Good afternoon, I am Nageshwar Rao, I am a professor of finance and economics at the school of management in IIT Bombay. And we have this finance module as part of the financial literacy program for students who are part of the college to corporate program. The first topic in the series is microeconomics, macroeconomics and fiscal and monetary policy. So, we have uploaded some slides and we also uploaded two short videos explaining what microeconomics is, what macroeconomics is and also what constitutes fiscal policy and what are the monetary policy variables and what would be required if the government wants to expand output or increase the growth rate. And what the Reserve Bank of India needs to do, if it were to control prices or let us say ensure exchange of stability and other objectives in trying to maintain the required flow of money in circulation in the economy. So, I hope you people have gone through the PPT and also the two short videos and if you have any questions that we can take up those questions, they cannot just call up or do you want me to go on for some more time or please come here, I think it is possible. Yeah, sure, you will need the mic, right. How many remote centers are connected? Good afternoon and welcome to this first face-to-face session in this exciting program on financial literacy. I am Deepak Phatak, the overall coordinator of this program and I am very happy to introduce one of my colleagues who is going to lead us through this program, Professor Nageshwar Rao on my left. Hello, Nageshwar Rao. Hi. And Professor Varadaraj Bapad who will be joining us later. These are the two lead faculty who are also assisted amply by experts from the industry. I am particularly grateful to JP Morgan and Chase for supporting this creation of the program. Rupali Chimote and Pranay would be joining us subsequently in other sessions. I am here to tell you about some mechanisms by which you can actually enhance this experience. As you are aware, we are running this course in a blended mode. What it means is that the learner would be able to learn not only from online resources but also through face-to-face sessions that we have specially planned. As you are aware, there are more than 100 remote centers which are participating. Today, so far only 43 remote centers have joined. I would request all other remote centers who also come in online so that there can be some live interaction possible later. The second thing I wanted to mention is that while many of you would have done some online courses, perhaps you do not use these online courses most effectively. So I will suggest a few mechanisms by which you can enhance the learning experience. First and foremost, when you watch the video sessions which we have tried to design in a learner-centric fashion, please do not watch them like you watch movies. Please take them as seriously as if you are attending a live lecture by a teacher. What it means is you must at the least have a notebook with you and a pen to take notes. As you would do in any live lecture hall where you attend a lecture, you would invariably take some notes. Note taking also is an art by the way. It is not expected that you take down every word that is being said, particularly in recorded versions because you can always replay a particular video in case you have any doubt. But the point is when you write down at least some points that have been elaborated in the lecture, the act of writing benefits to memorize those points and therefore assimilate in a much better way whatever is being stated. So rule number one, do not ever attend video sessions or such live sessions with empty hands. Watch these but also use the opportunity to take down some notes and always move with a notebook and a pen in your hand. Number two, the online experience is enhanced through elaborate activity on the discussion forum. Some of you would have participated in this but others may not have. Please note that all the doubts that you have, all the questions that arise in your mind should be articulated in written form on the discussion forum. We have a team of teaching assistants who will organize the discussion forum topic wise, week wise, etc. and you should post your entries and questions appropriately. As I had mentioned in my write up which was circulated to all of you, our course team will answer all the questions online. In addition our teaching faculty would be selecting a few questions which are to be answered in these face to face sessions. Moreover because we have several remote centers which are participating live will also give an opportunity for some live interaction at some selected remote centers so that there is a spontaneity in the question answer process that happens. So rule number two, take the discussion forum very seriously. That's a forum where by the way you not only raise queries but in case you believe that you have an explanation to one of the queries that has been raised or some additional points that you want to clarify over and above whatever answers have been given by the course team, please feel free to do so. Use that opportunity wisely and carefully. Ensure that you don't blast the discussion forum by variety of points which are not related to the topic. Be to the point but be brave enough to articulate your opinions and your suggestions pertaining to the topics that are being discussed. This will enhance not only your experience but the experience of all others. Rule number three, invariably when we do an online portion of the course we tend to view the video sessions alone. That is not good. I suggest that you should form small groups. Currently for example you are attending these live sessions in large groups. 30, 40, 50, 100 students in a remote center are collected together in a classroom. You know what that does? That provides a group environment where there is an implicit peer pressure for each one of you to be attentive. Secondly after such sessions you would invariably talk amongst yourselves and that discussion will further buttress your understanding of the topic. Exactly the same thing would happen if instead of watching a video session from the online course material alone you do it in a group of three or four or five people. So look at the possibility. Suppose me and four of my friends are watching a session. Each one of us has a notebook as has been instructed but let's say I hesitate in taking down notes and I tend to watch the video as if it was a movie show. What would happen is at the end of five minutes or seven minutes all my four colleagues will tell me, hey Fadak you are wasting your time. You are not written down any notes. How will you remember what has happened during that video session? This is exactly what is called as a peer pressure and this peer pressure can be actually brought about by you yourselves. Please note that there is no formal group formation that we are suggesting but I would request that each one of you should form a small group of two or three or four people and watch these video sessions together. Of course every week you will have to give an online quiz and test. It is quite possible that once you form a group then I might attempt a quiz, online quiz jointly with four of my friends. Now that is not to be done. So the next rule is please follow the ethical principles of doing an assignment or a quiz alone if it is so stipulated. It is absolutely essential and this will depend entirely on yourself. There would be temptations. For example if I have not been able to study something and I have some problems and I come across a quiz question which I cannot solve I can ask my friend Nageshwara, will you please help me. And being a friend he might be tempted to help me. But please understand that if I do that I do not learn anything really except for scoring marks which is incident. Marks are important but ethical practices are far more important than the marks that you score. So remember while I advocate forming groups for such joint weaving and joint discussions thereafter for all the course material but I also strongly, very strongly advocate that whenever you have to appear for an online test or a quiz you do it on your own alone. This matter of discipline is a matter of self-discipline. There is no vigilance, there is no invigilator, no nothing and we depend entirely on your notion of trust and honor. Indeed that is the reason why the certificate which we give is called an honor code certificate. We assume that you have performed all