Reverse Repurchase Agreement
Reverse repurchase agreement refers to a type of agreement on purchase of securities upon the agreement to resell them at a high price at a future date. For the trader selling and agreeing they will purchase it in the near future, it is known as a repo while for the party buying the securities and making the agreement to sell in future, it is known as reverse repurchase agreement.
Repos are known as money-market instruments and they are used for purposes of raising short term capital. This is often a practice in which a financial institution or a bank purchases securities or other assets with the knowledge it will resell the asset or securities to that same seller. Financial institutions and investors agree to a reverse purchase agreement for purposes of raising short term capital. In actual sense, repos are the equivalent of short term loans with assets and securities serving as the collateral. Reverse repurchase agreement is not different from a repurchase agreement the only difference is that it is the buyer’s perspective rather than that of the seller. Consequently it is also known as a reverse or matched sale transaction.
For instance if A wants to sell securities to an investment firm B, then the firm should have cash it is ready to use in order to get into a reverse repurchase agreement with A. The management firm operates by the belief the price of the stock will rise before it is repurchased. If this happens, then the company selling the stock will return a higher price to company B than what was initially paid. As a result, the management firm makes a profit. However, it is ideal to note this only happens as long as the stock remains high and does not fall.
A reverse repurchase agreement can also face challenges. Key among them is that of properly matching 2 parties. This type of agreement is usually large requiring the potential investor to have immediate capital in huge amounts. As such, the investor requesting for reverse repurchase usually tends to be a group of investors like a private equity group or management firm rather than individuals.
Once the parties are matched, both get exposed to certain risks. For those repurchasing securities they are exposed to risks that are twofold. For starters, there is the possibility they will repurchase those shares at a high price compared to what they sold them at. Secondly, there is the possibility they might not be able to raise the cash needed to repurchase the securities. When this happens, it means that the investors have the right to retain the collateral which is in this case refers to the securities bought.
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Definition of parliamentary sovereignty
Parliamentary sovereignty is a constitutional law concept in which the legislative body governing a country is given absolute supremacy over all other governmental institutions. This concept is also referred to as parliamentary or legislative supremacy and it basically gives the parliament supremacy over all other bodies in the land including the judicial body and the executive body governing the land. There are a few countries which have sovereign parliaments and these include:
- The United Kingdom
- Papua New Guinea
- New Zealand
- Solomon Islands
Parliamentary supremacy gives the parliament the authority to not only make laws that govern the country but also amend some of the laws that it sees fit. Parliament is therefore not bound by any written law of the land and hence can act as it deems necessary. This concept differs from the doctrines of separation of powers which is practiced in many countries.
Principles if parliamentary sovereignty
- The parliament can make new laws. The parliament is in charge of making new laws during its tenure. These laws can be based on arising issues or precedents that have been practiced over time.
- The parliament can amend existing laws and practices. The parliament has supreme powers to change the laws that exist including decisions made by the courts of the land. The parliament can also reverse practices that have been considered as law in the land as it deems necessary.
- The parliament is not bound by its predecessors. Under the parliamentary supremacy, a new parliament is given fresh mandate and cannot be bound by what previous governments before have done. This therefore absolves new parliaments of any wrongs made by previous parliaments.
- The parliament is above all other governing bodies. Parliamentary sovereignty gives the parliament supremacy over the judicial and executive bodies. In fact, the parliament cannot be kept in check by either body. The parliament also has the mandate of reviewing the decisions made by the executive and judicial bodies.
Advantages of parliamentary sovereignty
Parliamentary sovereignty has some advantages. Most of the countries elect the leaders into the parliament and it is thus assumed that the leaders will represent the voice of the people. The fact that parliament can come up with new laws that fit contemporary situations makes parliamentary sovereignty advantageous for countries. This concept can help governments to get rid of obsolete laws and make new legislations that are more contemporary and suitable.
Disadvantages of parliamentary sovereignty
The parliamentary sovereignty has often been criticized for giving parliaments too much power. The fact that these parliaments have nobody to keep them in check leaves plenty of room for arbitrary decisions and abuse of power. There are also worries over the fact that parliamentary sovereignty gives the parliamentarians authority over crucial bodies such as the judicial body. This can lead to corruption and injustice within the judicial body.
