Net neutrality and economics of free internet.....

What is net neutrality? 

In net neutrality, Telecom service provider gives equal importance to all web data that is generated on the internet.

It is like rationalizing the bandwidth so that each and every website will load on the web browser with equal bandwidth.

It is like giving equal opportunity to each website.


Why net neutrality is so important?

Let us take a simple example.

Let us assume there are two factories 'A' and 'B' in the town which produce orange juice.

Factory A has huge amount of money at its disposal but factory B is not that rich.

Now, assume that these factories are far outside the town.

Juice can be transported from factory to town by a truck service provider 'C'.

Truck service provider is the only transport provider in the region. So factory 'A' and factory 'B' have to depend on 'C'.

Everything is going on well for now.

But suddenly owner of factory 'A' says to 'C', " I will give you the money and in the favor you should use all your trucks to transport my product in the town."

Due to this business strategy, factory B will go bankrupt after some time as it can not sell its product in the market.

Ultimately, because of money power, factory 'A' won the battle even if product of factory 'B' was superior to that of factory 'A'.

In the similar way, in the digital world, factories are like websites such as Facebook , Google etc.

Transport service provider is something like telecom operators.

So if a big and rich website company  gives free service to people by paying huge amount to telecom operators, then people will use only these websites.

So in a first place itself competition gets killed even if the competition has better product offering.

If company like Amazon had provided huge money to telecom service provider then Flipkart would not have been established.

So if there had not been a competition consumers like us would not have enjoyed low priced mobile phones, computers and so on.

So the internet service provider needs to be unbiased and neutral.

According to Adam Smith, father of modern economics, "COMPETITION AMONG PEOPLE MAKES BETTER PRODUCTS."



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Is 20 $ per barrel price of oil good for economic growth of India and the world?

Why oil price is so low currently?

Price of any commodity depends on supply and demand.

If we see the current  global economic scenario then we can get the feel for why oil prices have gone down so steeply.

Majority of oil is consumed at following locations in the world

1. United states of America and Canada ( GDP 19 trillion dollars)

2. Europe (GDP 19 trillion dollars)

3. China (GDP 11 trillion dollars)

4. Japan (GDP 4 trillion dollars)

5. UK (GDP 3 trillion dollars) 

6. India (GDP 2 trillion dollars)

Oil is very important commodity for any country's economic progress.

So we can directly correlate economic growth to the price of oil.

China ,Europe, Japan and majority of countries around the globe are experiencing recession.

This means they need less oil for their economic activities.

World's 50 to 60 % oil is consumed by China.

We know from all the news channels, Chinese economy has slipped to 6% growth rate from double digit.

This lack of demand has pushed the price of oil down to huge extent.

Moreover, USA produces oil from shale gas at the production cost of 50$ per barrel

Saudi Arebia and other OPEC (Organization of Petroleum Exporting Countries) countries produce oil at around 20 to 30 $ per barrel.

In order to drive American oil producers out of business, OPEC started to supply more oil so that oil price will go down and  it would be unprofitable for non OPEC countries to produce oil.

These are ce​rtain macroeconomic and strategic factors  that are driving down the price of oil.

How does this matter to India and world?

India's major import is oil. It imports around 300 billion dollars worth oil every year.

If oil price goes down, we will have to pay less money in foreign exchange.

This reduces our current account deficit.

Due to small current account deficit, Indian rupee will appreciate. This is explained in my previous post as follows
http://isheconomist.blogspot.in/2015/12/how-does-current-account-deficit.html

Due to rupee appreciation, Indian export sector will get badly affected. India's major exports are software, jewelry etc.

As Prime minister of India is promoting 'MAKE IN INDIA' project , appreciation of currency may not be helpful for the project.

Indian companies also export engineering goods to OPEC countries. This will also get affected.

Many Indians (especially Kerala people) work in Saudi, Oman , Kuwait etc. and send remittances to Indian coffers. It will be difficult for these people to find jobs.

So in a short term, in my opinion, India can enjoy low price of oil and come out of recession very quickly. But in a long run low price of oil is not good for economic growth of whole world and India.Due to globalization all the economies are  integrated in each other.

It is no more a solo dance but a line dance.  So if we want everybody to be better off then , oil price needs to be at optimum level.