the assessments honorably and alone. So please remember so as to benefit maximally from the course and so as to ensure that the certificate that you get ultimately after qualifying you can proudly continue to possess it throughout your life saying this is what I have earned not because of any friend's help. I would also use few more minutes to tell you the importance of this course in our professional lives. You know we do understand a little bit about finance but most of us confuse it with plain accounting. Now there would be accounting course that you would have done I am sure as part of your engineering curriculum or as part of some other curriculum. In fact when I was a student in 94, 95, 96 we used to have a course on industrial economics where some of these things were taught to us. However because we felt that we were engineering students we neglected study of this important aspect and in any case the way the course syllabus was designed it was more like industrial accounting and such thing. However in this 21st century each one of us will be required to be fully aware of various financial products that are available in the country in the world and in fact you will have to take large investment decisions not only for yourself and your family but even for your corporate. These will be intrinsically bound with the technical problem that you are solving in the professional life and these will be intrinsically bound to the family welfare in your personal life. In both these cases it is absolutely essential that you understand how exactly does the financial world operate. This is an opportunity for you to learn. Please also appreciate that no six week course can make you an expert in every aspect of financial world. This is therefore a important introduction in which all fundamentally important principles will be covered but you will be given enough indicators for additional material to study in case you wish to subsequently carry out further learning in the same area. With this I will hand you over to the course team led by Professor Nageshwar Rao. I hope you will benefit from this course. The benefit I will once again say will not depend only on the quality material that is being prepared not only depend upon the quality interaction that we will have in face to face sessions but the gains will definitely depend maximally on your own activities. Be active, be an active participant, discuss with your friends, take notes, appear for exams on your own, do spend 6 to 8 hours per week as has been stipulated so that you may benefit maximally from this course. All the best over to Professor Nageshwar Rao. Thank you Professor Fartak. Good afternoon guys. The first session as we said is understanding microeconomics and in the second half we will try and explain what fiscal policies and what monetary policy is. Microeconomics broadly is divided into theory of the consumer and theory of the firm. In the first half we are concerned with how individuals make decisions as to what to buy, how much to buy and at what price to buy given their taste and preferences and their income. So, the consumers arrive at what is called an optimal quantity that they want to buy given their preferences and income. So, given a price and their income they would arrive at a quantity that they would like to buy and at different prices we will basically estimate the quantity that consumers would be willing to buy. Then we try and explain the relationship between price of commodity or good and the quantity that will be bought at those different prices. Basically we would also be concerned as to how this quantity demanded by individual consumers will change in response to change of the price of that good as also the price of other goods like the compliments or substitutes and so on and so forth. Similarly, we would also try and understand how the choices in terms of the quantity demanded or bought by individual consumers will change in response to changes in the consumers income and also changes in consumers taste and preferences. So, we will basically derive or estimate the quantity demanded by individual consumers at a particular price and assuming that there are let us say n consumers in the market. We will basically aggregate or sum up the quantity is demanded by each of those n consumers and derive what is called the total market demand. So, at different prices we will aggregate or sum up the quantities demanded by individual consumers and then derive what is called the market demand. In the second half, we will be concerned as to how firms decide what to produce, how much to produce and at what price to sell given the technology is employed by them and technology in economics basically means combining inputs to produce the output and these inputs typically are land capital labor and the entrepreneur will bring these three factors together to produce the output and in trying to do so, the entrepreneur incurs the risk and for which he or she would be rewarded in the form of the profit. So, the technology employed by firms will determine the costs incurred by the company or firm and that in turn will determine what is called the per unit cost to production or the average cost to production. So, they lad their own profit and then decide the price at which they would want to sell. So, the price at which firms want to sell and the quantity that they want to sell at a given price would depend on the technology employed by the firm and hence the cost structure that they will have. So, each firm will arrive at what is called a profit maximizing quantity of output. That means, they will solve problem of how to maximize their profits and choose the quantity that will maximize their profit and they will produce that much output and sell at a price which is average cost plus their profit and how much each of the firms produces and the price at which they sell will also depend on what is called the industry structure. That means, how many firms are there, whether they are competing fiercely among themselves and so on and so forth. So, at one extreme, we have only one firm let us say producing and selling the output in which case the firm knows that it can charge a higher price and earn profits which are more than normal or what are called extra normal. But, if there are a large number of firms in the industry then each firm knows that if it sells at a higher price then the consumers will switch to other companies and hence it will lose the consumers. So, each of the firms in what is called perfectly competitive market where there are large number of firms selling smaller quantities of output know that they do not have any power to charge higher prices because if they charge higher than the ruling market price then the consumers will stop buying from that company and then they will switch to other companies and that is at one end we have one firm producing and selling output which is called the Pugh monopoly and the other end we have a large number of firms producing identical or similar products that is called the perfectly competitive market and in between we have a market structure called imperfect competition where there are a few firms producing. So, there is a possibility of those firms getting together and then forming what is called a cartel and try and increase the prices. Similarly, there are branded goods that produce the companies say for example, the market for branded soaps. So, is it a perfectly competitive market the answer is no because each brand is produced only by one company so that brand is not produced by other companies, but is it a monopoly the answer is no because there are large number of competing substitutes it is basically a market let us say for soaps. So, in that sense a firm selling a branded soap has some power over pricing that product but it does not have absolute power because it cannot charge a much higher price as consumers will switch to other brands. So, it has characteristics of both perfectly competitive market as also a monopoly and hence that market structure for example, a market for branded goods is what is called monopolistic competition is characterized as monopolistic competition. So, in microeconomics essentially we will try and understand how firms behave if they know that they are the only ones are producing and selling versus if they know that they are one among the large number of firms producing and selling those goods and services. So, this is what is called industry structure influencing the firm