HIGHER LEARNING PROGRAMME ECONOMICS- MONEY AND CREDIT Q.1: In situations with high risks, credit might create further problems for the borrower. Explain. Ans: Whether a credit would be useful or not, will depend on a number of factors like - risks involved, whether there is some support against a loss, terms of credit etc. It is a fact that in situations with high risks, credit might create further problems for the borrower. For example, credit taken by farmers for cultivation might create problems for the farmer at some times. Crop production involves high costs on inputs such as HYV seeds, fertilizers, pesticides, irrigation etc. Farmers generally take loans at the beginning of the season and repay the loan after harvest. But the failure of the crop makes loan repayment impossible. Then in order to repay the loan sometimes, they become bound to sell part of their land. So, their situations become worse than before. The incidences of farmers suicides especially in Maharashtra are the burning examples of this situation. Q.2: Look at a 10 rupee note. What is written on top? Can you explain this statement? Ans: Reserve Bank of India and Guaranteed by the Government is written on top. In India, Reserve Bank of India issues currency notes on behalf of the central government. The statement means that the currency is authorized or guaranteed by the Central Government. That is, Indian law legalizes the use of rupee as a medium of payment that can not be refused in setting transaction in India. Q.3: What are the reasons why the banks might not be willing to lend to certain borrowers? Ans: The banks might not be willing to lend certain borrowers due to the following reasons: (a) Banks require proper documents and collateral as security against loans. Some persons fail to meet these requirements. (b) The borrowers who have not repaid previous loans, the banks might not be willing to lend them further. (c) The banks might not be willing to lend those entrepreneurs who are going to invest in the business with high risks. (d) One of the principle objectives of a bank is to earn more profits after meeting a number of expenses. For this purpose it has to adopt judicious loan and investment policies which ensure fair and stable return on the funds.
Q.4: Analyze the role of credit for development. Ans: Cheap and affordable credit plays a crucial role for the countrys development. There is a huge demand for loans for various economic activities. The credit helps people to meet the ongoing expenses of production and thereby develop their business. Many people could then borrow for a variety of different needs. They could grow crops, do business, set up industries etc. In this way credit plays a vital role in the development of a country. Q.5: In India about 80 per cent of farmers are small farmers, who need for cultivation. (a) Why might banks be unwilling to lend to small farmers? (b) What are the other sources from which the small farmers can borrow? (c) Explain with an example how the terms of credit can be unfavorable for the small farmer. (d) Suggest some ways by which small farmers can get cheap credit. Ans: (a) Bank loans require proper documents and collateral as security against loans. But most of the times the small farmers lack in providing such documents and collateral. Besides, at times they even fail to repay the loan in time because of the uncertainty of the crop. So, banks might be unwilling to lend to small farmers. (b) Apart from bank, the small farmers can borrow from local money lenders, agricultural traders, big landlords, cooperatives, SHGs etc. (c) The terms of credit can be unfavorable for the small farmer which can be explained by the following - Ramu, a small farmer borrows from a local moneylender at a high rate of interest i.e. 3 per cent to grow rice. But the crop is hit by drought and it fails. As a result Ramu has to sell a part of land to repay the loan. Now his condition becomes worse than before. (d) The small farmers can get cheap credit from the different sources like Banks, Agricultural Cooperatives, and SHGs.
AMITY INTERNATIONAL SCHOOL SECTOR 46, GURGAON MINIMUM LEARNING PROGRAMME ECONOMICS- MONEY AND CREDIT
MONEY: Money is a medium of exchange and measure of value. FORMS OF MONEY: Money can be classified into the following types or forms: (i) Coins such as gold, silver, copper coins. (ii) Paper notes, (iii) Fiat money, (iii) Credit money or deposits with Banks, and (iv) Commodity money in the form of grains, cattle etc. DOUBLE COINCIDENCE OF WANTS When two parties agree to sell and buy each others commodities, this situation is known as double coincidence of wants. That is, what a person desires to sell is exactly what the other wishes to buy. In a barter system, where goods are directly exchanged for another type of goods or service without the use of money, double coincidence of wants is a must. BARTER SYSTEM It is the system in which one type of goods or service is directly exchanged for another type of goods or service without the use of money. Double coincidence of wants is an essential feature of this system. Before the evolution of money, exchange was done through this system. CREDIT Credit or Loan refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. Credit is a crucial element in economic life and plays an important role in the development of the country. Terms of Credit: The interest rate, collateral, documentation requirement and the mode of payment are the various factors which together comprise the Terms of Credit. Collateral: Collateral is an asset that the borrower owns and uses this as a guarantee to a lender until the loan is repaid. Collaterals can be land, building, vehicle, stocks, cattle, bank deposits etc. Cheque: A cheque is a paper instructing the bank to pay a specific amount from the persons account to the person in whose name the cheque has been made. Demand Deposits: The deposits in the bank account which can be withdrawn on demand are known as Demand Deposits. LOAN ACTIVITIES OF BANKS Banks accept the deposits from the people who have surplus money and also pay an interest on the deposits. But banks keep only a small portion (15 per cent in India) of their deposits as cash with themselves. This is kept as provision to pay the depositors who might come to withdraw money from their accounts in the bank on any day. They use the major portion of the deposits to extend loans to those who need money. In this way banks mediate between those who have surplus money and those who need money.
