 1960 to 2010. A decline is ob-served for India and the World as a whole
Figure 2: Ratio of working age to dependent population
The graph shows the ratio of working age to dependent population (those 15 to 64 years old, divided by those above or below this age range - the inverse of the dependency ratio) based on data and projections from the United Nations.
In India, National Family Planning Programme was formulated in 1952 to In India, National Family Planning Programme was formulated in 1952 to promote family planning for population control. However, this pro-gramme failed to achieve what it set out to do, thus, the population con-tinued to increase exponentially throughout 1960’s, 70’s and 80’s.
This failure may be a bane or a boon for India depending on how this surging population is utilized.
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More than 50 per cent of India’s population is in the working age group of 15 to 59 and 28 per cent in age group 15-29. It is expected that by the year 2020, more than 65 per cent of the Indian population would be in the working age group and India would enjoy the demographic dividend.
Table 1: Youth population in India
Table 2: Demographic Dividend
Demographic dividend has been calculated by IMF for selected Indian States
Source: IMF working papers 2011
Tamil Nadu, Karnataka and Gujarat are among the best performing Indian states in terms of demographic dividend. Mechanisms for growth in the demographic dividend:There are four mechanisms through which the benefits of demographic divi-dend are obtained:
1. Increased labour supply.Only the increase in the labour supply does not help. There has to be an abil-ity in the economy to absorb the increased number of workers, otherwise it will only lead to an increase in unemployment which is detrimental to growth.
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2. Increase in savings.As the number of dependents decreases individuals can save more. This increases the stock of capital which means there can be more productivity of the capital through investments.
3. Human capital. Decreases in fertility rates result in fewer economic pressures in the family and Decreases in fertility rates result in fewer economic pressures in the family and allows for more investment per child in health and education (leading to more productive population in the future).
4. Increasing domestic demand brought about by the increasing GDP per capita and the decreasing dependency ratio.
Way to a Demographic DisasterAs we can see from the above arguments, a growing population can be used to As we can see from the above arguments, a growing population can be used to reap a lot of economic benefits. However, failure to provide opportunities to the growing young population will result in rising unemployment and an increased risk of social upheaval.The demographic dividend is projected to peak over the next two decades The demographic dividend is projected to peak over the next two decades adding about 2 percentage points to annual per capita income growth. Further, the dividend should begin to de¬crease gradually based on the UNPD projec-tions, and decrease rapidly according to the IDB projections. The calculations also show that over the current decade, the increment to per capita income growth from demographic change has been between 1.5 to 2 percent points per annum.
Table 3: Demographic dividend over the decades
Source: IMF working paper 2011
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Economic effects of demographic dividend
India is expected to become one of the most populous nations by 2025, with a population of around 1.4 billion. The country’s population pyramid is expected to “bulge” across the 15–64 age bracket over the next decade, increasing the working age population from approximately 761 million to 869 million during 2011–2020. Due to this, India will be experiencing a period of “demographic bonus” where the growth rate of the working age population would be more than that of the total population.
Figure 3: Population pyramid
Source: Census of India Projections
This figure shows a “bulge” in the working age population of 15-29. We can also see that the percentage of population in the age bracket 65 and above is tapering down. This leads to a reduction in the dependency ratio.
Around 64% of India’s population is expected to be in the age bracket of 15–59 years by 2026, with only 13% of the total aged above 60 years.
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This population has a lot of potential to generate demographic dividend, how-ever, if not utilized properly it can become a demographic disaster. Factors responsible for a demographic disaster are:
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1. Fall in employment elasticity of growth.
Employment elasticity= Number of jobs getting created with each percentage increase in the growth in the Indian economy
Employment elasticity of growth has been falling sharply in India. While it was 0.44 in the period 1999-2000 to 2004-05, it went down to 0.01 in the period 2004-05 to 2009-10. This means that we have a job less growth in the country. Employment growth was just 0.5% per annum from 2004-05 to 2011-12, the period that saw the highest growth of GDP by 8.5% per annum.
As per the World Bank Report, in India youth unemployment as a percentage As per the World Bank Report, in India youth unemployment as a percentage of youth population is 10 per cent for males and 11 per cent for females.
As per NSSO 2011-12, unemployment rate was 2.4 percent for males and 3.7 percent for females, while the unemployment rate among the youth (15-29 years) varied between 6.1 percent to 15.6 percent.
Source: NSS Report, Employment Situation in India, 2011-12
Table 4: Unemployment rates
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2. Nature of employment opportunity available Majority of the people in the country remain self-employed and the second highest contribution in employment comes in form of causal workers.