behavior as to how it prices the product and that behavior in turn you know influencing the performance in terms of the companies profits this is what is called the structure conduct performance paradigm. The industry structure will determine how the firm behaves in terms of pricing its products and services which in turn will desire its profits which is basically measure of its performance. So, in the second half sorry in macroeconomics we will try and you know deal with issues of aggregate output of goods and services produce in the economy as a whole and the aggregate price level and you know aggregate a manufacturing output aggregate price services output aggregate output from agriculture etcetera. How the prices change prices change not necessarily in response to changes in demand and not necessarily in response to changes in the costs incurred by the firms, but the prices will also change due to changes in money in circulation in the economy. If there is more money changing a given quantity of goods and services the prices can rise and if there is less money changing a given quantity of goods and services in the economy then the prices can fall. So, there are other things that are being introduced and one is basically concerned with the total output of goods and services produced in an economy. Since we are dealing with the total output of goods and services different goods are measured in different units say for instance the output of steel is measured in tons whereas the output of let us say milk is measured in liters you cannot add tons of steel with liters of milk right. So, if we want to add those outputs which are measured in different physical units then we have to convert them into their monetary value. So, we have to multiply the quantities by the prevailing market price and we convert the those outputs into their monetary value and then add them up and express the total output as you know DOS domestic product or GDP which is a measure of the monetary value of total output of final goods and services produced in a country. So, if let us say we say the GDP of India is 2 plus trillion dollars what it basically means is the total value of output of goods and services final goods and services is 2 trillion plus dollars. So, this GDP or value of the total output of goods and services produced in an economy will also will change due to change in quantities produced as also due to change in the prices of those goods and services. So, we would like to you know we would be interested only in the growth in physical output of goods and services in which case yeah go ahead what is your question. Hello, I am Abhishek Choudhury from Institute of Engineering and Technology DAVV in the world. I just want to ask the question regarding the GDP like if we are considering a nation like India. The informal sector is so large and constitute for giving jobs to still large number of population and if you are talking about the finished good that we are considering into GDP. Then isn't it a difficult task to calculate all these the value of all these products and especially in a nation like India. Why do you think that it is difficult to estimate the value? Like we cannot have the formal record of everything that is being produced or that is being consumed. For example? Like for example the finished good we are talking about for GDP. So, like how each and every data is collected from like there are so many individuals and so many goods and everything. So, how can it be done? Okay, I will basically explain your question first and then answer it is that okay. What is asking is you know there is what is called an organized sector and there is also an organized sector. So, he is saying you know it is not difficult to estimate the GDP because there are three methods to estimate the GDP. One is called the expenditure approach wherein you add up the expenditures on final goods and services. The second approach is the income approach. You aggregate the incomes earned by people, profits earned by corporates and so on so forth. And the third one is the value added approach wherein you aggregate the value added at each stage of manufacturing. Supposing if you know we take an example of television set, we cannot include the value of components that are that go into the making of television set as also the value of the final television set in the include both in the estimate of GDP because that would amount to double counting. So, the emphasis here is on final goods and services. So, we will not include the value of components that go into making a television set. But those components that are produced, let us say which are used for servicing you know old television sets obviously would be. So, the use will determine as to which is final good which is not a final good. Say for example, if households if my mother or my wife wise wheat flour bake set and may converts it into bread, then the wheat flour that we buy is a final good. But if a bakery buys wheat flour that is not a final good because the value addition when trying to convert wheat flour into bread takes place in a bakery. But then you may ask as to why in one case the value added at home is include is not included in the estimate of GDP whereas, the value added in a bakery is included in the estimate of GDP. The answer is the value addition that takes place in a bakery is for exchange in the market place whereas, the value addition that takes place at home is for self consumption. So, all those all that value addition that takes place which is not for exchange in the market place is not included. Should it be included in the estimate of GDP or not you know there are people who say that they should be included for good reasons. But at the moment at least in the estimate of India as GDP those kinds of activities are not included. Similarly, if I wash my car myself or if I if I ask my son to wash the car because I am not paying that that service of washing the car is rendered irrespective of whether that activities paid for or not. But if I hire a person to wash my car and supposing I pay 1000 rupees per month for washing my car every day then that service rendered by that guy is worth the 1000 rupees. So, his question is there are there could be some activities that could be left out that is one part. So, yes there are some activities that are left out and second there could be let us say much smaller firms or companies that may not be filing any returns with the government or that may not be report reporting the output. That situation is you know very rare now because after the goods and service tax most of the companies have had to even much smaller establishments. Let us say Nescafe coffee shop on IIT Mumbai campus is also now registered with the GST authorities. So, they will also pay service tax. So, most industrial and commercial establishments are covered under GST. So, I do not think anybody can escape it there could be let us say much much smaller establishments that are providing services, but let us say they are not reporting it. So, those kinds of services will be excluded. So, if you are saying that you know there are some tiny industries that are not reporting their output then the central statistical organization and others will do some kind of a sampling. So, they will take a sample and based on that sample they will estimate the output of such tiny enterprises or others which are not covered. So, they will come to an estimate of the output of final goods and services produced by such tiny units or other establishments which let us say do not file reports with government agencies. Is that answer your question? Is it answer your question? Yes, it is clear now. Yeah, I will just say you know we expenditure approach and income approach you know would not yield good estimates because people do not disclose large expenditures. Let me ask you why do people not disclose large expenditures? Because if they report their income and those sort of things then they will obviously have to pay taxes on them. Yeah. So, they would try the attention of the tax guy. So, that is why if a politician or some businessman spends crores or rupees on a wedding or something they would definitely not disclose a true expenditure on such events or occasions because the tax guy will land up at their door and ask them to pay tax. So, people would not disclose the large expenditures and income approach will also not give us a better estimate because people do not disclose their true incomes again