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Commonwealth of Australia Constitution Act 1901
Definition of a constitution
A constitution is a set of laws that govern a country. Constitutions can be either written down or passed on as practiced norms. Written down constitutions are also referred to as codified constitutions while the unwritten constitutions are called uncodified constitutions.
Different countries have different constitutions depending on their laws and needs. While most countries have codified constitutions, there are a few that have unwritten or uncodified constitutions. There are also some countries that use both written and unwritten constitutions. Australia is one of the few countries that have both written and unwritten laws.
Background information on the Australian Constitution
The Australian constitution was negotiated during the 19th century. The British which had imperial powers over Australia during that time wanted a federal government. There was indeed mutual recognition for the need of cooperation between the British and Australians. While the Australian government had not defined this cooperation, British government expressly wanted a federal government. However, this was opposed by the locals because there was a general feeling that the bigger states such as New South Wales and Victoria would dominate the other smaller states.
In addition to this, the American Civil War had occurred during this era and federalism was viewed with great skepticism. Nevertheless, during the 1880s, the British noticed a huge presence of Germans and French in the pacific parts of Australia. This put a lot of pressure on the British and expedited their decision to cooperate with Australia.
In 1889, British finally established the Federal Council of Australasia which was a body that could facilitate inter-colonial cooperation. Even though this body could legislate over many matters, it neither had a permanent secretariat nor source of income. Australia and Britain begun strong negotiations over this matter and this was mainly done through conferences.
Eventually in 1891, the two parties decided to come up with a draft constitution that would legitimize federal governance. This draft constitution was passed through a referendum as the parties felt the idea would be made more popular if passed through majority vote. By the end of 1891, the draft constitution was tabled to the leaders of the colonial states.
Between 1895 and 1898, the parties held many meetings over the draft constitution. During this period there were amendments to this document and finally, another electoral decision was carried out. The western part of Australia did not engage in this exercise. In 1900, the Commonwealth of Australia Constitution act was passed into law. This later came into force in 1901. Ultimately, the Western part of Australia accepted to become part of the constitutional process and federal governance was established in the whole of Australia.
The current Australian Constitution
Australia in the recent times has made amendments to the constitution. One major amendment that was made in 1986 was the removal of the clause that gave Britain the mandate to change the constitution of Australia. The changes to the constitution can thus solely be carried out by the government and people of Australia.
Parliamentary Sovereignty in the UK
Definition of parliamentary sovereignty
Parliamentary sovereignty is a concept of governance in which the parliament of a country is bestowed with complete authority over all legislative matters in the country. This concept is practiced in a few countries across the world and has been widely contested in debates concerning governance issues. Basically, parliamentary sovereignty assumes that since the parliament is elected into power by the people, the views and practices of the parliament are a true representation of the people hence giving this body full authority to make, amend and even abolish laws.
History of parliamentary sovereignty in the UK
The United Kingdom is one of the countries that upholds parliamentary sovereignty. This practice in the UK dates back to the 14th century when there was struggle between the royal rule and parliamentary rule. However this issue was settled once and for all in 1611 when the Chief Justice ruled that the parliament had the sole legislative authority in the country. Ever since this rule was initiated, the UK has been practicing parliamentary sovereignty.
Parliamentary sovereignty in the UK is governed by three main principles. These principles also map out the functions and mandate of the parliament and they include:
- Formation of new legislations. The parliament of the UK is charged with the responsibility of forming all new laws. The parliament basically looks at what currently affects the country and makes laws that are relevant.
- Repealing of decisions. The parliament is also in charge of repealing any decisions that have been made by the executive or judicial bodies in the country.
- Amending laws. Previous laws that are no longer applicable can also be changed by the parliament of the UK.
Parliamentary sovereignty in the UK gives the parliament authority over every other body in the country including the judicial bodies such as courts in the country as well as the executive body. In addition to this, the parliament is absolved from all previous parliamentary decisions that have been made by its predecessors. The parliament can thus change such decisions if it deems this necessary.
