Indian Economy, 5th edition (129 page)

The pension fund managers manage three separate schemes, consisting of three asset classes, namely (i) equity, (ii) Government securities, and (iii) credit risk-bearing fixed income instruments, with the investment in equity subject to a cap of 50 per cent.

Ninja

A mortgage business terminology became common word after the US subprime crisis of mid-2007 which is an acronym for the borrowers with no income, no job or assets.

Nominal value

The value of anything calculated at the current prices. It does not include the effect of inflation during the periods and gives misleading idea of value.

NON-WORKERS

The
Census of India
defines non-workers as the persons who did not ‘work at all’ during the reference period. They constitute –

(i)
Students who did not participate in anyeconomic activity paid or unpaid,

(ii)
Household duties who were attending to daily household chores like cooking, cleaning utensils, looking after children, fetching water etc. and are not even helping in the unpaid work in the family farm or cultivation or milching,

(iii)
Dependants such as infants or very elderly people not included as
worker
,

(iv)
Pensioners drawing pension post-retirement, not engaged in any economic activity.

(v)
Beggars, vagrants, prostitutes and persons having unidentified source of income and with unspecified sources of subsistence and not engaged in any economically productive work.

(vi)
Others, which includes all Non-workers who may not come under the above categories such as rentiers, persons living on remittances, agricultural or non-agricultural royalty, convicts in jails or inmates of penal, mental or charitable institutions doing no paid or unpaid work and persons who are seeking/available for work.

[Also see entry
‘Worker’
also.]

NORKA

Indians work abroad and
remit
much of their earnings back home. Kerala is a state where non- residents contribute significantly to the state’s resources. Keeping this important revenue channel in mind, the Government of Kerala launched the department of Non-resident Keralites’ Affairs (NORKA) in 1996 to redress the grievances of Non-Resident Keralites (NRKs). NORKA is the
first
of its kind formed by any Indian state.

It makes efforts to solve the grievances raised in petitions for remedial action on threats to the lives and property of those who are left at home, tracing of missing persons abroad, compensation from sponsors, harassment from sponsors, cheating by recruiting agents, educational facilities for children of NRKs, introduction of more flights, assistance to stranded Keralites, etc.

NORKA has established
NORKA Roots
that acts as an interface between the NRKs and the Government of Kerala. Some important
objectives
are creation of a heritage village for parents of non residents, cultural exchange programmes, promotion of Malayalam language, employment mapping, maintaining a data base etc.

Normal goods

The goods whose demand increases as income of the people increases. It is just opposite of
inferior goods.

Null hypothesis

An idea that is put to the test. In econometrics, experts start with a null hypothesis (i.e. a particular variable equals a particular number), then crunch the data to verify it in accordance with the laws of
statistical significance.
The chosen null hypothesis is often just opposite to what the experimenter believes.

Statistical significance
means that the probability of getting the result by chance is low. It is most commonly used measure is that there must be a 95 per cent chance that the result is right and only 1-in-20 chance of the result occurring randomly.

Numeraire

A monetary unit which is used as the basis for denominating international exchanges in a product and financial settlements on a common basis. For example, the US dollar being used as the numeraire of international oil trade, the Special Drawing Rights (SDRs) as the numeraire of the IMF transactions, etc.

NVS

Non
v
oting Shares (NVS) are the equity shares not having right to vote at the general meetings of the company. But these shares get higher dividend than the shares having voting rights. A company in India may issue such shares maximum to the 25 per cent of the total issued share capital and such shares cannot get more than 20 per cent higher dividend than the shares with voting rights.

Oil Bonds

Over the last few months there have been many reports on India state-owned oil refining companies like IOC, BPCL, and HPCL reeling under the impact of the rise in crude oil prices. These companies have been hit as they are unable to pass on the rise in price to the consumer due to heavy subsidies on some products. With the oil companies being heavily impacted in the first quarter of this financial year, the government has finally agreed to a package, which proposes issuance of special oil bonds.

The oil bonds are special bonds issued by the government to partly compensate state-owned oil companies for not increasing the retail prices of products like LPG and
k
erosene in line with the rise in crude oil prices.

Okun’s law

Based on the empirical research of
Arthur Okun
(1928–80), the law describes the relationship between unemployment and growth rate in an economy. As per it, if GDP grows at 3 per cent p.a., the unemployment rate would not change. In the case of faster growth rates, every extra above the 3 per cent will have a decrease in the unemployment rate by its half (i.e., a 4 per cent growth rate will decrease unemployment by 0.5 per cent–half of 1 which is the extra above 3 per cent). Similarly, a growth rate below 3 per cent will have the same but opposite impact on unemployment (i.e., increases it).

Though the law was perfectly correct for the period of the US economy Okun studied, it may not be valid today in either US or anywhere else. But in general, the law is still used by experts and policy makers as a rule of thumb to estimate the relationship between growth rate and job creation.

Open market operation

An instrument/tool of monetary policy under which sale/purchase of government Treasury Bills and bonds takes place as a means of controlling money supply.

Opportunity cost

A measure of the economic cost of using scarce resources to produce one particular good or service in terms of the alternative thereby foregone, also known as the
economic cost.