3. Quality of employment generation
Majority of Indian youth are not employable because of the quality and level of education. As per The Third Annual Employment-Unemployment Survey 2012-13 conducted by Labour Bureau, Ministry of Labour and Employment in 2013 Every 1 person out of 3 persons who is holding a degree in graduation and above, is found to be unemployed for the age group 15-29 years.
Table 5: Unemployment Rates
Source: NSS Report on unemployment
In rural areas the unemployment rate among graduates and above for the age group 15-29 years is estimated to be 26.4% whereas in urban areas the same is 18.1%.
The current trend of unemployment among educated persons is a cause of concern and raises serious questions on the benefits of demographic divi-dend. In many cases, the employment provided by the state is just subsis-tence level employment.
Looking at these aspects there is a danger of demographic dividend getting converted into disaster. The population in the country continues to surge and work force is increasing but employment opportunity is not increasing propor-tionately. Most of the jobs are not quality jobs and only subsistence level jobs.
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Apart from jobs and education, there are problems like health and welfare and poor sanitation facilities in some parts of India. Basically, the Human Development Index (HDI) of India is not so good to support such a growing population. HDI measures three factors: life expectancy, education levels and incomes. India Ranks 135 as per UNDP which publishes HDR annually.
What can be done to prevent demographic dividend becomWhat can be done to prevent demographic dividend becom-ing a demographic disaster?
1. Private sector development2. Improving relevance and quality of training and Integrat-ing skills with education3. Inclusion of informal sector and women4. Promote manufacturing at a large scale and also identify areas which have high employment generation potential. 5. Promoting MSME sector 6. Accelerating entrepreneurship and self-employment
Shreya Devan
On 28th February, Finance Minister Mr. Arun Jaitley announced Union Budget for the year 2015-16 with the mission to ignite India’s growth engine. It was the first full time budget since Mr. Narendra Modi became Prime Minister of India. Hence the expectations were very high from this budget. Supporters touted it as the first step towards creating an investor friendly environment whereas critics called the targets too unrealistic.
Almost everyone will agree that it was not a game changer as the nation was Almost everyone will agree that it was not a game changer as the nation was hoping for but there were some important reforms. Here are some sector wise highlights of the budget.
Infrastructure
Infrastructural development, both social as well as physical, is an important area Infrastructural development, both social as well as physical, is an important area if India wants to be on a growth path. Till now this sector has been the sole responsibility of government with private and foreign sector contributing mini-mally. This has been one of the main reasons for the high fiscal burden. But with the new reforms encouraging private and foreign investment, the infrastructure sector is going to get the much needed push. Some of the reforms that were intro-duced in budget were:
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Educational Section
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• Increase in Public investment by Rs. 70,000 CroresGovernment has delayed its fiscal belt tightening policy of bringing fiscal defi-cit to 3 % from two years to three years mainly because of the need to increase public investment in infrastructure. This year’s budget promises rapid expansion of roads, ports, mega power plants, airports and other project and most of the funds are going to come from the centre itself.
• Revitalisation of the PPP (Public Private Partnership) model For India to be able to meet its vast infrastructural needs a major contribution has to come from private sector as well. Till now private sector had been reluc-tant to invest because of slow clearances, red tapism as well as because of the huge risk in infrastructure projects. The budget thus plans to revive the PPP model by agreeing to bear a major part of the risk which may lead to more pri-vate companies willing to invest in infrastructure.
• Atal Innovation Mission (AIM)AIM has been proposed to foster a culture of innovation and will establish a platform for entrepreneurs, researchers and academicians by supporting their R & D and research efforts. An allocation of Rs. 150 crores has been earmarked for this mission.
• Plug and play modelThe budget has also proposed a plug and play model for big infrastructure projThe budget has also proposed a plug and play model for big infrastructure proj-ects. In this model all regulatory clearances will be taken care of before the proj-ects are awarded to private developers through auctions. There are plans of set-ting up five Ultra Mega Power Projects, each of 4000 MWs using this model.
• Tax-free bonds for projects in rail road and irrigation
• SETU (Self Employment and Talent Utilisation)To encourage start ups especially in the IT sector, Government is establishing a mechanism known as SETU which will be a facilitation programme to support all aspects of start-up businesses, and other self-employment activities.
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Welfare schemes
• JAM trinity (Jan Dhan Yojana, Aadhaar and Mobile) The main aim of JAM trinity will be to enable direct transfer of benefits and to pass benefits to common man without any leakages in between.