Advantages and disadvantages of parliamentary sovereignty in the UK
Even though parliamentary sovereignty in the UK has been a hugely contested issue it has both advantages and disadvantages. Some of the advantages of having a parliament that is above all other legislative bodies in the UK include:
- Ease of changing laws that are retrogressive because each parliament has its own independent authority and discretion to form, repeal and amend laws.
- It makes it easy to govern the country because the parliament is the ultimate body to consult hence limiting bureaucracies.
Despite these advantages, parliamentary sovereignty can give room for abuse by current parliaments because of the large amounts of power given to the parliamentary body. Since parliament holds supreme authority, there is little check and balance over parliamentary decisions.
Developments affecting parliamentary sovereignty in the UK
Over the years, the parliament of the UK has been passing laws that have reduced the powers that parliament had and this is seen as a dilution to the concept of parliamentary sovereignty in the UK. Some of the decisions passed include:
- The passing of the Human Rights Act in 1998
- Devolution of power to the Welsh Assembly and Scottish Parliament
- The formation of the Supreme Court of the UK in 2009
- Joining of the European Union
These have devolved the powers of the parliament in the UK.
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Uncodified constitution is a form of constitution where fundamental government rules take precedent, usage and customs form as well a range legal instruments and statutes. The constitution is understood through the judiciary, legal experts and government committees reading commentary. In this type of constitution system, all elements are recognized by government legislators, bureaucracy and courts as binding upon government limits its powers. Such framework is also known as “unwritten constitution” though this is not 100% accurate. This is because uncodified constitution elements are written down in various official documents but not codified in one single document.
There are several advantages associated with uncodified constitution such as adaptability, resilience as well as adaptability. A new situation or condition of government for instance can be solved by passing legislation or precedent. No unique procedures are required in order to make constitutional law and it is not essentially superior to other existing legislation. Countries with this form of constitution lack a particular moment where its government’s principles were decided deliberately. Rather, the principles evolve according to the social and political forces arising throughout history.
The major disadvantage of an uncodified constitution is the fact controversies might arise as a result of varying understandings of the customs and usages forming the basic provisions of the constitution.
Examples of states with a codified constitution
Some of the states with this type of constitution are as highlighted below:
- New Zealand
- UK-The country does not have any defining document that can be referred to as ‘the constitution’. The political system in UK evolved with time and was not changed by an event like a revolution therefore it is continuously defined by decisions of Law courts and parliament.
- Saudi Arabia-The only source that is quoted to provide basic law is the Quran.
While in Canada there is a constitution act, important aspects of the country’s constitutional system still remain uncodified. The constitution preamble states the constitution should be ‘similar in principle to that of the UK’ which is not codified. This is applicable at the provinces and federal level though they both have power to enact their own or alternatively make modifications within their exclusive responsibility areas.
Former uncodified constitution examples
- The Roman republic was comprised of 12 Tables as well as other statues
- In Hungary from 1949, the constitution was uncodified.
- The Grand Principality of Finland’s constitution was uncodified and it did not specifically recognize emperor of Russia from 1809 through to 1917.
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Disadvantages of Uncodified Constitution
Constitutions are supposed to legally codify the responsibilities of a government to its people. They also highlight the rights of the people that must be respected by the government. A constitution is supposed to be a legally written document though there are instances when this is not the case. If this is the case, then it is known as an uncodified constitution. Though there are advantages to an uncodified constitution, there are also disadvantages such as no limitations on legislative bodies, unclear guidelines on devolution and division of government power.
Some of these disadvantages include the following:
The argument on the advantages of uncodified constitution is flexibility. Uncodified constitutions evolve with the society as the society changes over time. This flexibility is detrimental though since it creates room for devolution as is the case in the UK. Where there once existed a national assembly that was represented by all United Kingdom member states, a series of Acts towards the end of the twentieth century led to creation of state assemblies for Wales, Ireland and Scotland. Therefore, this kind of constitution is unable to check political movements that could destroy national unity.
