Insights Daily Current Events, 14 February 2015
Retailers hit by ‘Peter Pan Syndrome’
A study conducted by Yale University has revealed that corruption and lower enforcement reduces adoption of productivity-enhancing technology among retailers in India. The study was based on a survey of 1,948 Indian retailers, who are part of a $500 billion industry that is growing at 8-10 per cent per annum.
Other important findings:
- The study found that firms tended to remain small to avoid transparency, a result of more technology, and thus avoid the risk of getting slapped with higher taxes and more regulation.
- The study also found that in countries where there is low enforcement and corruption is rampant, firms who keep much of their transactions in the informal sector can therefore gain a competitive advantage.
- It says that the situation can be improved through greater productivity induced by the use of modern efficiency enhancing technologies in the IT sphere, and by bringing more businesses into the transparent formal sector.
- It says that as India opens up its markets to multinational, multi-brand retail, the need to increase productivity becomes even greater for domestic retailer survival.
- The study says that technology adoption is lower when there is greater corruption, but higher when there is better enforcement and auditing. This is dubbed as the ‘Peter Pan Syndrome,’ a reference to the fictional character that never grows up. Here, firms prefer to stay small.
Why firms fear technology?
- In developing countries like India, where a “culture of informality” is widespread, businesses fear technological advancement as it removes the “veil of secrecy” around business practices that are conducive for tax evasion.
- With increased transparency, it is easier for the government to collect taxes and enforce regulatory compliance by bringing these transactions into the formal sector, potentially increasing the cost of operations for those who use IT systems relative to those who don’t.
Peter Pan Syndrome economic theory:
- The Peter Pan syndrome can be seen in both developed and developing economies.
- According to this theory, firms remain small in order to avoid reaching thresholds that, if crossed, could expose them to a different set of regulations.
- Heavily regulated economies tend to have smaller firms.
Small firms may lead to the growth of informal or illegal firms that don’t contribute taxes.
Sources: The Hindu, Wiki.
Forex reserves reach $330 billion
The RBI recently said that India’s foreign exchange reserves rose to around $330 billion in February, up from $327.8 billion.
Forex reserves:
- Foreign exchange reserves are an important component of the balance of payments and an essential element in the analysis of an economy’s external position.
- The components of India’s foreign exchange reserves are foreign currency assets (FCA), gold, SDRs and reserve tranche position (RTP) in the IMF.
- Foreign Currency Assets (FCA) is the biggest component of the forex reserves.
SDRs:
- It is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves.
- Its value is based on a basket of four key international currencies, and SDRs can be exchanged for freely usable currencies. The SDR basket consists of the euro, Japanese yen, pound sterling, and U.S. dollar.
- The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members.
Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways:
- Through the arrangement of voluntary exchanges between members and
- By the IMF designating members with strong external positions to purchase SDRs from members with weak external positions.
Sources: The Hindu, IMF.
India improves press freedom rank
In the annual World Press Freedom Index (WPFI), which was released recently, India was ranked 136 out of 180 nations worldwide in terms of press freedom in 2015, which marks an improvement from its rank of 140 in 2014, even though its absolute score declined from 40.34 to 40.49.
Other details:
- According to the Index, India’s “abuse score,” which reflects the intensity of violent harassment faced by journalists, was 59.58, higher than Sri Lanka’s score of 40.6, but below Pakistan’s score of 64.91 and China’s 89.64.
- Scandinavian nations such as Finland, Norway and Denmark have maintained the top positions in the list.
- Turkmenistan, North Korea and Eritrea were the worst performers.
- Russia, Iran and China also performed poorly, ranking at 152, 173 and 176, respectively.
- The U.S. has come three places down at 49 in 2015.
The WPFI ranks the performance of countries according to a range of criteria that include media pluralism and independence, respect for the safety and freedom of journalists, and the legislative, institutional and infrastructural environment in which the media operate.
Sources: The Hindu.
8 m tonnes of plastic waste dumped in oceans in 2010
Researchers in a study have quantified the amount of plastic waste entering the ocean from land.
Details:
The details of the study are as follows:
- In 2010, an estimated eight million tonnes of plastic waste made its way to the ocean.
- Most of the plastic waste that enters the ocean is on account of plastic litter and mismanaged plastic waste system in several countries.
- Twenty countries accounted for 83% of mismanaged plastic waste that entered the ocean.
- India, with 0.6 million tonnes a year of mismanaged plastic waste, is ranked 12th. China ranks number one with 8.82 million tonnes a year.
- There are 11 Asian and Southeast Asian countries on the list, including Sri Lanka, Bangladesh, Pakistan and Burma.
- The cumulative amount of plastic debris that would enter the ocean in the next decade will be more than double the 2010 figure in the absence of any improvement to waste management systems in the 192 coastal countries. In 2010, 275 million tonnes of plastic waste was generated in the 192 coastal countries. It is very unlikely that a global “peak waste” will be reached before 2100.
The countries that contributed the greatest amount of waste that ultimately entered the ocean were arrived at by taking into account the population and quality of waste management systems in place.
The total amount that ended up in the ocean would have been much higher as the study did not take into account the contribution from other sources such as fishing activities or seagoing vessels.
Sources: The Hindu.
Mock Questions:
Consider the following statements about Peter Pan Syndrome economic theory:
- According to this theory, firms try to grow large and are willing to pay taxes regularly.
- This theory says that heavily regulated economies tend to have smaller firms.
Which of the above statements are true?
- Only 1.
- Only 2.
- Both.
- None.
Consider the following statements regarding India’s foreign exchange reserves:
- The components of India’s foreign exchange reserves are foreign currency assets (FCA), gold, silver, SDRs and reserve tranche position (RTP) in the IMF.
- Foreign Currency Assets (FCA) is the biggest component of the India’s forex reserves.
Which of the above statements are true?
- Only 1.
- Only 2.
- Both.
- None.
Consider the following statements regarding Special Drawing Rights:
- It is an international reserve asset, created and maintained by the World Bank.
- Its value is based on a basket of seven key international currencies
- They can be exchanged for freely usable currencies.
Which of the above statements are not true?
- Only 1 & 2.
- Only 3.
- Only 1 & 3.
- None.
Consider the following statements with reference to World Press Freedom Index (WPFI), released recently:
- India was ranked 136 out of 180 nations.
- India’s rank has improved compared to 2014.
- According to the Index, India’s abuse score was higher than that of China’s.
Which of the above statements are true?
- Only 1 & 3.
- Only 1 & 2.
- Only 2 & 3.
- None.