• Swachh Bharat AbhiyanTo improve the problem of sanitation in India, government has proposed to To improve the problem of sanitation in India, government has proposed to build six crore toilets across the country under this scheme.
• An integrated education and livelihood scheme called ‘Nai Manzil’ will be launched this year to enable Minority Youth who do not have a formal school-leaving certificate to obtain one and find better employment.
• Atal Pension YojanaThis scheme will provide a defined pension, which will depend on the contribu-tion amount and the period. The Government will be contributing 50% of the beneficiaries’ premium (up to a maximum amount of Rs. 1,000 each year), for five years, in the new accounts opened before 31st December, 2015 so that more and more people are encouraged to join this scheme.
• Universal Social Security systemMost of the Indian population does not have any kind of insurance; life, acciden-tal or health. To solve this problem Government has proposed a universal social security system which will be beneficial for all Indians, especially the poor and the underprivileged section of the population.
• Government has also decided to use Rs. 9,000 crore unclaimed funds in PPF/EPF for Senior Citizens Fund.
MSME (Micro, Small and Medium Enterprises) Development
Indian MSME sector generates huge employment opportunities and 62% of this sector is owned by SC/ST/OBC most of whom finds it very hard to access sources of credit. To counter this problem, government has proposed some measures.
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• Micro Units Development Refinance Agency (MUDRA) Bank
MUDRA Bank will be set up with a corpus of Rs. 20,000 crores and will refi-nance the Micro-Finance Institutions through a Pradhan Mantri Mudra Yojana. Under this scheme priority will be given to SC/ST enterprises while lending.
• Improving liquidity through TReDs
A major problem faced by all MSMEs is high working capital requirement which is caused due to long receivables realization cycles or high average col-lection days. An electronic Trade Receivables Discounting System (TReDS) will be established for financing of trade receivables of MSMEs, from cor-porate and other buyers, through multiple financiers.
Taxation
• GAAR Implementation of the General Anti Avoidance Rule (GAAR) has been post-poned by another two years.
• Abolition of Wealth TaxGovernment has proposed to abolish the wealth tax and instead replaced it with an additional surcharge of 2% on the super-rich with a taxable income of above Rs.1 crore.
• Reduction of corporate taxGovernment proposed to reduce the corporate tax rate from 30% to 25 % in next four years to bring it at par with rates of other Asian economies.
• 100% exemption for contribution to Swachch Bharat, except CSR contribu• 100% exemption for contribution to Swachch Bharat, except CSR contribu-tions.
• Increase in Service taxHouseholds were in for a shock when government announced an increase in service tax plus education cesses from 12.36% to 14%.This will make every-thing more expensive for the common man from going out for a movie to restau-rant and mobile bills among others.
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• Exemptions up to Rs. 4,44,200 Government has proposed total exemptions to the effect of Rs. 4,44,200 through increasing limits on deductions like of pension funds, health insurance premium etc which will be beneficial for middle class tax payers..Some of the other important highlights of the budget were:
• Agriculture: Government has planned to allocate Rs. 25,000 Crores towards Rural Infra-structure Development Fund (RIDF) set up in NABARD to provide hassle free credit to agriculture sector.
• Financial Markets: Merging of Forwards Markets Commission which is the regulator for com-modity futures markets, with SEBI the regulator for securities market to strengthen regulation of commodity forward markets
• Gold Metal Account and Sovereign Gold Bonds:Government has proposed to introduce a Gold Monetisation Scheme in which gold depositors can earn interest and jewellery shops can obtain loan in their metal accounts.Also a financial asset called Sovereign Gold Bonds has been proposed which will carry a fixed interest rate. This can act as an alternative to purchasing metal gold
• Foreign InvestmentsGovernment has decided to remove any distinction between foreign direct Government has decided to remove any distinction between foreign direct investment (FDI) and Foreign Institutional Investment (FII) and call both types of investment by the name of foreign investment from this budget. This can be a crucial move so that foreign investors are encouraged to take strategic stakes in Indian firms.
• Coordination of Skills India and Make in IndiaGovernment is planning to launch a National Skills Mission to provide formal Government is planning to launch a National Skills Mission to provide formal skill training to the young population of India so that they are employable and remain so.
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• International Financial CentreGujarat International Finance Tec-City was envisaged as an International Financial Centre at par with such centres in Singapore, Dubai etc, the first phase of which will start this year.