Unclear power division
Codified constitutions are known to define and establish powers of every government branch. This means law enforcing, law making and government body powers afford individual government branches limited power such that none of the branches dominate the rest. Uncodified constitution on the other hand does not have any limitations hence government branches enjoy uncontrolled growth and power. There is also a recent trend growth of law enforcing or judicial government branches that leads to policy making. It is because of this fact that codified constitutions are largely advocated.
Legislation that is unlimited
The legislative government branch has the power to define and make laws which govern intricate workings in a society. Countries that have codified constitutions limit the power enjoyed by this branch ensuring the laws made aren’t harmful to the society. Uncodified constitution does not make such provisions that inhibit creation of laws that might increase inequality in a country, offer the wealthy protection or even limit the rights of the disadvantaged. Because an uncodified constitution is unlimited, this also means it might levy tax amounts that are inappropriate or even send its soldiers to war devoid of support from the people.
Creation of controversy
The greatest disadvantage though associated with uncodified constitution is controversy creation. Because there are no clear cut laws written down, misunderstandings might arise about the customs and use of the constitution provisions.
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Codified vs Uncodified Constitution
Which is better, a codified or uncodified constitution? This is a question that has been topic for great debate with varying opinions expressed about the two forms of constitution. An uncodified constitution is also known as an unwritten constitution which means there is no formal documents that delineates government powers and limits. This kind of constitution comprises the laws of a country that are enacted over time and coupled with political precedent emphasis. In addition to this, it is also enshrined in parliamentary procedure creating a framework through which the government operates. While these principles might not be codified into a single law, legislators, executives and the courts still recognize them as binding upon the government and limiting powers.
On the other hand, a codified constitution is one where there is a formal document that defines the constitutional system, rules governing a political system, rights of citizens and the powers of the government. Majority of countries have a codified constitution because it helps restrain unbridled executive powers.
Most constitutions are largely though not wholly codified. For instance in the Australian constitution, most of the fundamental regulations and principals related to the relationship between government branches and concerning the individual and government are codified into one document which is the Commonwealth constitution of Australia. However, because of statutes that have constitutional significance chiefly the Statute of Westminster, which is as adopted by the Australian Act 1986 and Statute of Westminster Adoption Act 1942, the constitution of Australia isn’t contained in a single document. Therefore, this means that the constitution is uncodified and it also has constitutional conventions which are partially unwritten. With uncodified constitution, there are no special requirements to be followed when making constitutional law. This is unlike a codified constitution which has special requirements that must be followed in order to draw principles.
The terms codified constitution and written constitution are used interchangeably and so are uncodified constitution and unwritten. It is essential to note that this usage though, it technically incorrect. Codified constitution refers to a written constitution that is contained in one single document and states without such a document follow an uncodified constitution though not completely unwritten like Parliament Acts of the UK and Basic Laws of Israel.
When evaluated as a whole system, the difference noted between an uncodified constitution and a codified one is one degree. Any constitution that is codified will be overlaid with supplementary legislation as well as customary practice over certain duration.
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Washington Mutual Bankruptcy
Washington mutual bankruptcy marks the largest case of a bank failure. Washington mutual was a popular savings bank and the largest loan and savings association in the United States until it collapsed in 2008. Washington Mutual filed for bankruptcy on 26th September 2008 and it was eventually delisted from the stock exchange in New York.
The saga that led to filing for bankruptcy started at the onset of global economic crisis. It began on15th September 2008, which was the day when Lehman Brothers filed for bankruptcy sparking a crisis. Lehman Brothers filed for bankruptcy due to the subprime mortgage loan crisis. In one year, price of the stock of this company dropped from a share of $30 to $2.
As a result, Washington Mutual’s customers withdrew deposits amounting to $16.7 billion in a span of 10 days from Washington Mutual after the Lehman Brothers’ case. This prompted the government to place this company under the FDIC control. FDIC sold its assets to the JPMorgan Chase at 1.9 billion. As the Washington Mutual’s receiver, the FDIC retained the claims Washington Mutual held against the other parties.