for obvious reasons. You know if a person is doing a job with a company and if he is also doing let us say on the side some business. So, he will not disclose the income from that side business simply because he or she will have to pay tax. By the way you know doing that side business per se is not illegal he would not be violating any laws of the land. But even then the person will not disclose that activity for simply because he or she will have to pay tax on that extra income. But there are some activities which are illegal per se let us say drug trafficking or any other. So, obviously people do not report such activities because they would be you know prosecuted and put behind the bars. So, there are activities that are inherently illegal there are activities that are not inherently illegal yet people do not report those activities because they would have to pay tax. Yeah. Is that clear? Yes sir. Thank you sir that is all. Any more questions? Yes sir. Yeah, yeah. Sir, there is coercion. Can you differentiate all the competition like monopolistic pure competition and perfect competition? Okay. Monopoly is a case where there is only one firm producing and selling. You guys are too young to kind of accept this as an example. But decades ago Bajai Auto was the only company producing scooters. There is no other company which is given the license to produce and sell. So, Bajai Auto was a monopoly in the scooters industry. So, you know whether a particular company is a monopoly or not also depends on the business that it is in. Say if you define if you look at Indian railways, what is the business of Indian railways? The business of Indian railways is if you define it as transporting people and goods on rails because there are other modes of transport by the way. So, if you say it is in the business of providing rail travel services then it is a monopoly. But if you say it is in the business of transporting goods and services then it is not a monopoly because there are other alternate modes of transport. Let us say you cannot charge any tariff for sleeper class because people might switch to travelling bus. Similarly, it cannot charge any fare on second AC or first AC because people might switch to travel by airlines. Similarly, it cannot charge any price on freight transporting goods because the firms might transport goods by trucks if they figure out that transporting goods by trucks is cheaper. So, earlier the Indian railways used to charge much higher tariff on freight transport and used to cross subsidize passenger travel. That was the time when the road infrastructure or network was not good. But now over the years the road and highway infrastructure has improved. So, transporting goods by trucks is also faster and it is also economical. So, Indian railways will have to factor in the diversion of the freight from railways to trucks if we when while deciding the tariff on transporting goods. So, it is no longer a monopoly now. Similarly, if you say take India post, India post if you define its business as you know carrying letters and it is a monopoly until the courier companies came into business. If you define its business as you know carrying letters and delivering some packages etcetera, then it was a monopoly. But with the advent of private couriers you know it is no longer a monopoly. Even if you do not have courier services, if you define the business of India post as you know communication, it is not the business of communication. There are alternate modes of communication. People no longer write letters now right.  There are other modes of communication like communicating by telephone, email, now a days WhatsApp and what not I mean Skype and so on and so forth. So, it is no longer a monopoly now. And we had only Indian airlines which was the airline company until the private airline companies were permitted to operate. So, Indian airlines was a monopoly in air travel business right. Similarly, the BSN at that time it was Department of Telecom. Department of Telecom was the only service provider for telephone services. Those days we did not have mobile telephony. So, essentially it had fixed telephone services that are provided by through a network of underground cables and series of exchanges and so on and so forth. It was a monopoly in the business of providing fixed telephone services. That answers what a monopoly is and at the other extreme you know what is an example of a perfect competition. Can anyone does anyone want to take a guess some example of a perfect competition. All these guys actually must be must have seen this. Do you want to guess make a some one at least one example of perfectly competitive market. Have you guys ever gone to a vegetable market? Have you guys? Telecommunications. Yes sir. Have you guys? Telecommunications. Telecommunications. Telecommunications. Yeah, you can say that. Have you guys ever gone to a vegetable market to buy vegetables for your mother? No? Yes sir. Is that not an example of a perfectly competitive market? If one vendor reduces the price, if a guy you know starts shorting that you know 1 kg tomato is 20 rupees, well others earlier the price was let us say 25, then all others would also reduce the price. Yes or no? Because otherwise the buyers will flock to that vendor who is selling at a lower price compared to the other vendors. So, vegetable market is a perfect you know example which is also known to all of us, right. Yes sir. It is clear at all. Yeah. Yeah, go ahead. Go ahead. Yeah, go ahead. What is your name? Just introduce yourself and ask the question. Introduce yourself and ask the question. We cannot hear you. I think there is a problem at your end. Just check. Yeah, check if there is a problem at your end before they can fix those. Do you have any questions? Yeah, if you could fix the problem you can go ahead and ask the question. Yeah, go ahead. Your audio is not coming. Please check your microphone. No audio from your side. Just check the audio. We are not getting your audio. Please check your microphone settings. Please check your settings. We will get back to you. Valtran Institute of Technology. Yeah, please introduce yourself and ask the question. I am Professor Lobo from Valtran Institute of Technology, Solapur. Yeah. And we have around 291 participants for your workshop. Okay. That's great. Some of my students would like to interact with you. Sure. Yeah, please introduce yourself and then ask the question. I am Mr. P. Scott. I am from IT second year. And actually my question is that when we watch the videos, I read that text. They are not understood that property that a fiscal policy is there in micro economics. No, fiscal policy is a part of macroeconomics. Yes, sir. Fiscal policy is in macroeconomics. In macroeconomics there is fiscal policy and there are two types that, contractionary and expansionary. So the one thing I am not understood is that when the tax is more, at that time the lower GDP is there in contractionary fiscal policy. So if the tax is more, means if government is receiving much more tax than how the GDP is lower. So if tax is more, the government is receiving more revenue, but what will happen to the disposable income that you will have for spending? What will happen to that? Expendage. You, let's say, you earn, you know, supposing you earn 30,000 and tax is 10 percent, right? How much income will you have to spend and save? 27,000, right? 30,000 minus 10 percent of the 30,000 is 3,000. You will pay 3,000 as tax and you will have 27,000. Yes or no? Yes. Supposing the government increases the tax from 10, I am just giving an illustration by the way. If the government increases the tax from 10 to 20 percent, what will happen? And third, from 3,000, your tax liability increases to 6,000. Yes or no? You will have only 24,000 to spend and save. Yes or no? Yes. So the income after taxes and plus what is called transfers, let's leave that out for the moment. So you earn 30,000 as salary, you pay 3,000 as tax. What is left is 27,000. That is what is called disposable income. That income is available with you for spending on goods and services and also for saving.   