The Post Oil Era Economy of Saudi Arabia: Insights from Top B.Com Colleges in Delhi NCR

The top B.Com Colleges in Delhi NCR have had some exciting times in the last month. Students of B.Com program have been mailing questions to academicians demanding replies on the post oil era of Saudi Arabia. The dramatic collapse in oil prices have been a watershed development in the global economy. Countries like India that are gross importers of oil and petroleum have had it easy and have found a way to cushion their foreign exchange reserves generating huge savings on their current account. The picture has been far from rosy for the kingdom of Saudi Arabia. As such Saudi Arabia it seems is finally coming to terms with the bitter realities of an export promotion policy led economy whose only bragging right is the abundance of oil. At Ishan Institute of Management & Technology, one of the top B.Com colleges in Greater Noida, the academicians have been collaborating on data collection and analyses drives to understand the background of the Saudi Arabian economy, the importance of oil, the demerits of an oil export dependent economy and the big bang economic reforms being engineered by Prince Muhammad bin Salman of Saudi Arabia.

The Slippery Oil Crisis and the Global Economy

In the year 2008 at the height of the sub-prime crisis, oil prices skyrocketed to U.S. $ 145. In the year 2016, the global economy has witnessed paradise burn to ashes with oil prices plummeting to a range between U.S. $ 27 and U.S. $45. On February 16, some of the leading oil producing countries initiated diplomatic efforts to engineer a strategic framework for dialogue on joint profit maximization and thus decided to curtail oil production to give a push to oil prices for the better. Consequently oil prices jumped by 5% the next day only to be pushed back to $30 later. An article published in the Harvard Business Review by authors Bernhard Hartmann and Saji Sam forecasts oil prices to fluctuate around the expected value of $50. In fact the authors also diagnose that the current prices are just about the average price of oil for the last 150 years when measured at the value of U.S dollar with 2014 as base year. The consistent patterns of oil based business cycles were shattered by productivity shocks form shale oil producers from United States of America.

Real Business Cycle Theory at Play in the Oil Industry: Courtesy U.S.A

During the past decade the United States of America has revitalized the oil production technology with shale oil producers improving their drilling and fracturing technology massively to produce massive increases in productivity. Drilling and fracturing technology has enabled U.S. based shale oil procuring companies to increase production in just six months at a minute capital investment relative to their competitors. The result has been that U.S based oil companies are now producing 4 million barrels of additional oil relative to what they produced in the year 2008. This is a major positive supply side shock that has disrupted the equilibrium prices and production of oil for the entire global economy. While these are still early days, academicians of Ishan Institute of Management & Technology, one of the top B.Com colleges in Greater Noida are in the process of engaging in data collection to assess and validate the hypothesis of a disruptive innovation in this case. On top of that this year the American government lifted the VER (voluntary export restraint) that had been in place for the last 40 years thereby allowing U.S. based oil producing companies to aggressively engage in export promotions.

Argentina and China are in the process of developing similar technologies for oil production increases. In fact the Xinhua news agency has confirmed that it is working on R&D efforts on its unique coal gasification technology. Saudi Arabia always had the advantage of excess capacity and hence used to act as a swing producer that had the capability to inflate or deflate oil prices by expanding or contracting supplies of oil. That competitive advantage has been destroyed.

Oil Everywhere but no Oil to Sell: The Challenges of the Saudi Arabia Economy

Last year Saudi Arabia’s foreign exchange reserves fell to historic lows with reserves being sufficient for only two years. It was rather starring at insolvency to be precise. Traditionally oil has contributed to more than 50% of the GDP of Saudi Arabia and more than 90% of the welfare state expenditure. The falling oil prices have only produced a budget deficit of U.S. $ 200 billion. While these are just aspects of the fiscal impact of the over dependence on oil, there is to more to the picture than meets the eye. The Saudi Arabian economy is plagued by a largely unskilled labour force, the partial or in some cases complete exclusion of women from the job and product markets, a lackluster work culture and precisely a total absence of vision to steer the economy away from oil.