The move to sell the assets of the firm made debtors to file chapter 11 petitions. Eventually, disputes emerged between FDIC, JPMC, debtors and other interested parties. The disputes were centered on propriety of JPMC sale and multiple assets’ ownership. There were also angered litigations in different jurisdictions.
A global settlement agreement also known as GSA was announced in March 2010. This was incorporated in Sixth Amended Plan. In an order and opinion dated 7th January 2011, the conclusion made by the court was that the announced GSA was reasonable and fair. However, the court did not confirm Sixth Amended Plan stating that it had too broad injunction, release as well as exculpation provisions.
In a bid to address the concerns of the court, the GSA and Sixth Amended Plan were modified on 16th and 25th March 2011. FDIC, JMC, Creditors’ committee, WMI senior group of note-holders, debtors and the other parties supported the modified Sixth Amended Plan. However, equity committee, litigation tracking warrants holders, some WMB note-holders, other creditors and share holders opposed the Amended plan.
Those opposed to the plan argued that settlement negotiations were marred by improper trading. They alleged that improper trading formed the basis of their objection. According to them, the proposal of the modified plan was not in good faith and that note-holder’s settlement should be disallowed equitably.
An examiner was appointed by the court at the request of the equity holders of WMI. The examiner investigated the claims thoroughly to determine whether the settlement proposed was equitable and fair. Findings of the examiner revealed that this settlement provided a fair resolution.
On 24th February 2012, the court entered the order to confirm a Seventh Amended Plan as proposed by the WMI and co-debtor. On 19th March 2012, the settlement and plan became effective.
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Lehman Brothers’ Bankruptcy
Lehman brothers’ bankruptcy was considered as the largest in the history of economics. This is because the company’s assets were more than those of the previous giant firms to file for bankruptcy such as Enron and WorldCom. The company was also the fourth-largest investment bank in the U.S.
Why filing for bankruptcy was necessary
The move to file for bankruptcy is attributed to subprime mortgage. From 2003 to 2004, there was a housing boom in the U.S. At this time, this investment bank acquired five major mortgage lenders that included subprime lender and Aurora Loan. At first, the acquisition seemed lucrative. The bank reported profits from 2005 to 2007 with net income rising to $4.2 billion.
The stock of this bank reached $86.18 as of February 2007. This gave the company market capitalization of almost $60. Unfortunately, the housing market in the U.S already had cracks by almost the same time. Subprime mortgages had defaults that rose to even 7-year high.
On 14th March 2007, one day after its stock recorded the biggest drop in a day for five years, Lehman’s brothers recorded profit and revenues for the first financial quarter. The chief financial officer of the company stated that the company was containing home delinquencies and their impact on the earnings of the firm would be minimal. The officer also said that there were no foreseeable problems posed by subprime market to the U.S housing market and that this would not affect the U.S economy negatively.
The credit crisis that started in August of 2007 caused a sharp fall of the Lehman’s stock. During this month, Lehman’s brothers got rid of 2,500 jobs related to mortgages. It also shut the BNC unit down. Three Alt-A Aurora lender offices were also closed.
However, the company continued to be among the major players. For instance, in 2007 the firm accumulated an $85 billion portfolio by underwriting mortgage backed securities. With the new highs of the worldwide equity markets and fixed income assets prices, the stock of this company rebounded. Nevertheless, this firm failed to take advantage of this to trim the mortgage portfolio which was its last chance.
The huge mortgage securities portfolio of this company made it more vulnerable to the deteriorating conditions in the market. Its shares fell to a low of 48% on 17th March 2008 when Bear Sterns, the second-largest mortgage-backed securities underwriter was near-collapse. This forced the firm to issue preferred stock convertible to Lehman shares but the stock continued to decline.
This trend continued and in September 2008 the stock plunged to 77% with the company reporting losses worth $3.9 billion. On 13th September, Lehman, Bank of America and Barclays PLC made the last efforts to facilitate the firm’s takeover but they were unsuccessful.
On 15th September, the stock of this company plunged to 93% forcing it to be declared bankruptcy.