Yes or no? Yes. So from 27,000 it has come down to 24,000 now. So will you spend more on your consumption goods and services or will you spend less? Because 24,000 are there so I will not spend much more. Yes. You will spend less. When you spend less, similarly there are others, you know, because the tax rate is applicable to all those in a particular tax bracket. If all those people start spending less, then what will happen? Companies will have to cut down on their production because they end up selling less. So if companies cut down on their production, what will happen to the output? The question is that the fiscal policies means it is by, it is done by the government. Yes. So means government, since then government having much more taxes, if it is receiving much more taxes from the people, then they have to expand more, no. So if they are expanding more, then GDP must also increase. So why it is given that the GDP is lower if the taxes are increasing? If the higher taxes are, we are changing only one at a time by the way. You cannot change two variables and then, you know, argue on both sides. We are saying change in tax, holding everything else constant.  When we talk about impact of change in tax rate, we are holding government expenditure constant. When we are, when we discuss change in government expenditure, we are holding the tax rate constant.  Now what you have given the example is that, if suppose I am receiving 30,000 of salary and if suppose government is taking 6,000 as a tax from me, then like me there are much more people. I can answer your question, but I am just, to begin with I am saying you cannot, let us say, when we discuss impact of changes, we change one variable holding all of this constant.  So, your second part of the question is, it gets higher revenues. So, why would it not lead to expansion and output? Supposing the government increases the salaries of government employees, will it lead to higher output? If government increases the salary, then services are also increased. So, if services are increased in GDPs, so now you are coming to it. Services, services are the same, but the services are now valued at a different price. So, the output of services will not change. Just because government, let us say, increases my salary, it does not mean that my output suddenly goes up. It is just that my output, my output may go up. That is a different issue, but my output is valued at a higher price. So, there are some activities which do not go through the market. Like for example, the services of government employees. It is not as if I go to a market and then sell my services to the highest bidder. No. So, those services that do not go through the market are valued at cost. What is the cost of getting those services? It is just that the government is reversing the cost of those services. So, if you have made it your home, who is coming and working for, let us say, half an hour or 45 minutes and washing dishes. Earlier, you are paying 800 rupees. Now, you start paying 1200 rupees. As the output has gone up, she will do the same thing. Of course, I am not adjusting myself to the services rendered by made, but I am just giving an example. Will the services rendered by the made go up? Just because you would, let us say, double the monthly salary. She will continue to do the same thing. Yes or no? Yes or no? Sir, I got your point. Means, you want to say that even if the taxes are increased, then the services are not given to the public. Some of the services or some of the money given by government will increase the salary. So, can I displace this here? I can write with normal pen. See, there is something called aggregate demand, which is a function of consumption demand plus investment demand plus the government's demand or government's purchase of goods and services. And the firms will try and produce an output, which is equal to the total demand for goods and services. We are saying increase in tax rate would lead to decrease in disposable income. And this consumption C is a function of the disposable income. If disposable income decreases, then consumption spending, spending by individuals and households on consumption goods and services will decrease. This decreases. Holding others constantly by that, these two will have to be held constant. If you hold these two components of the aggregate demand constant, if one component of the aggregate demand decreases, then the firms will also cut down on their productions and the output will also decrease. Is that clear now? Okay. Is that clear? Yes. You are saying with the higher tax revenues, government will increase this. No, we are not. You are saying that with the higher taxes, the government will increase this. We are not constricting this. At one point, we are discussing change in one of these three. When we change one, we are holding the other constant. Thank you, sir. Is that clear? No, sir. My name is Pratik from WIT. I want to ask just a simple question regarding business. How can we build a scalable model in business? How can you build a? A scalable model in business. What does that mean? A scalable model means regarding now profitability. Two things we have, that is profitability and scalability. Once profitability has been done, then we will be moving shifting to scalability. How can I actually, in business, in any kind of business, start working on a scalable model? How can I make my business scalable? What are the methods or models? I don't know about the models. For example, now, Paytm, Ola, or Amazon. These are business' scalable models. These are all scalable models. What is the difficulty in scaling up Ola kind of model? What actually we have to do? I don't know actually. How can I make my business scalable? For that, you need to understand how that business works. How does the Ola business model work? We don't know. Then you should know that first. It is simple. They basically provide that navigation support, etc., and they provide the server. The taxi guys will log in. Once they log in, they can be with Ola for maximum, this is what I know for about 12 hours or something like that. So, using their Google location tool, if you want to book a taxi, it will locate the taxis that are closer to your location. Then it will give your call to that particular cab. It is basically aggregation of caps. For doing that, for providing that support, Ola gets 20% cut of the fare. The remaining is the taxi guy. Taxi guy will also benefit because he is getting business from point to point.  But now, he will take you to some other place. He will drop you off and there some other guy has booked an Ola cab. From that point, he will go to some other point. So, without wasting fuel, without wasting his money, he is actually able to increase his revenues. For providing the support, the Ola guy for the infrastructure that he puts in place and other payment of gateway, etc., they are taking 20% cut. Now, how do you scale it up? You have to basically get more cab guys to opt for Ola or Ola guys will have to buy cabs themselves and then rent out to the drivers. That is how you scale up. Yes or no? Yes, sir. Right, sir. Thank you. Good afternoon, sir. Yeah, good afternoon. Myself, Namanbam sir. Sir, you spoke about the monopolistic economy and monopolistic competition. Monopolistic competition, yeah. You spoke about the scooter, that Bajaj scooter. If we have one-sided business production and a monopoly production, then it's a wonderful and it's well and good. But what if nowadays... It's well and good is your... By the way, I never said it's well and good. Having only Bajaj Auto is well and good is not what I said. You are saying it. Okay? Yes, sir. Don't attribute that to me. It's like that monopoly having is too good nowadays. But... Who says that? Who says that? Sriman says, sir. Monopoly... Monopoly is good. Monopoly is good. Who says monopoly is good? Monopoly, one-sided production, one-sided sale, all the profitable thing, property is increasing exponentially. Monopoly is good. Just ask other guys if they feel that monopoly is good. Just ask them. Ask other guys who think that monopoly is good.  