One of the important central banking functions of the Reserve Bank of India (RBI) is the maintenance of the external value of the rupee. As such it has been given the custody of foreign exchange reserves and sole agency for the administration of exchange controls in India. All receipts and payments in and out of India require general or special permission of the RBI. The dealings in foreign exchange and foreign securities in India, payments to person resident outside India and export and import of currency notes, bullion or precious stones etc., are subject to general or special permission of RBI or are prohibited. The RBI with the help of authorized dealers, and moneychangers carries on the administration of controls. The types of transactions, which are controlled by the RBI and the government are in general those which have international financial implications and include inter alia the following important items. Many of them are liberalized and some of them withdrawn since the 1991 economic reforms. Purchase and sale of and other dealings in foreign exchange and maintenance of balances at foreign centers by residents. Realization of proceeds of exports of goods ...

Inflation passes through three stages. In the first stage the rise in price is slow and gradual. In this stage it is easier to check the inflationary rise in the price of goods and services. But if inflation is not effectively checked in the first stage then it enters the second stage. In second stage inflation becomes a serious headache for the government. The prices of goods and services start rising much more rapidly then before. It not possible to eliminate inflation completely but if the government takes effective steps, it may be possible to prevent a further rise in price level. In the third stage, prices of goods and services now start rising almost every minute and it becomes impossible for the government to check them. These can be illustrated by an example , in first stage price rise in a proportion is less than the supply of money. If the supply of money increases by 10%, the price rise by 5% or even less than that . In the second stage, the prices rise exactly in the same proportion in which the supply of money increases. In other words, if the supply of money is increased by 10% the price rise also goes by 10%. In the third stage, the price rise in a much greater ...

Neo-classical economics began around the turn of the century. It provided more analysis on the processes through which the market system allocates  economic resources. The application of supply and demand curves, micro-economics and price theory helped to calm many of the disquieting aspects that Marx had created around classical economics. It accomplished this by ignoring the class division and working from the assumption of the existence of the "autonomous" rational wealth maximizer as subject for study. Alfred Marshall was a professor at Cambridge in the late 1890's. He created the idea that supply and demand can be used to determine a fair price for the exchange of commodities in an industrialized society. These mathematical equilibrium curves assume that people act as rational agents pursuing economic ends. Another assumption required was formulated in Say's Law, which says that all income must be spent. Hoarding was seen as irrational, and the cause of a poor economic climate. The interaction of rational economic consumers and producers was suppose to create an equilibrium and fair price, so long as rational economic actors sought to maximize wealth. In this environment, ...

Beginning with the ideas of Adam Smith (An Inquiry into the Nature and Causes of the Wealth of Nations, 1750), including the ideas of David Ricardo, and ending approximately with John Stuart Mill (1850's) the framework was established for classical economics. Mill in particular established the foundation for free trade in advocating individual libertarian autonomy rights which had the effect of limiting legislative authority in matters effecting the private economy.  In the context of 19th Century Europe, this argument makes much sense, monopolies had been granted to crown corporations for most major state projects and independent private business moguls were working toward respectability. In the context of our 21st Century corporate global climate the argument may validly be reversed. It can be argued that individual rights have the effect of lending legitimacy to legislation over matters effecting the private economy. Overall, the first classical theorists began the analysis of wealth or economic growth by focusing on determinations of economic value based on the agrarian model. Land, capital, and labour were the three categories that created wealth. These relate to value ...

Absolute Advantage If one region can produce a commodity with less expense than another, and they exchange, then both should benefit. In a nutshell, this is the law of comparative advantage. It is used as the justification for WTO trade regulations. Some land grows corn better than other land. This economical insight into farming in early 18th Century was the cornerstone of the law of absolute advantage. Some farmland will yield more corn per acre than another, therefore the good land confers an absolute advantage over other regions. The conclusion drawn from this argument is that the farmer of the poor land should change products that it can produce to its absolute advantage, such as grazing sheep. The law of absolute advantage is based on the assumption that competition is the best paradigm within which to build an economy, it assumes that competition will improve production. The problem with the use of this paradigm is that it creates winners and losers. In every competition someone is excluded. That the farmer of the poor land should go raise sheep is not self-evident. This conclusion requires a firm faith in the motivation for profit as the raison d'etre of people and ...

Many developing nations’ exports are concentrated in only one or a few primary products and thus unstable export markets, worsening terms of trade, and limited access to world markets for the products can significantly reduce export revenues and seriously disrupt domestic income and employment level. In addition, many developing nations feel that developed nations tend to insist that developing nations open their markets to industrial products from the developed world, yet refuse to open their markets to agricultural goods from the developing world. For example, United States have used aggressive antidumping and countervailing duties to limit access to their markets. As noted, the export prices and revenues of developing countries can be quite volatile. In an attempt to stabilize export revenues and prices, International Commodity Agreements (ICA) have been formed by producers and consumers of primary products about matters such as stabilizing prices, assuring adequate supplies to consumers, and promoting the economic development of producers. The methods used to attain these objectives are exports controls, buffer stocks, and multilateral contracts. Production and Export ...