Outcome Budget

An outcome budget measures the development outcomes of all government programmes. For instance, it will tell a citizen if money has been allocated for building a primary health centre, whether the centre has indeed come up. In other words, it is a means to develop a linkage between the money spent by a government and the results, which follows. The concept has developed in many democratic systems to make budgets more cost-effective. According to experts, it signals the emergence of an important tool for effective government management and accountability. Earlier too, there have been efforts to bind government expenditure to results, like zero-based budgeting
.
But experts acknowledge that an outcome orientation is a better means to achieve the same objective. In India, the central government decided that with effect from the fiscal year 2006–07, it will put up in the public domain information about spending by ministries so that all stakeholders, including the people’s representative, civil society and the intended beneficiaries of the schemes and projects can scrutinise how well a project has been implemented. This will ensure value for money for government expenditure.

This means, every ministry would have to present its preliminary outcome budgets while proposing its demand for grants to the Ministry of Finance. It is a sort of examination of expenditure before they are made, instead to a post expenditure scrutiny. The Expenditure Finance Committee, for instance, which sanctions government plans of upto Rs. 100 crore, has recently modified its rules and decided to ask of real definition of outcomes at the stage of planning a programme. ‘At the end of the year, we should ask not how much has been spent, but what has been achieved,’ the Finance Minister has said explaining the rationale for the exercise. Admitting that converting outlays into outcomes is a complex process, which may differ from ministry to ministry and programme to programme. The Finance Minister said administrative ministries have to develop a commitment to make the exercise successful.

In addition, converting outlay into outcomes will require ensuring the flow of right amount of money at the right time to the right level, with neither delays nor ‘parking’ of funds; effective monitoring and evaluation systems, which indicate the areas requiring further calibration and honing of processes to deliver the intended outcomes; and the involvement of the community or target groups for whom the schemes are meant.

The exercise is a joint effort of the
f
inance
m
inistry and the Planning Commission. The latter gave final shape to the consolidated Outcome Budget of the administrative ministries after detailed discussion with them. The document will also be put up on the web for the people to give their comments.

A new division called the Programme Outcome and Response Monitoring Division has been created within the Planning Commission to co-ordinate the initiative. The Division will try to bring a fair
d
egree of uniformity of approach across the
m
inistries, but with due regard to the special nature of their collective responsibilities, programmes, and projects. This means that while it is relatively easy to find out if the defence ministry has spent its budget to buy a new weapons system, it is far more difficult to establish if Rs. 100 crore spent on a block has helped families to move above the poverty line. So the yardsticks have to take into account such differences.

Some of the common yardsticks to be employed to measure outcome include standardising the unit cost of delivery, bench-marking the standards and quality of outcome, and capacity-building of requisite efficiency at all levels, in terms of equipment, technology, knowledge and skills. Accordingly, implementing agencies will have a clearer idea of what is expected of them, and can be assessed against agreed performance indicators.

Over the counter

The financial papers/securities which can be bought or sold through a private dealer or bank rather than on a financial exchange. The term has its use in the non-financial world too–purchasing medicines from a medical store without the doctor’s prescription is an over-the-counter deal in drugs.

Parallel importing

A type of arbitrage where an independent importer buys product of a particular supplier at low price in one country and resells it in direct competition with the supplier’s distributors in another country where prices are higher.

It promotes free trade and competition by breaking down barriers to international trade and undermines price discrimination between markets covered by the suppliers.

Pareto Principle

The maximisation of the economic welfare of the community. Named after the Italian economist Vilfredo Pareto (1843–1923), this points to a situation in which nobody can be made better off without making somebody else worse off.

By an efficient use of resources an economy is able to do so i.e., without making somebody else worse off, somebody might be made better off. In reality, change often produces losers as well as winners. Pareto optimality does not help judge whether this sort of change is economically good or bad.

Parkinson’s law

A proposition by C. Northcote Parkinson which suggests that work expands according to the time available in which it is done.

Penny stocks

Very low-priced shares of small companies which have low market capitalisation. The term made news in mid-2006 when some of the ‘penny stocks’ did show a high rise in their trading prices in India at the BSE as well as the NSE.

Phillips curve

A graphic curve depicting an empirical observation of the relationship between the level of unemployment and the rate of change of money wages and, by inference, the rate of change of prices.

It was in 1958 that an economist from New Zealand, A. W. H. Phillips (1914–75) proposed that there was a trade-off between inflation and unemployment–the lower the unemployment rate, the higher the inflation rate–governments simply need to choose the right balance between the two evils.

Piggyback loan

A term associated with mortgage business got popular in the wake of the US subprime crisis mid-2007. Piggyback loan is a second mortgage enabling a borrower to buy a house with little or no equity.

Pigou effect

Named after Arthur Cecil Pigou (1877–1959), a sort of wealth effect resulting from deflation/disinflation (i.e., price fall) – a fall in price level increases the real value of people’s money, making them wealthier inducing increased spending by them; higher demand creation leads to higher employment.

PFRDA

In 2002–03, the government announced its intention to move toward a new pension scheme. The reason for this change was the growing liabilities of both the Central and state governments on account of pension payments. These liabilities are discharged by the government out of general revenues, instead of a specific dedicated sustainable fund. Recognising the inherent dangers, an interim Pension Fund Regulatory Development Authority (PFRDA) was set up on January 1, 2004.
s
ubsequently, the Interim authority was disbanded and an
o
rdinance was promulgumated in late December 2004, followed up with the PFRDA bill in the budget session of Parliament.