ECONOMIC GLOSSARY

Value Added Tax:

Value Added Tax (VAT), or goods and services tax (GST), is tax on

exchanges. It is levied on the added value that results from each

exchange. VAT is a consumption tax (CT) levied on any value that is

added to a product. In contrast to sales tax, VAT is neutral with respect to

the number of passages that there are between the producer and the final

consumer; where sales tax is levied on total value at each stage, the

result is a cascade. A VAT is an indirect tax, in that the tax is collected

from someone who does not bear the entire cost of the tax.

VAT was invented by a French economist in 1954 as taxe sur la valeur

ajoutee (TVA) in French. Maurice Laure, joint director of the French tax

authority, the Direction generale des impost, was first to introduce VAT

with effect from 10 April 1954 for large business, and it was extended

over time to all business sectors.

The standard way to implement a VAT is to say a business owes some

percentage on the price of the product minus all taxes previously paid on

the good. If VAT rates were 10%, an orange juice maker would pay 10%

of the Rs.50 per litre price (Rs. 5.0) minus taxes previously paid by the

orange farmer (maybe Rs. 2). In this example, the orange juice maker

would have a Rs. 3 tax liability. Each business has a strong incentive for

its suppliers to pay their taxes, allowing VAT rates to be higher with less

tax evasion than a retail sales tax.

Personal end-consumers of products and services cannot recover VAT on

purchases, but businesses are able to recover VAT on the materials and

services that they buy to make further supplies or services directly or

indirectly sold to end-users. In this way, the total tax levied at each stage

in the economic chain of supply is a constant fraction of the value added

by a business to its products, and most of the cost of collecting the tax is

borne by business, rather than by the state. VAT was invented because

very high sales taxes and tariffs encourage cheating and smuggling.

Critics point out that it disproportionately raises taxes on middle- and

low-income homes.

 

(7) of (9)

Wholesale Price Index

A Wholesale Price Index (WPI) is the price of a representative basket of

wholesale good.

WPI was first published in 1902, and was one of the more economic

indicators available to policy makers until it was replaced in most

developed countries by the Consumer Price Index in the 1970s. In India,

a total of 435 commodities data on price level is tracked through WPI

which is an indicator of movement in prices of commodities in all trade

and transactions. It is also the price index which is available on a weekly

basis with the shortest possible time lag of only two weeks. The Indian

government has take WPI as an indicator of the rate of inflation in the

economy.

Calculation of Wholesale Price Index

The wholesale price index consists of over 2,400 commodities. The

indicator tracks the price movement of each commodity individually.

Based on this individual movement, the WPI is determined through the

averaging principle.

Consumer Price Index

Consumer Price Index (CPI) is a statistical time-series measure of a

weighted average of prices of a specified set of goods and services

purchased by consumers. It is a price index that tracks the prices of a

specified basket of consumer goods and services, providing a measure of

inflation.

It is one of several price indices calculated by most national statistical

agencies. The percent change in the CPI is a measure estimating inflation.

Two basic types of data are needed to construct the CPI: price data and

weighting data. The price data are collected for a sample of goods and

services from a sample of sales outlets in a sample of locations for a

sample of times. The weighting data are estimates of the shares of the

different types of expenditure as fractions of the total expenditure

covered by the index. These weights are usually based upon expenditure

data obtained for sampled decades from a sample of households.

 

Most countries use the CPI as a measure of inflation, as the actually

(8) of (9)

measures the increase in price that a consumer will ultimately have to

pay for. It is the official barometer of inflation in many countries such as

the United States, the United Kingdom, Japan, France, Canada, Singapore

and China. In India, the WPI is published on a weekly basis and the CPI

on a monthly basis. The index is usually computed yearly, or quarterly in

some countries, as a weighted average of sub-indices for different

components of consumer expenditure, such as food, housing, clothing,

each of which is in turn a weighted average of sub-sub-indices

 

Gross Domestic Product:

The gross domestic product (GDP) of gross domestic income (GDI) is one

of the measures of national income and output for a given country's

economy. GDP is defined as the total market value of all final goods

and services produced within the country in a given period of

time.

The international standard for measuring GDP is contained in the book

System of National Accounts (1993), which was prepared by

representative of the International Monetary Fund, European Union,

Organization for Economic Co-operation and Development, United Nations

and World Bank. The publication is normally referred to as SNA93 to

distinguish it from the previous edition published in 1968 (called SNA68).