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General Motors Bankruptcy
General Motors filed for bankruptcy on 10th July 2009. This firm is a US auto manufacturing company that was founded by Billy Durant in 1908. Its headquarters are in Detroit, Michigan. Over the years, this company has introduced remarkable innovations in the U.S which enabled it to dominate the economy of the U.S in the 20th Century. It also dominated the auto industry in the 1950s. In 1954, this company had a market share of 54%. However, this was the highest mark of this company.
Domestic market share of General Motors has been declining steadily over the past years. This combined with global financial crisis necessitated restructuring of this company. Nevertheless, several challenges forced this firm to eventually enter the bankruptcy court and file for bankruptcy ending the long and at some point a proud, iconic history.
Worsening market and economic conditions such as those affecting equity and real estate values, tight credit markets, increasing unemployment, high fuel prices, weakening housing markets and decreasing consumer confidence have caused a decline in vehicle sales.
U.S alone had a 44.7% decrease in vehicle sales annually by September 2007. Globally, annual vehicle sales decreased by 13.2%. Being a company that is highly sensitive to the sales volume, the financial and business results of General Motors were affected negatively and significantly.
Seeking Congress assistance
The chairman of General Motors, Rick Wagoner, heads of Chrysler and Ford sought assistance from Washington during mid-September 2008. According to The New York Times, $7.5 billion was approved as of October. In the same year in November, the three heads of the auto manufacturing firms went to congress again seeking for a direct aid amounting to $25 billion.
However, Congress approved $13.4 billion only to General Motors and Chrysler. Congress also requested that the companies be restructured to secure the loans. As of February 2009, General Motors was cutting jobs, reducing its brand line-ups and closing plants.
To avoid bankruptcy, the firm announced that it needed a loan worth $4.6 billion of the $18 billion that it had requested within weeks. In addition, the company announced that it needed $12billion financial support.
Filling for bankruptcy
General Motors announced that it had lost $30.9 billion in 2008 or $53.32 per share. The firm also announced that it was spending $19.2 billion of the cash reserves it had at that time. This implied that the cash reserves of this company were as low as $14 billion when it made the announcement on February 26th 2009.
The auto task force of President Obama met Mr. Wagoner and at that time he confirmed that General Motors could no longer survive without more loans from the government. On July 10th 2009, General Motors filed for bankruptcy after which a new and government-owned firm purchased its assets. In the bankruptcy petition, the firm stated that it has debts worth 172.8 billion and assets worth $82.3 billion.
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American Airlines Bankruptcy
American Airlines bankruptcy is considered by many industry observers as a step that was long overdue. This company was among the few major airlines in the US that had always avoided bankruptcy. However, the company had to succumb to a path that is trodden by most of the other airlines in the US.
Why file for bankruptcy?
According to some industry observers the move to file for bankruptcy was necessitated by claims and losses. American Airlines made losses worth $2.1 billion in 2008, $1.5 billion in 2009 and $471 million in 2010. In addition, the company was having managerial, PR and maintenance issues. Pilot union was also demanding for the signing of a contract which included provisions for job and salary security provisions.
Employees were also bitter due to the inability of the AA to make a promising deal. Customers were also irritated by inappropriate engagement in public rants by flight attendants. There were also cases where several planes were forced to land urgently due to issues that arose from insufficient inspection such as loose seats.
There are experts who say that filing for bankruptcy was a strategy used by the American Airlines to enhance its performance. Some airlines analysts such as Jeff Kaufman were surprised by the timing of this move.
According to Jeff, the company had sufficient cash that would pay for the losses and keep the company running for another year. However, he notes that filing for bankruptcy was a sensible move because of several factors. These include the high fuel cost, tough negotiations with labor union and loss of the business customers of the company to competitors.
Until 2006, the American Airlines remained the largest carrier in the world. Mergers pushed this company to a third position in terms of the miles that paying passengers fly after the United Continental and the Delta Air Lines.
According to the management of the American Airlines, filing for bankruptcy was never a preference of this company. However, for the company to ensure its competitive future it had to file for bankruptcy. The management said that the move gave the firm resources required to order for more planes such as 460 jets and the Airbus. This would enable the company to replace its current 247 MD-80 planes which are fuel guzzlers.
