6 Product Market

Product market is a mechanism that allows people to easily buy and sell products. Services are often included in the scope of the term. Product market regulation is an economic term that describes restrictions in the market. Related terms are financial market and labour market. In absence of price discrimination, a firm will delineate the product market to be a product or group of products such that a hypothetical profit-maximizing firm a monopolist likely would impose a significant increase in price. The price increase would be assuming that buyers unlikely to respond to an increase in price of a product, and may shift to other products. If the alternatives are sufficiently attractive at their existing terms of sale, an attempt to raise prices would result in a reduction of sales large enough. Hence, the price increase would not prove profitable, and the tentatively identified product group would prove to be too narrow. In considering the likely reaction of buyers to a price increase, the Agency will take into account all relevant evidences like (1) evidence that buyers have shifted or have considered shifting purchases between products in response to relative changes in price or other competitive variables; (2) evidence that sellers base business decisions on the prospect of buyer substitution between products in response to relative changes in price or other competitive variables; (3) the influence of downstream competition faced by buyers in their output markets; and (4) the timing and costs of switching products. The price increase question is then asked for a hypothetical monopolist controlling the expanded product group. In performing successive iterations of the price increase test, the hypothetical monopolist will be assumed to pursue maximum profits in deciding whether to raise the prices of any or all of the additional products under its control. This process will continue until a group of products is identified such that a hypothetical monopolist over that group of products would profitably impose at least a small but significant increase. The Agency generally will consider the relevant product market to be the smallest group of products that satisfies this test.

If the firm uses prevailing prices of the products of the merging firms and possible substitutes for such products, unless premerger circumstances are strongly suggestive of coordinated interaction, in which case the agency will use a price more reflective of the competitive price. However, the agency may use likely future prices, absent the merger, when changes in the prevailing prices can be predicted with reasonable reliability. Changes in price may be predicted on the basis of, changes in regulation, which affect price either directly or indirectly by affecting costs or demand. In general, the price for which an increase will be postulated will be whatever is considered to be the price of the product at the stage of the industry being examined. In attempting to determine objectively the effect of a small but significant increase in price, the agency, in most contexts, will use a price increase of five per cent lasting for the foreseeable future. However, what constitutes a small but significant increase in price will depend on the nature of the industry, and the agency at times may use a price increase that is larger or smaller than five per cent. Effects on Economic growth Product market may have great impacts on the economic growth. Substitute products or innovative products may have positive impacts on the economic growth of a country, depends upon cost incurred on the product. In absence of use of technology in the production process, the cost is likely to go up than the prevailing cost structure, which may affect the economic growth.

9. Union Budget
What is Union Budget? Budget is a systematic plan for the expenditure of a usually fixed resource during a given period. Thus, Union Budget, which is a yearly affair, is a comprehensive display of the Governments finances. It is the most significant economic and financial event in India. The Finance Minister puts down a report that contains Government of Indias revenue and expenditure for one fiscal year. The fiscal year runs from April 01 to March 31.

The Union budget is preceded by an Economic Survey which outlines the broad direction of the budget and the economic performance of the country. The Budget is the most extensive account of the Government`s finances, in which revenues from all sources and expenses of all activities undertaken are aggregated. It comprises the revenue budget and the capital budget. It also contains estimates for the next fiscal year called budgeted estimates. Barring a few exceptions -- like elections Finance Minister presents the annual Union Budget in the Parliament on the last working day of February. The budget has to be passed by the Lok Sabha before it can come into effect on April 01. What is revenue budget? The revenue budget consists of revenue receipts of the government (revenues from tax and other sources) and the expenditure met from these revenues. Revenue receipts are divided into tax and non-tax revenue. Tax revenues are made up of taxes such as income tax, corporate tax, excise, customs and other duties which the government levies. Non-tax revenue consist of interest and dividend on investments made by government, fees and other receipts for services rendered by Government. Revenue expenditure is the payment incurred for the normal day-to-day running of government departments and various services that it offers to its citizens. The government also has other expenditure like servicing interest on its borrowings, subsidies, etc. Usually, expenditure that does not result in the creation of assets, and grants given to state governments and other parties are revenue expenditures. However, all grants given to state governments and other parties are also clubbed under revenue expenditure, although some of them may go into the creation of assets. The difference between revenue receipts and revenue expenditure is usually negative. This means that the government spends more than it earns. This difference is called the revenue deficit.

What is a capital budget? It consists of capital receipts and payments. The main items of capital receipts are loans raised by Government from public which are called Market Loans, borrowings by Government from Reserve Bank and other parties through sale of Treasury Bills, loans received from foreign

Governments and bodies and recoveries of loans granted by Central Government to State and Union Territory Governments and other parties. Capital payments consist of capital expenditure on acquisition of assets like land, buildings, machinery, equipment, as also investments in shares, etc., and loans and advances granted by Central Government to State and Union Territory Governments, Government companies, Corporations and other parties. Capital Budget also incorporates transactions in the Public Account. Budgeting Principles 1. Be conservative Don't budget on the basis that everything will turn out as expected. Build in a safety factor by tending to underestimate your income and overestimate your expenses. A common strategy in developing a budget is to insert an additional expense called "contingencies" which allows for unforeseen expenses. 2. Consult other people in setting a budget One person may be responsible for the compilation of the budget but one person should not be responsible for all the work involved. Budgeting requires teamwork. The task of budgeting should be split and allocated among those individuals who have the best chance of knowing what expenditure is likely to be needed and what income is reasonable to expect. Involvement by many people in budgeting might slow the process down, but the answer is far more likely to be accurate and dependable. 3. Allow plenty of time Budgeting is not an activity that is completed in a few hours. A good budget may be worked on for several weeks if not months, adding and changing figures as new information comes to light. 4. Excellence in documentation It is very important that the author(s) of the budget strive to produce documents that can be read and understood by anyone. If figures are not clearly labeled even the author will, as time passes, have trouble understanding where the figures come from and how the calculations were made. It should be assumed that budgeting workings will be: Circulated to many different people who may have lower levels of financial literacy