FORMAL AND INFORMAL SOURCES OF CREDIT The various differences between formal and informal sources of credit are shown in the following table: Formal Sources of Credit Informal Sources of Credit They cover those sources of credit which are registered by the Government and have to follow its rules and regulations e.g. Banks, Cooperatives. The RBI supervises the functioning of formal sources of credit. Apart from profit-making, they have also an objective of social welfare. The rate of interest charged by formal sources is always much lower than that of informal sources. The terms of credit are also fair and reasonable. They include those small and scattered units which are outside the control of the Government e.g. individual moneylenders, traders, employers, etc. There is no organizational supervision or adherence to rules and regulations in the credit extending activities in this sector. Their only motive is to extract profit as much as possible. They charge random and much higher interests in comparison to formal sectors. They impose very tough and sometimes even, unreasonable terms of credit on the borrower.
NEED FOR THE EXPANSION OF FORMAL CREDIT IN INDIA We need to expand formal sources of credit in India for many reasons: Compared to formal lenders, most of the informal lenders charge much higher interest rates on loans like 3% to 5% per month i.e. 36% a year. Besides the high interest rate, informal lenders impose various other tough conditions. For example, they make the farmers promise to sell the crop to him at a low price. There is no such condition in formal sector. Informal lenders do not treat well with the borrowers. On the other hand, there is no such situation no such situation in the formal sector. The Reserve Bank of India supervises the functioning of formal sources of loans. In contrast, there no organization which supervises the credit activities of lenders in the informal sector. Loans taken by poor people from informal lenders sometimes, lead them to debt-trap because of high interest rate. The formal sources of credit in India still meets only about half of the total credit needs of the rural people. So, it is necessary that the formal sources of credit expand their lending especially in rural areas, so that the dependence on informal sources of credit reduces as this will also help in the development of the country.
SELF-HELP GROUPS The basic behind the SHGs is to provide a financial resource for the poor through organizing the rural poor especially women, into small Self Help Groups. They also provide timely loans at a responsible interest rate without collateral. Thus, the main objectives of the SHGs are: 1. To organize rural poor especially women into small Self Help Groups. 2. To collect savings of their members. 3. To provide loans without collateral. 4. To provide timely loans for a variety of purposes. 5. To provide loans at responsible rate of interest and easy terms. 6. Provide platform to discuss and act on a variety of social issues such education, health, nutrition, domestic violence etc.
AMITY INTERNATIONAL SCHOOL SECTOR 46, GURGAON MINIMUM LEARNING PROGRAMME GEOGRAPHY- MINERAL AND ENERGY RESOURCE MINERAL Minerals are a homogenous, naturally occurring substance with a definable internal structure. Minerals are found in varied forms in nature, ranging from the hardest diamond to the softest talc. Basis of classification of minerals by the geologists Geologists use the properties such as colours, hardness, crystal forms, lustre and density to classify the minerals. ORES Minerals found in their raw form is called as ores. That means ore is an accumulation of any mineral mixed with other elements.
Extraction of any mineral depends upon its commercial viability Commercial viability depends on the following factors: Concentration: The mineral content of the ore must be in sufficient concentration to make its extraction commercially viable. Ease of extraction: The type of formation or structure in which they are found determines the relative ease with which mineral ores may be mined. This also determines the cost of extraction. Market and demand of mineral makes some minerals more commercially viable. Types of mining 1. Surface mining -which includes An open pit mine and quarrying 2. Sub-surface mining (An underground mine with shafts)
MODE OF OCCURRENCE OF MINERALS (i) In igneous and metamorphic rocks minerals may occur in the cracks, crevices, faults or joints. The smaller occurrences are called veins and the larger are called lodes. In most cases, they are formed when minerals in liquid/ molten and gaseous forms are forced upward through cavities towards the earths surface. They cool and solidify as they rise. Major metallic minerals like tin, copper, zinc and lead etc. are obtained from veins and lodes. (ii) In sedimentary rocks a number of minerals occur in beds or layers. They have been formed as a result of deposition, accumulation and concentration in horizontal strata. Coal and some forms of iron ore have been concentrated as a result of long periods under great heat and pressure. Another group of sedimentary minerals include gypsum, potash salt and sodium salt. These are formed as a result of evaporation especially in arid regions. (iii) Another mode of formation involves the decomposition of surface rocks, and the removal of soluble constituents, leaving a residual mass of weathered material containing ores. Bauxite is formed this way. (iv)Certain minerals may occur as alluvial deposits in sands of valley floors and the base of hills. These deposits are called placer deposits