The cash reserves of this company combined with cash from the current ticket sales provides the needed funds for reorganization. Thus, the airline will not need the debtor-in-possession loan required by Chapter 11.
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Role of Industrial Sector in Indian Economy
Most nations depend on industrial development for economic growth. In the Indian economy, the industrial sector is especially important since without industries, development would not be possible. The country has different sectors feeding off each other that ensure the industrial sector is balanced.
Industries that contribute to India’s economy
There are several industries that contribute to the Indian economy and they include the steel industry, airlines industry, biotechnology industry, real estate, steel, tourism, and medical, hardware and electronics energy sector and textile industry. Apart from these industries there are others contributors that are just as important to the Indian economy.
Fertilizer industry for instance contributes more than 20% to the gross domestic product while the biotechnology industry has a promising future. The real estate industry in the country has also witnessed a large boom in recent years.
Role played by the industrial sector
- Speedy income growth-The industrial sector provides a base for income growth. The industries depend on-The industrial sector provides a base for income growth. The industries depend on manpower and India has great manpower. The country enjoys per capita income that is high because of industries.
- Employment-While India is known as an agrarian economy, agriculture does not offer employment. The industrial sector in the country solves this problem by ensuring the population enjoys employment opportunities.
- Foreign exchange-The country does not have the capability to earn enough foreign exchange from exports of primary products. Industrial exports contribute to the economy once added to primary products.
- Agricultural development-It is through the industries that the agricultural requirements in India are met. Agriculture needs farm machinery that is improved, pesticides and fertilizers. In addition to this, it also needs transport and storage facilities and all these are provided adequately by the industrial sector.
- Sustained growth-Rapid development of industries in India aid in promoting communication, transport as well as agriculture. Additionally, it also makes it possible to produce consumer goods in huge quantities and at prices that are low. What is more, it also eliminates overdependence on other countries.
- Balanced development-With agriculture alone, Indian economy would be unbalanced. However with the industrial sector, the disparity is solved. The industrial sector is the energy the Indian economy needs to continue expanding.
The GDP of India requires contribution from its major industries for it to be a success. Based on the manner GDP is calculated, it is clear that the industrial sector is of great importance to the country. In regard to United States Dollar exchange rate, the economy in India is ranked as the 12th largest. Despite the global recession that has been witnessed globally, the economy in India has great potential for growth because of its industrial sector.
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Contribution of Steel Industry in Indian Economy
Steel plays an important role in contributing to the development of a country and accelerating its growth. It is also the backbone of human civilization and is used in manufacture of electrical machinery, metal products, textile and transport equipment etc. Steel is a product of a technologically multifaceted and large industry. In 2006, India ranked as the 5th largest country in production of steel globally. The country has the richest coal and iron ore mines and its cost of production is lower compared to that of other countries. The country has also maintained lead position as the largest producer of sponge iron globally. In 2010, the production of steel in the country was 1414 million tonne which was a 15% growth from 2009. If expansion plans proposed are implemented according to schedule, then the country will become the 2nd largest producer of steel globally by 2015-2016.
India enjoys several advantages because of its dominant position in the steel industry on the global map. These include the following:
- Establishment of new steel plants that have state of the art technology. This is done without dependence on aid.
- Continued modernization and implementation of technology upgrading and de-bottlenecking schemes in the old plants.
- Improved energy efficiency in the plants in regard to power and coke rate consumption.
- Use of better raw materials
- Optimum processing of its raw materials such as washing of coal, sintering and beneficiation of iron ore.
Global integration of the Indian economy and the increasing demand by sectors like real estate, infrastructure, as well as automobile locally and abroad has also contributed in making Indian steel the fastest expanding industry. According to the information available, the consumption, export and production of finished steel during April to December 2007 were up by 68.7 percent over the previous year’s record. Consumption pace growth has outpaced production making the country the net steel importer.
The steel industry in India is classified into Main producers such as Tata Steel, Vizag Steel and Sail plants, Major producers which include plants that have a steel making capacity that is above 0.5 million tonne-Essar Steel and other producers. The latter is comprised of different plants that deal with crude/finished steel production and they can be found in different sections of the country.