Measuring GDP is complicated, but at its most basic, the calculation can

be done in one of two ways: either by adding up what everyone earned in

a year (income approach), or by adding up what everyone spent

(expenditure method). Logically, both measures should arrive at roughly

the same total.

The income approach, which is sometimes referred to as GDP(I), is

calculated by adding up total compensation to employees, gross profits

for incorporated and non incorporated firms, and taxes less any subsidies.

The expenditure method is the more common approach and is calculated

by adding total consumption, investment, government spending and net

exports.

Customs duty

It is a tariff or tax on the import of or export of goods. In England,

customs duties were traditionally part of the customary revenue of the

king, and therefore did not need parliamentary consent to be levied,

unlike excise duty, land tax, or other forms of taxes. Customs procedures

for arriving passengers at many international airports, and some road

crossings, are separated into Red and Green Channels.

 

Custom duty is a tax which a state collects on goods imported or

exported out of the boundaries of the country. It forms a significant

(6) of (8)

source of revenue for all countries especially in developing countries like

India. In India, custom duties are levied on the goods and at the

rates specified in the schedules to the Custom Tariff Act, 1975.

Custom duty is levied on

Import of Goods: Import is bringing of goods to India from any other

country of the world. Territorial water extends up to 12 nautical miles into

the sea from the coast of India and so the liability to pay import duty

commences as soon as goods enter the territorial waters of India. No duty

is leviable on goods which are in transit in the same ship or if goods are in

transit from one ship to another.

Export of Goods: Export duty is levied on export of goods. The main

objective of this duty is to simply restrict exports of certain goods. At

present very few articles like skin and leather are subject to export duty.

The liability to pay export duty commences as soon as goods leave the

territorial waters of India.

Rules:

To carry out the purpose of the act several rules are made by the Central

Government. The few among these rules are:

• Custom Valuation Rules, 1988 for valuation of imported goods that

calculates the custom duty payable.

• Customs and Central Excise Duties Drawback Rule, 1971 for

calculating rates of duties as drawbacks on exports.

Regulations:

The Central Board of Excise and Customs has been empowered to

make regulations to carry out the provisions of the act. In case of any

conflict regarding the rules and regulations the provisions of the rules

shall prevail. In order to maintain the rules of the Act several regulations

like Customs House Agents Licensing Regulations, 1984 have been

framed.

Emergency powers are granted to the Central government to increase

import or export duties if a need arise to do so. The increase in these

duties should be notified in the session of Parliament or should be placed

 

(7) of (8)

within seven days before the next session of the Parliament. The

notification is not considered to be valid if it is not approved within a span

time of fifteen days.

 

Foreign direct investment (FDI): FDI is a measure of

foreign ownership of productive assets, such as factories,

mines and land. Increasing foreign investment can be used

as one measure of growing economic globalization. It has

long term impacts and creates a great job pool in the host

country. It reinforces the economy.

(In India the largest FDI inflows comes from Mauritius.)

Foreign Institutional Investor (FII): Also known as Portfolio

investment is a term used to denote an investor - mostly of the form of

an institution or entity, which invests money in the financial markets of a

country different from the one where in the institution or entity was

originally incorporated. FII investment is frequently referred to as hot

money for the reason that it can leave the country at the same speed at

which it comes in. Thus it is of short term.

International Monetary Fund (IMF): It is an international

organization that oversees the global financial system by following the

macroeconomic policies of its member countries; in particular those with

an impact on exchange rates and the balance of payments. It is an

organization formed with a stated objective of stabilizing international

exchange rates and facilitating development. It also offers highly

leveraged loans mainly to poorer countries.

Debt vs. Equity: To raise money companies can either borrow it

from somebody or raise it by selling part of the company, which is known

as issuing stock. A company can borrow by taking a loan from a bank or

by issuing bonds. Both methods fit under the umbrella of debt financing.

On the other hand, issuing stock is called equity financing. Issuing stock

is advantageous for the company because it does not require the

company to pay back the money or make interest payments along the

way. All that the shareholders get in return for their money is the hope

that the shares will someday be worth more than what they paid for

them.

 

(8) of (10)

When you buy a debt investment such as a bond, you are

guaranteed the return of your money (the principal) along with promised

interest payments. This isn't the case with an equity investment. By

becoming an owner, you assume the risk of the company not being

successful - just as a small business owner isn't guaranteed a return,

neither is a shareholder. As an owner, your claim on assets is less than

that of creditors. This means that if a company goes bankrupt and

liquidates, you, as a shareholder, don't get any money until the banks

and bondholders have been paid out. Shareholders earn a lot if a

company is successful, but they also stand to lose their entire investment

if the company isn't successful.