and generally contain minerals, which are not corroded by water. Gold, silver, tin and platinum are most important among such minerals. (v) The ocean waters contain vast quantities of minerals, but most of these are too widely diffused to be of economic significance. However, common salt, magnesium and bromine are largely derived from ocean waters. The ocean beds, too, are rich in manganese nodules. RAT HOLE MINING In the tribal areas of the north-east India, minerals are owned by individuals or communities. In Meghalaya, there are large deposits of coal, iron ore, limestone and dolomite etc. Mining in these areas is done by family member in the form of a long narrow tunnel, known as Rat hole mining. DISTRIBUTION OF MINERAL RESOURCE IN INDIA India has rich and a large variety of minerals. a. Peninsular rocks contain most of the reserves of coal, metallic minerals, mica and many other non-metallic minerals. b. Sedimentary rocks on the western and eastern coasts, in Gujarat and Assam have most of the petroleum deposits. c. The rock systems of the Rajasthan have reserves of many non-ferrous minerals. d. The vast alluvial plains of north India are almost without minerals. e. These variations exist largely because of the differences in the geological structure, processes and time involved in the formation of minerals. Types of iron ore in India: a. Magnetite is the finest iron ore with a very high content of iron up to 70 percent. It has excellent magnetic qualities. b. Hematite ore has slightly lower iron content than magnetite (50-60 per cent). It is largest used type of iron ore in Indian industries. Distribution of iron ore: The five largest iron producing states are Karnataka, Orissa, Chhattisgarh, Goa and Jharkhand. Iron ore is found in the four belts i. Orissa-Jharkhand belt: high grade hematite ore is found. Important mines are Badampahar and Singbhum mines. ii. Durg-Bastar belt lies in Chhattisgarh and Maharashtra: Very high grade hematite is found. Famous mine are Bailadila which produces iron best suited for steel making. iii. Bellary-Chitradurga-Chikmaglur-Tumkur belt in Karnataka has large reserves of iron ore. iv. Maharashtra-Goa belt includes the state of Goa and Ratnagiri district of Maharashtra. Export of iron ore: a. Hematite ore from Bailadila mines are exported to Japan and South Korea via Vishakapatnam port. b. The Kudremukh mines located in the Western Ghats of Karnataka are a 100 per cent export unit. Kudremukh deposits are known to be one of the largest in the world. The ore is transported as slurry through a pipeline to a port near Mangalore. c. Iron ore from Goa is not of very high quality, yet they are exported through Marmagao port. Impacts of mining on the health of the miners and the environment Mining can become a killer industry. Its effects are: a. The dust and noxious fumes inhaled by miners make them vulnerable to pulmonary diseases. b. The risk of collapsing mine roofs, inundation and fires in coalmines are a constant threat to miners. c. The water sources in the region get contaminated due to mining. d. Dumping of waste and slurry leads to degradation of land, soil, and increase in stream and river pollution. Need for the conservation of Mineral resource a.Industry and agriculture depend upon mineral deposits. b. Minerals are in insufficient quantities, just one per cent of the earths crust. c. We are rapidly consuming mineral resources that required millions of years to be created and concentrated. d. The natural rate of replenishment is very small in comparison to the present rates of consumption. e. Mineral resources are non-renewable resources. f. Rich mineral deposits in our country are short-lived. g. Continued extraction of ores leads to increasing costs as mineral extraction. Ways of conserving our mineral resources Minerals has to be conserved for the future generations. a. A concerted effort has to be made in order to use our mineral resources in a planned and sustainable manner. b. Improved technologies need to be constantly evolved to allow use of low grade ores at low costs. c. Recycling of metals, using scrap metals and other substitutes are steps in conserving our mineral resources for the future.
OTHER MINERALS
Name of mineral Type Features Uses Areas Manganese Ferrous Manufacturing of steel and ferro- manganese alloy, bleaching powder, insecticides and paints.
Orissa is the largest producer Copper Non-ferrous Malleable, ductile and a good conductor Used in electrical cables, electronics and chemical Madhya Pradesh is the largest producer. (Balaghat mines, Khetri mines in industries
Rajasthan)
Bauxite Non-ferrous Ore of Aluiminium, it is extremely light, good conductor of electricity and great malleability.
Used in electrical industries, aircraft manufacturing industries, utensils making, etc.
Orissa is the largest bauxite producing state.( Koraput district) Mica Non-metallic Has excellent di-electric strength, low power loss factor, insulating properties and resistance to high voltage.
One of the largest used mineral in electric and electronic industries.
Jharkhand is the leading producer. (Gaya and Hazaribagh), Rajasthan (Ajmer), Andhra Pradesh(Nellore)
Limestone
Non-metallic Found in rocks composed of calcium carbonates or calcium and magnesium carbonates. It is found in sedimentary rocks
Basic raw material for the cement industry and essential for smelting iron ore in the blast furnace.
Horse Power (H.P.) Selection: Calculation of Discharge Rate of Bore Well, Water Level, Friction Loss in Pipes, Valves & Fittings, H.P. Selection For Submersible Pump Sets, Unit Conversion