The New Vision of Prince Muhammad bin Salman for Post Carbon Saudi Arabia

Prince Salman the new engineer of the Saudi economy has a great tight rope walk to do by balancing his vision for a modernized and revamped free market economy in Saudi Arabia and the historically conservative social and religions fabric of the country. On April 25, the Prince released his ambitious new vision document that would initiate far reaching economic reforms for the country’s economy. To begin with it includes the creation of the world’s largest sovereign wealth fund that will hold more than U.S. $2 trillion in assets. The wealth fund would be large enough to buy the four business giants in the world- Apple, Microsoft, Berkshire Hathaway and Google. Second, there is a well structure plan to disinvest 5% stake in the state owned oil company Saudi Armaco through an IPO. This shall transform the company into the world’s largest industrial conglomerate, streamline corporate governance, increase market capitalization and improve corporate strategy for productivity. Capital procured from the IPO shall be used to diversify investments into non-oil business verticals to hedge the security of the Saudi Arabic government’s portfolio of investment holdings. On the front of fiscal policy the Prince has introduced economic reforms to cut costs by reducing subsidies on water, electricity and gasoline. He may also introduce a value added tax on luxury goods and soft drinks. The combined effect is expected to generate a revenue of U.S. $ 100 billion a year by the year 2020.

At Ishan Institute of Management & Technology, the best B.Com college in Greater Noida, we deliberate upon these issues in the lectures of business environment and engage in productive discussions on resolving these challenges in the academic context.

Fast Facts on Game Theory & Mahabharata from Top B.Com Colleges in Delhi NCR

Top B.Com Colleges in Delhi NCR improvise within the framework of the academic curriculum to offer fresh and innovative insights on different disciplines. Game theory is one such topic that invites the attention of students from diverse disciplines such as mathematics, economics, commerce and management. While game theory is one of the hot tracks for research and higher studies in management and has found wide spread application in the domain of academic and business research, there is still ample scope to explore more about the subject. At Ishan Institute of Management & Technology one of the top B.Com Colleges in Delhi NCR the academicians move beyond the traditional examples of usage of game theory in business economics and business environment. Here are a few interesting fast facts on the same.

Game Theory and Mahabharata

It is very fascinating to note that the Mahabharata apart from being an epic of epic proportions and thus being a treatise on subjects of political science, philosophy and literature is probably the first ever treatise written on game theory. Many academicians from the Anglo-American school of economics are not very aware of the crystal clear applications of game theory that the Mahabharata has. To put things into perspective it shall be encouraging to note that the Mahabharata has brilliant expositions of different aspects of game theory. In fact the entire story of Mahabharata can be retold in the form of game theory centric rounds.

Asymmetry of Information: To Be or Not to Be is The Question

The background story of the Mahabharata notwithstanding the portion of the Mahabharata that is relevant to game theory is that of gambling. “Dyut Krida” in ancient Indian terminology refers to game of gamble and speculation. Perhaps it makes enormous good sense to assert that the evolution of non-cooperation between the two warring parties in the epic premises itself on the paradigm of speculation. The decision of the Pandavas to accept the invitation to a game of speculation was not an incorrect decision. In game theory centric terms it was not a well informed decision.

The asymmetry of information with regard to any transaction or game can have significant consequences for the game and in extreme cases drastically alter the very conclusion of the game as is seen in the case of the Mahabharata. In game theory terminology as also in actuarial sciences there is a widespread application and importance of the use of asymmetry of information. A well informed decision that takes into consideration both the costs and benefits of playing a game is the rational basis of a decision to play the game or not. As such there are ample examples of real life situations and business transactions where paucity of information for a single party or information surplus to another party may lead to the distortion of markets. As is evident from the Mahabharata it is the asymmetry of information that leads to decisive one sided outcomes in different rounds. The decision of the Pandavas to play the gamble, the decision of Kauravas to go to war, the decision to enter the Chakravyuha and even the killing of Karna by Pandavas are all examples of asymmetry of information at play. It makes great sense to reiterate the words of William Shakespeare:

“To be or not to be is the question.”

Moral Hazard and Adverse Selection

In many cases of real life and business we come across situations involving a definite lack of transparency. Asymmetry of information acts as a double-edged sword. It works in favour of the party having access to information surplus and works adversely against the party facing an information deficit. Intellectual property rights like product and process innovations that are safeguarded by copyrights, trademarks and patents are potential weapons of non-price competition used in business and politics. Moral hazard plays out in favour of the party that has access to secret knowledge resources like a new invention, new technology, more efficient plant, equipment and machinery and the likes. Adverse selection plays out against the party with lower access to information resulting in ill-informed decision making. The Mahabharata is replete with instances of both moral hazard and adverse selection whereby one party scores over the other by virtue of greater access to and better safeguarding of resources that have higher efficiency.