Just ask them. Everyone. Whoever thinks that monopoly is good may just put their hands up. Monopoly is good. No, I think... Just I want to ask that if that duplication is increasing exponentially and even holding leading to inflation, so how to balance the graph of economy in this situation, sir? So, your question is, if you have only one company producing and selling a product versus having more than one company producing and selling the product. So, your question is, if you have only one company producing and selling, the cost of producing would be lower because having more than one company would lead to what we call suboptimal outcomes in terms of production. So, we are not assuming that the demand for a product is so small that only one company can exist in that industry. The reason why we have introduced what is called industrial licensing, why the government ensured that there is only one company in the scooter industry, only two companies in the passenger car industry, only two companies, this Hindustan Motors, which is producing ambassador cars and Premier Automobile Limited, which was producing this... What is that car? Premier Padmini. Only two car companies and only one scooter company, only one television company, ECIL producing ECL brand of television, etc. The logic then was that we had limited amount of resources, so there is no point in letting more... The demand for those goods is so small that it does not make sense to permit more than one company to produce and sell those goods. But over the years, over the decades, as the economy grew, the incomes of people have also gone up. So, when incomes go up, the demand for these manufactured goods will also increase as the demand increases. There is scope for more than one company, but then the existing companies would not let new companies get license and come in and start making those products. I do not want to take names. If there is one scooter company that has been operating for decades, enjoying that monopoly power. So, it would not let another company to get a license and start making the scooter simply because if another company comes in, it will put downward pressure on the prices of scooters and its monopoly profits will decrease. That is the reason why the existing company would not let a new company get a license and start making. This is where the economic rationale for introducing industrial licensing is good, but then that led to an excess between corporates, bureaucrats and politicians. The politicians and bureaucrats will give the licenses. The existing company will basically take care of those bureaucrats and politicians to ensure that a new firm does not get a license. Existing scooter company will say, look, I have been operating in this industry for so many decades.   I would expand capacity, set up a new plant at the existing premises or new plant at some other place or expand existing capacity and produce more scooters. They will get a license to expand capacity, but they will just sit on it. They will not expand the capacity because even if they produce and sell more scooters, the price will come down. For a continue to enjoy those monopoly profits, they will share a part of the monopoly profit with the bureaucrats and politicians. That basically is the genesis or basis for the nexus between corporate leaders and bureaucrats and politicians. The bureaucrats and politicians will ensure that no new company will get a license. In return, the corporates will pay off the bureaucrats and politicians either bribes directly or through party funding and so on and so forth. See, there were cases. There were times when a person had to pay a deposit for a Bajaj scooter and wait for three years. You guys won't know all those things because you are much younger. So, there is absolutely no reason as to why people have to wait for three years to be able to buy a scooter. That is simply because this Bajaj auto would not let a new company come in. Is that clear? So, monopoly is not good, by the way. Don't say that monopoly is good. I never said that. Did I say that in the video lecture on PPT? Did I say that? No, monopoly is definitely not good. Monopoly is good for the company guys. Monopoly is good for Rahul Bajaj and his children. Monopoly is not good for us who are buyers. For consumers, it is definitely not good. We will end up paying a much higher price. Not for consumers, sir. It is that if anyone wants to become an entrepreneur, then it would be a monopolistic agent that... If you want to become an entrepreneur, you would love to enjoy monopoly. You would want to produce only good that is not produced by anyone else. For that, you need to come up with a unique idea. So, in an industry, if you come up with a unique idea that cannot be copied by others, if you come up, if you invest resources in R&D, come up with a new product and if you enjoy patent production on that, for the patent period, you will enjoy monopoly. Assuming that during the... Supposing patent production period is 14 years. During those 14 years, if no other company comes up with a competing product, then you will enjoy monopoly for those 14 years. And that, again, is required because unless you provide that protection, companies will not invest in R&D. Companies will invest in R&D and bring out new products only if they are sure that they are going to enjoy production for a limited period because they want to reap the benefits of their investments in R&D. Does that answer your question? You would love to have a monopoly, but consumers do not prefer a monopoly. Any more questions from this colleague? Any more questions? Valchit College. I have to necessarily come to a particular location and ask her. I will just stand up and ask from their place. Good afternoon. Asia Pacific Institute of Information Technology. Yeah, go ahead. No audio from your side. We cannot hear you. Please check your microphone. We cannot hear you. Please check your audio settings. This is the problem with your microphone. Audio. Yeah, yeah. Just check your audio. Please check your audio settings. Please check the audio. Savita Engineering College. Hello, sir. My name is Srishma. I want to ask you a question. What is your measures to eradicate dumping systems? Measures to? What is dumping? Eradicate dumping systems. What is dumping? For example, if this book is sold here for 10 rupees, in another country it is sold for 5 rupees. That is what is called dumping? Yes. So, dumping is practice of selling at variable cost plus. See, out of the total cost, some costs are fixed and some costs are variable. As a fixed cost are the planned cost. It is a fixed cost. But the variable labor, if you are hiring workers every day to adjust the level of production or output, then that is variable. Every day you are hiring workers and then paying them wages. That is a variable cost. So, if let us say companies from a country are recovering the fixed costs from their domestic sales and they are selling output at variable cost plus pricing in other countries. That is what is called dumping. For example, Chinese steel companies, they recover the full price from domestic sales. They sell steel at total cost plus price. That is fixed cost plus variable cost plus price. That is plus some percentage of the profit. But when it comes to, they have the capacity to produce steel. So, they will produce extra steel, additional steel in excess of what is demanded at home. That extra output is sold, let us say, in India at variable cost plus pricing. Then the problem is the domestic steel companies will lose out. Domestic steel companies not only have to cover variable cost, they also have to cover their fixed cost. They cannot sell their output at a price which is charged by Chinese companies. Chinese companies can charge a lower price which is variable cost plus price because they have recovered the fixed cost from domestic sales. So, that is what is called dumping. So, the Indian steel companies will complain to the Indian Commerce Ministry, saying that those Chinese companies are dumping steel in our market. And they also have to establish a case. They will submit their cost structures to the government. They will also collect and submit information on the cost structures and the prices that are charged by Chinese companies at home and so on and so forth. And establish a case of the Chinese, let us say steel company. I am just giving example. Chinese companies were dumping steel in India. So, when they do that, then the government of India will come up with anti-dumping tariffs. They will, let us say, increase the import tariff on such imports. So, if one unit of steel, let us say, I am just giving example, is sold at 1 lakh, whereas domestic steel companies cannot sell at less than, you know, 2 lakhs. Then if the government imposes 100 percent tariff, right, even if they are dumping, even if they charge 1 lakh per unit with 100 percent tariff, they have to pay 1 lakh as import or anti-dumping tariff. And the landed cost of imported steel in steel will become 2 lakhs or more than 2 lakhs because they also have to add the transportation cost, right. So, the other two tactical dumping is the imposition or living of anti-dumping tariffs. Is that