Day 47 – Q 4.Small changes can have multiplier effect on the development processes. Do you agree? Substantiate with the help of suitable examples.
4. Small changes can have multiplier effect on the development processes. Do you agree? Substantiate with the help of suitable examples.
छोटे परिवर्तन विकास प्रक्रियाओं पर गुणक प्रभाव डाल सकते हैं। क्या आप सहमत हैं? उपयुक्त उदाहरणों की सहायता से प्रतिस्थापित करें।
In economics, a multiplier broadly refers to an economic factor that, when increased or changed, causes increases or changes in many other related economic variables. In terms of gross domestic product, the multiplier effect causes gains in total output to be greater than the change in spending that caused it. Such an increase effects the development process positively through small changes.
- Every time there is an injection of new demand into the development process there is likely to be a multiplier effect. This is because an injection of extra income leads to more spending, which creates more income, and so on. The multiplier effect refers to the increase in growth arising from any new injection of spending.
- The multiplier concept can be used in any situation where there is a new injection into an economy. Examples of such situations include:
- When the government funds the building of a new infrastructure
- When there is an increase in exports abroad
- When there is a reduction in interest rates or tax rates, or when the exchange rate falls.
- Multiplier effects generated by the creation of a new type of economic activity in a given area, for example a large new manufacturing facility, are of particular interest. The example of the impact of companies located in a Special Economic Zone (SEZ)s shows the magnitude of the multiplier effect expressed in terms of the number of jobs created which is the result of small changes in policy affecting the developmental process.
- The magnitude of multiplier effects varies substantially depending on their trigger and location. Multiplier effects tend to be stronger in services than in the manufacturing sector. Local companies tend to possess extensive local linkages resulting in stronger local multiplier effects than large companies doing business in many different regions and countries
- Entrepreneurial sector successes are also important for their multiplier effect. The IT industry, pioneered by companies such as TCS, Infosys, and Wipro, fostered an entrepreneurial mind-set that is powering the latest boom in India’s e-commerce sector. This was possible through small changes in policy leading to better outcomes for the economy.
- A change in fiscal policy has a multiplier effect on the economy because fiscal policy affects spending, consumption, and investment levels in the economy. The multiplier effect is the amount that additional government spending affects income levels in the country. The two major mechanisms of fiscal policy are tax rates and government spending. Typically, fiscal policy is used when the government seeks to stimulate the economy.
- Two areas in which higher public investment will easily be absorbed are housing and infrastructure. Investment in housing, especially in urban areas, will create very large multiplier effects in the economy. Investment in physical infrastructure will address longstanding deficiencies faced by the economy.
- The industrial development of any nation depends upon the presence of a vibrant steel industry. Steel finds its use in a wide range of applications. In India, steel has an output multiplier effect of nearly 1.4X on GDP and employment multiplier factor of 6.8X. The aim of National Steel Policy, 2017 is to steer the steel industry achieve its full potential as well as enhancing the steel production while being globally competitive.
- MULTIPLIER EFFECT IN MEDICAL TOURISM – In the multiplier process, direct multipliers flow from what visitors actually spend, while indirect multipliers are created by tourist industry expenditure. The cascading effect of tourists money being spent throughout the host economy, begins at frontline tourist establishments, eg hotels, restaurants and taxis.
- The majority of Self-Help Groups comprise of women members. There is evidence that formation of self help groups has a multiplier effect in improving women’s status in society as well as in the family.
Ultimately, multiplier effects resulting from any change in economic activity in a given area are important, regardless of when it started. One must not forget that multiplier effects may produce not only positive outcomes but also negative ones. Reductions in output and the liquidation of companies lead to lower incomes and lower employment at suppliers as well as business entities serving the needs of the employees made redundant thus necessitating a balanced approach towards the use of small changes for multiplier effects in the development processes.