Games with Multiple Rounds: Cheating and Tit for Tat Strategy

The Mahabharata comes across as a game with multiple rounds. Assuming that the parties at war did not know the number of rounds of warfare required to achieve victory it may be referred to as a game with indefinite number of rounds. Again it may be said that in most business and real life situations games alter their nature from indefinite to definite ones as the partied proceed from one round to another. The debates on this aspect however do not eradicate the questions of incentives to cheat.

The most popular literature on the incentives to cheat in business & economy, politics and governance is The Evolution of Non-Cooperation by popular scientist W.D. Hamilton and economic theoretician Robert Axelrod. Yet it makes sense to suggest that the earliest exposition of cheating and tit for tat strategies as is used in oligopoly analysis to resolve the breakdown of cartels is found in the Mahabharata. The spontaneous and sporadic movement from one episode of murder to another one is premised on the breakdown of cartel on the lines of cheating and tit for tat strategies.

At Ishan Institute of Management & Technology, one of the top B.Com colleges in Greater Noida, Delhi NCR we have discussed case studies on the usage of game theory in the Mahabharata and business in the paper of business economics. We intend to take up the theme in greater detail by engaging in academic research on the same.

Pump Priming an Economy: Insights from Top B.Com Colleges in Delhi NCR on Keynesian Economics

The top B.Com Colleges in Delhi NCR regularly engage in research on the different schools of thought that prevail in economics. Given that macroeconomics as an academic discipline is governed by mathematical modelling premised on intricate null hypotheses it is very hard to reach at a definite consensus of views that can be truly all encompassing and all pervasive. At Ishan Institute of Management & Technology, academicians of economics have engaged in both theoretical lectures and mathematical economics driven approaches to reach the crux of the matter and further to satisfy the appetite of aspiring MBA and PGDM students on the floor of the classroom. Sir Winston Churchill, the former British PM had once jokingly commented that if a question produces four different answers from four different people despite the presence of empirical evidence being abundant on the subject matter, they must have been economists!

Tracing the Invisible Hand of the Market and Animal Spirit of Capitalism

While it is common for business leaders, policy makers and economists to heap praise on the invincibility of the invisible hand of the market and the animal spirit of capitalism, they are rather difficult to search for in times of recessions. It is not plain humour that while Gulliver’s giant of erstwhile USSR has long been dead; the animals of capitalism have not been in the pink of their health, with the frequent need for the governments to offer strong socialistic type governmental ventilation. The crux of the matter is that there are academicians, managers, business leaders and policy makers out there who do not wish to acknowledge the fact that capitalism of the laissez faire type can slip into coma.

On several occasions across the world we have seen governments pump priming the economy. The Wall Street crash of 1929 turned the profession of economics on its head. What followed from the then U.S. President Roosevelt in terms of the formulation of the New Deal and the New Economic Policy later under Keynes made a strong case for replacing the invisible hand of the government with the visible hand of the government. Recently India under one of its greatest engineers of neo-classical economic reforms Dr.Manmohan Singh has had to embrace pump priming in the avatars of MGNREGA and the farm loan waiver schemes. This has not been a voluntary choice for policy makers of the erstwhile government of India but a marriage of comfort that aimed to resolve challenges that persisted as a result of the 2008 sub-prime crisis.

The Costs of Pump Priming and Fiscal Profligacy: Baro Ricardo Equivalence

The costs of pump priming can be particularly high as has been the case in the PIIGS countries. While ventilation for recessions can be justified even at the cost fiscal profligacy, the experience of Portugal, Iceland, Italy, Greece and Spain has been far from satisfying. As Dr.Singh put it “no government can live beyond its means”. The lessons of fiscal prudence on one hand and those of the withering welfare state are difficult to recon ciliate. The bad news flowing in from the PIIGS (Portugal, Iceland, Italy, Greece and Spain) economies is a pointer in the direction of the impact that fiscal profligacy can have not just on economic growth rates but on the very legitimacy of a sovereign economic nation state. While jamming in monetary with fiscal policy may raise a few eye brows, it is badly kept secret that the interplay of the two shall determine the course of flow of the Indian economy. It makes enormous good sense to recall the words of the Iron Lady of United Kingdom, Mrs. Margaret Thatcher: “The least state is the best state.” Fiscal prudence is the need of the hour. More than just containing the unplanned government expenditure, there is a need to consolidate the planned expenditure. Fiscal discipline may be criticized by some who have the luxury of indulging in side seat driving but will enable the government to score on multiple points.

At Ishan Institute of Management & Technology, we offer deep academic insights to students on papers like business economics and business environment to create a foundation for them to pursue higher education of their choice and carve a career of the highest levels.