The critical materials in the steel industry include manganese ore, chrome ore and iron ore which are of critical importance. Their assured and timely availability and in adequate quantities and great quality on long term basis is what is required to ensure the continued growth of the sector. In essence, the steel industry in the country is one of the greatest contributors to its overall GDP.
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Contribution of Chemical Industry in Indian Economy
Chemical industry is undoubtedly the fastest expanding industries in Indian economy. It is also the oldest industry that begun soon after the country attained its independence in 1947. From that time, the industry has continued to contribute to the economic growth of the country and currently, it accounts for close to 13% of India’s gross domestic product.
The industry’s total exports grow annually at a rate of roughly 10 to 12 %. The industry is based on concept of diversification as such it is a multi-faceted and multi-product one. Depending on product categories, the industry can be divided into different sectors which include inorganic chemicals, pharmaceuticals and drugs, petrochemicals and plastics, fertilizers, pesticides, fine and specialty products such as dyes, polymers paints and other kinds of chemical products.
Through a decade of reforms in economic sector, major changes have been effected in the manner chemical industries in India operate and work. Success stories in the agrochemicals and dyes sections have boosted confidence of manufacturers who have in turn geared up and taking new challenges. The industry offers numerous benefits some of which are as highlighted below:
- Because the country is close to the Middle East, it has high value addition capacity. This is an ample and affordable petrochemical feed source.
- The cost infrastructure in the country is low and as such, it has a high expert potential. According to a report released recently, the country has the potential to reach US$ billion by the year 2015.
- In certain chemical categories, India enjoys exports advantage through establishing alliances with countries such as Russia. Also, the knowhow and expertise that is in the country means there is a huge potential in the agrochemical and dyestuff market.
- Abundance and availability of raw materials in the sector from agro based and titanium dioxide products India has the opportunity to enjoy value addition.
Growing at a 12.5 percent rate, the chemical industry in India offers a range of opportunities for local and international investors interested in the industry. The potential of the market is a major one and once this is coupled with the existing HR resources and comprehensive resources in the country, India becomes the most profitable destination especially in this new millennium. In the global production of chemicals, India stands at position 12. It is all these aspects and more that make the industry one of the major contributors to the overall gross domestic product. Also, it continues to attract investors from different parts of the globe largely because of the high profit margins the industry offers.
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Contribution of Aviation Industry in Indian Economy
The Indian aviation industry contributes around INR 330 billion to the country’s gross domestic product. The contribution the industry has made to the country’s economy in the last couple of years can best be described as phenomenal. Globally, it is one of the fastest growing industries. The entry of private operators in the industry and cut in air travel and prices, the industry became popularized in the country.
The GDP of the country has risen above 8 percent and it is expected the growth rate will continue for the coming years. In South Asia, the aviation industry in the country holds 69 percent of the overall airline traffic. What is more, the growth of airline traffic in the sector is 4 times what is recorded at international levels. The aviation industry has also contributed to employment as it supports over 1.7 billion jobs in the country. 276,000 of these jobs are supported directly by the industry, 841,000 are supported indirectly by the sector supply chain while 605,000 jobs are supported through spending by employees in the sector and the supply chain. What is more, there are more than 7.1 million people who are employed through catalytic effects of the industry.
Air traffic in India has grow at an enormous pace and it is expected that the growth will continue and exceed the 25 percent travel segment. The present scenario in the country has twelve domestic airlines operating in the country and another sixty international airlines in the country. With the continued economic growth in the country as well as its stability, the country has become the most preferred location for commerce and trade activities. The industry has also placed the largest order for aircrafts on a global scope.
The jobs available in the industry can best be described as high productivity and this is because the average employee generates INR 1.3 million annually in GVA. This is ten times more productive. Additionally, the industry has also contributed to the public finances. The sector pays more than INR 87.5 billion in tax and this includes tax receipts from social security contributions, corporation tax on profits and employees. Estimates indicate there is additional INR 9.8 billion government revenue that is raised through the aviation sector in the country while another INR 7.1 billion is raised through activities that are supported by employee spending in the sector and the supply chain.
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