Common Stocks: Common shares represent ownership in a

company and a claim (dividends) on a portion of profits. Investors get one

vote per share to elect the board members, who oversee the major

decisions made by management. Over the long term, common stock, by

means of capital growth, yields higher returns than almost every other

investment. If a company goes bankrupt and liquidates, the common

shareholders will not receive money until the creditors, bondholders and

preferred shareholders are paid.

Preferred Stock: Preferred stock represents some degree of

ownership in a company but usually doesn't come with the same voting

rights. (This may vary depending on the company.) With preferred

shares, investors are usually guaranteed a fixed dividend forever. Another

advantage is that in the event of liquidation, preferred shareholders are

paid off before the common shareholder (but still after debt holders).

Preferred stock may also be callable, meaning that the company has the

option to purchase the shares from shareholders at anytime for any

reason (usually for a premium).

Hedge Funds: A hedge fund is an investment fund typically open

only to a limited range of professional or wealthy investors. As the name

implies, hedge funds often seek to hedge some of the risks inherent in

their investments using a variety of methods, most notably short selling

and derivatives. However, the term "hedge fund" has also come to be

 

(9) of (10)

applied to certain funds that do not hedge their investments, and in

particular to funds using short selling and other "hedging" methods to

increase rather than reduce risk, with the expectation of increasing the

return on their investment. This provides them with an exemption in

many jurisdictions from regulations governing short selling, derivatives,

leverage, fee structures and the liquidity of interests in the fund.

Distressed securities: Distressed securities are securities of

companies or government entities that are either already in default, under

bankruptcy protection, or in distress and heading toward such a condition.

The most common distressed securities are bonds and bank debt. While

there is no precise definition, fixed income instruments with a yield to

maturity in excess of 1000 basis points over the risk-free rate of return

(e.g. Treasuries) are commonly thought of as being distressed.

Recession: In economics, a recession is a general slowdown in

economic activity over a long period of time, or a business cycle

contraction. It is actually a period of declining productivity. A recession is

defined simply as a period when GDP falls (negative real economic

growth) for at least two quarters. Some economists prefer a definition of

a 1.5% rise in unemployment within 12 months.

Global recession: A global recession is a period of global economic

slowdown. The International Monetary Fund (IMF) states that global

economic growth of 3 percent or less is "equivalent to a global recession".

Capability Maturity Model (CMM): The Capability Maturity Model

(CMM) is a service mark owned by Carnegie-Mellon University (CMU)

developed as a tool for objectively assessing the ability of government

contractors' processes to perform a contracted software project.

'Unfriend' (to remove someone as a "friend" on a social networking

site such as Facebook) is the Word of the Year 2009 by New World

Dictionary. (2008: 'Bailout', 2007: 'Sub prime')

Darren Morgan of Wales regained the Masters title with ease as

he outplayed defending champion Dene O'Kane 6-0 at the ONGC-IBSF

 

(10) of (10)

World Snooker championship 2009.

Shot putter Om Prakash Singh won the only gold for India in the

recently concluded 18th Asian Athletics Championship in China.

In South Africa 'cruel' Zulu bull-killing ritual (also known as

Ukweshwama) is performed. In which "Dozens [of people] trampled the

bellowing, groaning bull, wrenched its head around by the horns to try to

break its neck, pulled its tongue out, stuffed sand in its mouth and even

tried to tie its penis in a knot. "Gleaming with sweat, they raised their

arms in triumph and sang when the bull finally succumbed". Now it is

being considered for vanishing.

The Company Arcelor was created by a merger of the former

companies Aceralia (Spain), Usinor (France) and Arbed (Luxembourg)

in 2002.

After a year in the doldrums, placements scale a new peak with an

eyeball-popping offer for a BA student that many a veteran would be

more than happy to land. The 20-year-old undergraduate Adit Mathur

of Shri Ram College of Commerce (SRCC) of Delhi University (DU)

gets an annual compensation package of Rs 32 lakh ($69,000)

offer from Deutsche Bank.

Google has now publicly announced that it is working on an

operating system called Chrome OS. Google's Chrome OS will

emphasize speed, simplicity, and security; it'll store everything in the

cloud and it'll come preinstalled on net books.

German car giants Mercedes-Benz confirmed on November 16,

2009 that they have successfully taken over Formula 1 team Brawn GP.

Mercedes have bought a 75.1% stake in the Brackley based team to

become majority share holders. The team will now be re branded as

Mercedes Grand Prix