Useful again in a year's time when the budgeting process begins again. Unless workings are well labeled it may be difficult to remember. What are direct taxes? These are the taxes that are levied on the income of individuals or organisations. Income tax, corporate tax, inheritance tax are some examples of direct taxation. Income tax is the tax levied on individual income from various sources like salaries, investments, interest etc. Corporate tax is the tax paid by companies or firms on the incomes they earn. What are indirect taxes? These are the taxes paid by consumers when they buy goods and services. These include excise and customs duties. Customs duty is the charge levied when goods are imported into the country, and is paid by the importer or exporter. Excise duty is a levy paid by the manufacturer on items manufactured within the country. .

These charges are passed on to the consumer. What is plan and non-plan expenditure? There are two components of expenditure - plan and non-plan. Of these, plan expenditures are estimated after discussions between each of the ministries concerned and the Planning Commission. Plan expenditure forms a sizeable proportion of the total expenditure of the Central Government. The Demands for Grants of the various Ministries show the Plan expenditure under each head separately from the Non-Plan expenditure. Non-plan revenue expenditure is accounted for by interest payments, subsidies (mainly on food and fertilisers), wage and salary payments to government employees, grants to States and Union Territories governments, pensions, police, economic services in various sectors, other general services such as tax collection, social services, and grants to foreign governments.

Non-plan capital expenditure mainly includes defence, loans to public enterprises, loans to States, Union Territories and foreign governments. What is the Central Plan Outlay? It is the division of monetary resources among the different sectors in the economy and the ministries of the government.

What is fiscal policy? Fiscal policy is a change in government spending or taxing designed to influence economic activity. These changes are designed to control the level of aggregate demand in the economy. Governments usually bring about changes in taxation, volume of spending, and size of the budget deficit or surplus to affect public expenditure. What is a fiscal deficit? This is the gap between the government`s total spending and the sum of its revenue receipts and non-debt capital receipts. It represents the total amount of borrowed funds required by the government to completely meet its expenditure.

What is the difference between fiscal deficit and primary deficit? Primary deficit is one of the parts of fiscal deficit. While fiscal deficit is the difference between total revenue and expenditure, primary deficit can be arrived by deducting interest payment from fiscal deficit. Interest payment is the payment that a government makes on its borrowings to the creditors. What is revenue deficit? A mismatch in the expected revenue and expenditure can result in revenue deficit. Revenue deficit arises when the governments actual net receipts is lower than the projected receipts. On the contrary, if the actual receipts are higher than expected one, it is termed as revenue surplus. A revenue deficit does not mean actual loss of revenue. Lets take a hypothetical example, if a country expects a revenue receipt of Rs 100 and expenditure worth Rs 75, it can result in net revenue of Rs 25. But the actual revenue of Rs 90 is realised and expenditure is Rs 70.

This translates into net revenue of Rs 20, which is Rs 5 lesser than the budgeted net revenue and called as revenue deficit. What is the Finance Bill? The proposals of the Government for levy of new taxes, modification of the existing tax structure or continuance of the existing tax structure beyond the period approved by Parliament are submitted to Parliament through the Finance Bill. The Budget documents presented in terms of the Constitution have to fulfil certain legal and procedural requirements and hence may not by themselves give a clear indication of the major features of the Budget. To facilitate an easy comprehension of the Budget, certain explanatory documents are presented along with the Budget. Current Account Current Account is the sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid). The balance of trade is typically the most important part of the current account. This means that changes in the patterns of trade are key drivers in the current accounts of most of the world's economies. However, for the few countries with substantial overseas assets or liabilities, net factor payments may be significant. Positive net sales to abroad generally contributes to a current account surplus; negative net sales to abroad generally contributes to a current account deficit. Because exports generate positive net sales, and because the trade balance is typically the largest component of the current account, a current account surplus is usually associated with positive net exports. The net factor income or income account, a sub-account of the current account, is usually presented under the headings income payments as outflows, and income receipts as inflows. Income refers not only to the money received from investments made abroad (note: investments are recorded in the capital account but income from investments is recorded in the current account) but also to the money sent by individuals working abroad, known as remittances, to their families back home. If the income account is negative, the country is paying more than it is taking in interest, dividends, etc.

For example, the United States' net income has been declining exponentially since it has allowed the dollar's price relative to other currencies to be determined by the market to a point where income payments and receipts are roughly equal of trade forms part of the current account, which also includes other transactions such as income from the international investment position as well as international aid. If the current account is in surplus, the country's net international asset position increases correspondingly. Equally, a deficit decreases the net international asset position. India Current Account India reported a current account deficit equivalent to 16.9 Billion USD in the third quarter of 2011. India is leading exporter of gems and jewelry, textiles, engineering goods, chemicals, leather manufactures and services. India is poor in oil resources and is currently heavily dependent on coal and foreign oil imports for its energy needs. Other imported products are: machinery, gems, fertilizers and chemicals. Main trading partners are European Union, The United States, China and UAE . This page includes: India Current Account chart, historical data and news.

10 India and the World