Market Reaction
Market was volatile the whole time budget was being announced. BSE index Market was volatile the whole time budget was being announced. BSE index went up by 0.48 percent and NSE index went up by 0.65 percent. Because of the Finance Minister’s announcement about the extension of the deadline for cutting the fiscal deficit, Nifty initially fell but finally went up 0.7 percent after he announced the reduction in corporate tax to 25%. Major international rating agencies like Standard & Poor’s and Moody's have Major international rating agencies like Standard & Poor’s and Moody's have ruled out any hope of rating upgrade from the current “stable” outlook, since the budget was mainly focused on economic growth and had no major struc-tural reforms as such.
Hits and Misses
There are two sides to every coin and this budget has been a boon for some and bane for some others. The good news is that the focus on investment in infra-structure will lead to a multiplier effect and there will be more jobs and more demand for cement, bricks and other construction materials. Also the focus on agriculture in the budget will be crucial for boosting rural incomes and also improving agricultural productivity.Also the move to merge the Forward Markets Commission (FMC) with SEBI is an important step towards increasing the transparency and regulation of commodity markets. But of course everything depends on how efficiently the implementation is done, otherwise.A major worry is that the budgetary reforms are based on the assumption that A major worry is that the budgetary reforms are based on the assumption that the growth will increase to 8-8.5 percent as forecasted by Mr. Arun Jaitley. Also market was disappointed with the extension of deadline for cutting fiscal deficit to 3% of GDP.
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Guest Lecture by Dr. Pankaj Trivedi on Budget
Finstreet along with The Guest Lecture Committee organised a Finstreet along with The Guest Lecture Committee organised a guest lecture by Dr. Pankaj Trivedi, Head of Department of Finance and faculty mentor of Finstreet, on 4th March, 2014 on the topic 'Analysis and Economic Impact - Budget 2015-16'. He talked about how the thrust areas in this year’s budget are mainly growth in Agricultural sector, infrastructure, foreign capital inflow etc. He also explained how price stability and the increasing fiscal deficit are major areas of concern. He the increasing fiscal deficit are major areas of concern. He ended the lecture by saying that the impact of this budget can only be realised in long run and implementation of budgetary reforms is most important.
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With the last issue of FINly for the year 2014-15, we would like to remember the events that we have organised during the year. We still have a long way to go and are organizing more events even as we publish this issue. We hope that everyone had as much fun as we had in organising these events.
Let’s take a look at all the wonderful moments we had….
EVENT 1: Guest Lecture by Dr. Partha S. Mohan-ram (CGA Ontario Professor of Financial Account-ing, Rotman School of Management, University of Toronto)
Date: August 22, 2014
TOPIC: Stock Piling – Insights from Academic Re-search
EVENT 2: Annual fest of finstreet - Finzomania Online round- 6th Oct,2014, 10:00 PM.Written and stage round- 8th Oct,2014.
Harsh Harwani and Rohit Sarangi (both from Harsh Harwani and Rohit Sarangi (both from PGB) emerged as the winners of the event. The runners up were Monysh Bandeally and Datta-tray Bhandarkar (both second year students).
The goodies’ sponsor for the event was www.livingstyle.in
Glimpses of Finstreet2014-15
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EVENT 3: GL by Mr Sridhar Sethuram (partner, Suyash Advisors)
Date: 10 November 2014
TOPIC: Private Equity and Venture Capital
EVENT 4Finstreet stall at the Annual Alumni Meet of SIMSR - Nostalgia
EVENT 5 – Knowledge Sharing Session on “Futures and Forwards”
Date: December 5th 2014
Presenters:1. Lokesh Dash (PGDM-B)2. Sahil Jain (PGDM-IB)3. Miti Sutaria (MMS-B)
EVENT 6 – Finstreet Fiesta, year-end finance festival of Finstreet
Three competitions were held in the fiesta:1. Article Writing on 18th December 20142. 2. General Quiz on 22nd December 20143. Equity Research Competition on 23rd December 2014
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Guest Lecture by Mr.Vivekanand Subbara-man, Research Analyst, HDFC Securities
Date: 23 December 2014
Event 7 - 4th SIMSR Finance Conference (SIFICO)
Theme: Contemporary issues in modern finance
Event 8: Pravartana – a structured financial product designing competi-tionDate: 13th February 2015
As an integral part of melange (the annual fest of SIMSR), Finstreet presented Pravartana 2015, a finan-cial product modelling contest.The event was sponsored by NSDL (National Securities Depository Limited)
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Event 9: Guest Lecture by Dr. Pankaj Trivedi, Professor and Head, Department of Finance and Program Coordinator at K.J.Somaiya Institute of Management Studies & Research and also the faculty mentor of Finstreet
Date: 4th march, 2015
TOPIC: TOPIC: Analysis and Economic Impact: Budget 2015-16
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