clear? First of all... First of all, does it has any effect in our GDP? What, which one? This dumping system. If you permit dumping, then, you know, consumers at home will not buy steel from our Indian steel companies. They would rather buy steel from those Chinese companies which are charging variable cost plus price. So, that obviously will lead to decrease in our GDP, right. Yes or no? Consumers will switch from Indian steel companies to Chinese steel companies because for them, you know, it does not matter. They want to buy steel at a lower price. The Chinese steel companies are dumping steel in India. If consumers, industrial consumers and others switch from Indian steel, buying steel from Indian steel companies to buying steel from Chinese steel companies, then obviously Indian steel companies will have to cut down on their production. If they produce less, then obviously it will have consequences for our GDP. Graphnam, sir. Graphnam. What do you suggest to the government to promote savings and investment in India before coming Union budget? Your suggestions to improve savings and investment in India? Like we have the Union budget which is to be held on February 28th. Yeah. So, if you want to promote savings, then they have to offer incentives to save. One of the incentives is essentially, you know, give an incentive like, you know, if people invest, say, 50,000 rupees in infrastructure bonds, then the amount invested in infrastructure bonds will be exempt from tax. If you do that, then supposing I am in 30% tax bracket, if I invest 50,000 in infrastructure bonds, then I am going to save 15,000 on tax. So, obviously it is an incentive for me to save and invest 50,000 in infrastructure bonds. And if more people like me do invest 50,000 of our annual income in infrastructure bonds, one, you know, I am saving more given the incentive from the government. And not only that, those resources raised by sale of infrastructure bonds can be invested in infrastructure projects. Let us say by building national highways or airports or new power plants and so on and so forth. These are all physical infrastructure projects. Thank you, sir. Right. So, government has to give what are called fiscal incentives to promote savings and investment. Yeah. Hi, sir. Hello. I am Svetha. The rural demand in India has been highly instrumental in improving the aggregate demand in India in the recent years. Do you agree with this? Rulers are, sorry? Rural demand in India has been highly instrumental in improving the aggregate demand in recent years. Do you agree with this? I do not know. I do not have the data unless I see the data. I cannot respond to this. It may be possible if, you know, if all the jandan accounts that are created have received money, let us say from unknown sources and if they actually get some cut out of that amounts that are received in those accounts and that money is fueling the rural demand then perhaps yes. But I do not have data on that. I cannot often respond to your query. What are the major economic indicators in India offering to you, sir? Major economic indicators. Indicators. Indicators. What do you want to do with those indicators? What do you want to do with those indicators? I cannot understand your question. What do you want to do with those such indicators? I need to know offering to you what are the indicators. So, GDP growth is one growth in per capita GDP that is GDP divided by the total population is another index of industrial production, index of agricultural production. These are all different indicators. Why is that so? Why is that so many? GDP growth rate is if our economy is growing at 6.5 percent that is an indicator. I mean overall economy is growing at 6.5 percent. So, if our economy is growing at 6.5 percent, the advanced economies are growing at 1, 1.5 percent or 2 percent, then we are better or we are doing much better compared to those advanced economies. Of course, there is going to be this base effect, but still even after the base effect, we can claim to be the fastest growing economy and then attract foreign investments and so on and so forth. A per capita GDP is an indicator of the general welfare of citizens. What is the average annual income of a citizen? So, that is GDP divided by the people. Many would criticize that GDP per capita is not a measure of welfare of an average citizen because the income distribution is skewed, meaning a large part of the income is cornered by very few people. Whereas, a large number of people actually get much less of the total income generated during the process of producing the output of final goods and services. Let us say Mukesh Ambani will get much more than an average citizen. Similarly, the rich are becoming richer and poorer. This is a common refrain that people say. Large portion of the income generated is cornered by few people whereas, a large majority of the citizens do not earn that much. So, average is influenced by the extremes. If you have large amounts and small amounts on either side, the average will be affected. The average is going to be affected by the extremes. Hence, people say GDP per capita is not a good measure of welfare of an average citizen. So, that is when Prof. Amritsen came up with the Human Dolument Index. The Human Dolument Index is some measure of welfare of people. So, that is what it is. Hello sir. My question is, you were talking about GDP. So, the current rate is 7.3 and the World Bank has projected it to 8.3 this year. Do you think this is possible? 8.3 is during the next year. Current year growth rate is around 6.5%. That they are saying next year 18, 19 will go up to 7 plus and 1920 that there is year after. These are all estimates. So, for coming up with those estimates, they will have some set of assumptions. So, essentially if all those assumptions are valid, then the growth rate is going to be as expected, somewhat closer to that. But if there are some disruptions like the demonetization or GST or whatever, if we have let us say bad monsoons, two consecutive bad monsoons, then the aggregate output will go for a toss and the aggregate demand will also be adversely affected. And aggregate output is a part of the GDP and because if the rural demand declines, then the manufacturing sector output will also decline due to decrease in rural demand. So, there are many things that will affect the GDP and its growth. My question is, is it achievable with this current government policy? I am saying that it is achievable provided you have favorable conditions. Those favorable conditions are good monsoon and reasonably good demand for our goods from other countries. And so on and so forth. So, if you have those favorable conditions without any disruptions, then yes. Supposing in 2019 elections, you do not have a strong government. If it is a coalition government, then there is bound to be a problem. For every policy to go to government decision making, policy making is not going to be decisive. If government policy making is not decisive, firms will not be confident of making new investments. If firms are not confident of making new investments, they would not add new capacities. If they do not add new capacities, then the industrial output will not go up. If we have a bad monsoon, then the aggregate output is going to decrease. If some adverse international event, if let us say US and North Korea, there is a problem there and as a result, the stock markets and others crash. And as a result, demand, foreign demand for our goods and services decreases. Then our exports will suffer. So, there are different things. I am saying if favorable conditions prevail, then it is possible to achieve. I am not an expert. This is a response to your question. Nobody can tell you whether it is achievable or not. These are all estimates based on a set of assumptions. What are those set of assumptions? I do not know. Thank you, sir. Hello. Sir, what is the role played in inflation and real GDP? What is the role played? Played in inflation other than inflation and real GDP. So, real GDP is basically the physical quantity of output. So, what is the role played? If the business confidence is high, if the demand for manufactured goods and services is high, then the firms will produce more and sell more. If the demand for our exports is high, then firms will not only sell at home, they will also sell the output of goods and services in other countries. So, these are the different things that will decide the growth in real GDP. Sir, if tax increases continuously, what is the impact on GDP? What is the impact on? GDP. If tax increases continuously. Continuously, what is the impact on GDP? I have answered that question earlier. Were you guys there online that time? One girl from that Walchin College of Engineering has asked this question. I have answered it before. Were you guys online that time? Yes or no? Audio quality is poor, sir. Now? Audio quality now is poor. Hello? Yes, sir. Then you cannot even hear what I say, right? I am asking you if you are online, if you had logged in earlier because I have answered this question when a girl from Walchin College of Engineering has asked the same question. There was a technical problem, sir. There was then? Hello? Sir, on that time we are facing some audio problems. Only we are uneducated. Can you repeat the answer again, please? Yes. Thank you, sir. So, if tax continuously increases, what do you think will happen? Sir? What do you think will happen? GDP will increase or decrease? Sir, increase, sir, but quantity demanded decrease. GDP will not increase. GDP will decrease because you will have less income after tax to spend on goods and services. If people have less income after tax to spend on goods and services, if they start buying less, then the companies will cut down on their production. And hence, the aggregate output of goods and services decreases with increase in tax. Is that clear? Yes. Thank you, sir. Thank you, sir. IES College of Technology. Do you have any questions? Yes. Good afternoon, sir. Yes, good afternoon. Sir, I am Shubhanshu from IES College. Yes, first year. Yes, go ahead. Sir, my question is that the lake of marketing supports small-scale industries, lake market knowledge with the regard of the competition. It is not successful due to market trends, sir. For example, if the China product in India is at low cost, it is financially very progressive, but the India product is not supportive for our country. Why, sir? How can you prove that this trend? So, Chinese companies are producing on a large scale or what is called the mass production. If they produce on a large scale, then the per unit cost of production or the average cost of production would be much less. China is considered the factory of the world. They are producing or manufacturing not only to sell in China but also to sell in many other countries. So, they have created large capacities. They have created large capacities and produced at a much lower average cost or per unit cost. Then the Chinese companies can sell their output at a lower price. One can question the quality of those Chinese goods but they are competing only on price or cost. They have the ability to produce at a much lower cost. That is why they are able to sell at a lower price given the scale of production. Over the years, they have also improved their production or manufacturing process to cut down the cost further. Whereas, our Indian companies never bothered to export. They never considered selling in the export market. The Indian companies were never encouraged by the government also to sell in the export or international market. That is why Indian companies never thought beyond the Indian or the home market. That is the reason. It is the sheer difference in scale of production. If one company produces at a large scale, it is per unit cost of production. That is cost per unit of output produced will be significantly lower compared to another company whose scale of production is much smaller. Is that clear? Disconnected. All this that I have said is gone in the end. Visweshwarya National Institute. Hello sir. Hello. My name is J. M. Lajena. Hello sir. Hello, yeah, go ahead. Yes, my name is J. M. Lajena. I am from V. N. I. T. My question is, what is the difference between pure monopoly and monopolistic competition? How the pure monopoly creates significant role in increasing the pricing power in the company? When it comes to monopolistic competition, it is not important role in pricing powers. If you are not, if supposing you are the only seller of vegetable in the market, will you charge a lower price or a higher price? Right? If there are ten other vegetable vendors, will you charge a higher price or a lower price? Lower price. That means pure monopoly represents one vendor. Yeah, only one company producing and selling their output. The examples are, we had only Indian Airlines in the domestic airline industry business. We had only Department of Telecommunications in the telephone services business and so on so forth. Right? If there is only one firm and of course, my favorite example, Bajaj Auto. Bajaj Auto was the only company producing and selling scooters. There is no other company that is given license to produce and sell scooters. So, Bajaj Auto could charge any price that it wanted and there are times when people paid a deposit of 3000 or 4000 whatever and waited for three years so much so that there is so much of deposit money. People are giving money in advance for a scooter which is going to be delivered three years after. So, they have collected all that money and they are actually running a bank inside. They have a huge treasury.  You have to invest that in a portfolio of different securities. So, they were actually running a bank inside. So, to raise capital for them is much less expensive simply because they are getting the money three years in advance before they delivered the scooter. Right? But today they can they do that? Can they do that now? The answer is no because you have hero motors, you have Honda motor company, you have kinetic motors, you have TV, TVS scooters and so on so forth. So, will anyone pay 3000 rupees as advance and buy wait for three years to get a Baja scooter? The answer is no. But earlier they had no other option because that is only company that is producing and selling scooters.   My name is Brahmin Bihari. Yeah. I want to know how these exchange rates works just like 1 dollar is equal to approximately 63 or 64 rupees. So, these are set, these are vary or these are set. They are not set. It depends on the inflow of foreign exchange and it also depends on what is called the demand for foreign exchange. Inflow of foreign exchange meaning Indian companies are selling goods and services abroad. They are earning dollars. Yes or no? Yes, sir. They will bring, they will bring those dollars, sorry. Yeah, go ahead. Yes, sir. Yes, sir. So, companies, Indian companies are exporting goods and services and earning dollars. They will bring those dollars and convert them into rupees. They will enter the foreign exchange market as sellers of dollars. Similarly, there are foreign companies that are bringing in money. There are foreign investment companies called the FIS who bring in money to invest in Indian stock markets. There are other companies that are bringing in dollars to invest in the form of what is called foreign direct investment. Supposing Honda Motors sets up a factory in Gurgaon. That is a foreign direct investment. They are bringing in Japanese yen or dollars and converting that into rupees and investing in India. So, foreigners are bringing in dollars. Indian companies are selling exports in the international market and earning dollars. So, all these guys are sellers of dollars in the foreign exchange market. Similarly, there are companies that import goods and services. So, for them to buy imports, they need to buy dollars.  So, for example, we buy 70 percent of our crude oil requirements from the international oil market. So, to buy that crude oil, we need to have dollars. So, government and government companies like the government oil refinery companies or reliance petrol and etcetera will buy crude from abroad. For that, we need dollars. Similarly, there are companies that depend on imports. Maruti Suzuki or Suzuki Motor Company now will get some components from Suzuki Motor Corporation in Japan. To buy those components, they need to have dollars. So, basically if the demand for dollars is more than the inflow of dollars, then the rupee dollar exchange will go up. But, if the inflow of dollars is more than the demand for dollars, then the rupee dollar exchange rate will move down from 63 to 62 or 61.  Does that answer your question? Thanks. Yes, sir. Thank you, sir. So, we will take our tea break for 15 minutes and then come back. By 4 o'clock, we will come back. Please, you can also have a cup of tea and then come back. How is it going? Okay, right. Some of those guys are asking some questions.