Monetary&Fiscal policy of india
-
Upload
bhargav-santhosh -
Category
Economy & Finance
-
view
96 -
download
4
Transcript of Monetary&Fiscal policy of india
![Page 1: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/1.jpg)
MONETARY AND FISCAL POLICY OF INDIA
![Page 2: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/2.jpg)
AGENDA Introduction Monetary Policy
Role & Objectives Instruments Inflation
Fiscal Policy Role & Objectives Budget -> Revenue and Expenditure Taxation -> Structure Fiscal Deficit
Reviews Conclusion
![Page 3: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/3.jpg)
INTRODUCTION
![Page 4: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/4.jpg)
MONETARY POLICY
![Page 5: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/5.jpg)
MONETARY POLICY –MEANING….
Reserve Bank of India states that, Monetary policy refers to the use of instruments under
the control of the central bank to regulate the availability, cost and use of money and credit.
![Page 6: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/6.jpg)
OBJECTIVES Maintaining price stability Ensuring adequate flow of credit to the productive
Sectors of the economy to support economic growth
Rapid economic growth Balance of payment equilibrium Full employment Equal income distribution
![Page 7: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/7.jpg)
METHODS The RBI aims to achieve its objectives of economic growth
and control of inflation through various methods.
These methods can be grouped as: General/ quantitative methods Selective/ qualitative methods
![Page 8: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/8.jpg)
GENERAL/ QUANTITATIVE METHODS These methods maintain and control the total quantity or
volume of credit or money supply in the economy. Open Market Operations
Open market operations indicate the buying/ selling of govt. securities in the open market to balance the money supply in the economy
Deployment of Credit The RBI has taken various measures to deploy credit in different sector of
the economy. The certain %age of the bank credit has been fixed for various sectors like agriculture, export etc.
![Page 9: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/9.jpg)
DIRECT INSTRUMENTSCash reserve ratio (CRR)The money supply in the economy is influenced by CRR. It is the ratio of a bank’s time and demand liabilities to be kept in reserve with the RBI. The RBI is authorized to vary the CRR between 3% and 15%.
Statutory liquidity ratio (SLR): Under SLR, banks have to invest a certain percentage of its time and demand liabilities in govt. approved securities. The reduction in SLR enhances the liquidity of commercial banks.
![Page 10: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/10.jpg)
INDIRECT INSTRUMENTS
Liquidity Adjustment Facility (LAF): Consists of daily infusion or absorption of liquidity on a repurchase basis,
through repo (liquidity injection) and reverse repo (liquidity absorption) auction operations, using government securities as collateral.
1. Repo Rate: Repo rate is the rate at which the RBI lends shot-term money to the
banks against securities. When the repo rate increases borrowing from RBI becomes more expensive.
• Reverse Repo Rate: The rate at which RBI borrows from commercial banks.
![Page 11: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/11.jpg)
Marginal Standing Facility (MSF): Instituted under which scheduled commercial banks can borrow over night at their discretion up
to one per cent of their respective NDTL at 100 basis points above the repo rate to provide a safety valve against unanticipated liquidity shocks
Bank rate: Bank Rate is the rate at which central bank of the country (in India it is RBI) allows finance to
commercial banks. Bank Rate is a tool, which central bank uses for short-term purposes. Any upward revision in Bank Rate by central bank is an indication that banks should also
increase deposit rates as well as Base Rate / Benchmark Prime Lending Rate.
Market Stabilization Scheme (MSS): Liquidity of a more enduring nature arising from large capital flows is absorbed through sale of
short-dated government securities and treasury bills. The mobilized cash is held in a separate government account with the Reserve Bank.
![Page 12: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/12.jpg)
![Page 13: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/13.jpg)
SELECTIVE/ QUALITATIVE MEASURES The RBI directs commercial banks to meet their social obligations through selective/
qualitative measures. These measures control the distribution and direction of credit to various sectors of
the economy.
CEILING ON CREDIT MARGIN REQUIREMENTS DISCRIMINATORY RATES OF INTEREST
![Page 14: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/14.jpg)
FACTORS AFFECTING MONETARY POLICY There exist a non-monetized sector Excess of non-banking financial institutions (NBFI) Existence of unorganized financial market Money not appearing in an economy Time lag affects success of monetary policy Monetary policy and fiscal policy lacks coordination
![Page 15: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/15.jpg)
INFLATION Inflation is broadly understood as the general rise in the
prices of goods and services year on year, inflation is a more complex phenomena associated with the money supply and currency values.
![Page 16: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/16.jpg)
PROBLEMS CAUSED BY INFLATION High and persistent inflation imposes significant socio-economic
costs. High inflation distorts economic incentives by diverting resources
away from productive investment to speculative activities. Inflation reduces households saving as they try to maintain the real
value of their consumption. If domestic inflation remains persistently higher than those of the
trading partners, it affects external competitiveness through appreciation of the real exchange rate.
The Reserve Bank’s current assessment suggests that the threshold level of inflation for India is in the range of 4–6 per cent.
![Page 17: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/17.jpg)
HOW DOES MONETARY POLICY AFFECT INFLATION AND OTHER PROBLEMS?
raisesdecreases
![Page 18: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/18.jpg)
FISCAL POLICY
![Page 19: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/19.jpg)
MEANING Fiscal policy deals with the taxation and expenditure
decisions of the government. These include, tax policy, expenditure policy, investment or disinvestment strategies and debt or surplus management.
- Kaushik Basu ( Former Chief Economic Adviser )
![Page 20: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/20.jpg)
OBJECTIVES OF FISCAL POLICY • Increase in capital formation.• Degree of Growth.• To achieve desirable price level.• To achieve desirable consumption
level.• To achieve desirable employment
level.• To achieve desirable income
distribution.
![Page 21: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/21.jpg)
FISCAL POLICY THERE ARE THREE POSSIBLE POSITIONS A Neutral position applies when the budget outcome has
neutral effect on the level of economic activity where the govt. spending is fully funded by the revenue collected from the tax.
An Expansionary position is when there is a higher budget deficit where the govt. spending is higher than the revenue collected from the tax.
An Contractionary position is when there is a lower budget deficit where the govt. spending is lower than the revenue collected from the tax.
![Page 22: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/22.jpg)
THE TWO MAIN INSTRUMENTS OF FISCAL POLICY Revenue Budget Expenditure Budget
![Page 23: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/23.jpg)
REVENUE BUDGET The taxing Powers of the Central Government encompass
taxes on income,Excise on Goods produced (other than Alcohol), Custom duties and Inter-state sale of Goods
The State Governments are vested with the power to tax Land and Buildings, Sale of Goods (other then Inter-state) and Excise on Alcohol.
![Page 24: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/24.jpg)
Indirect Tax central excise (a tax on
manufactured goods) VAT @ 12.5% service tax @ 12% customs duty Educational cess @ 3%
Direct Tax
Individual Income Tax & Corporate Tax.Wealth Tax @ 1%Tax deducted at source
![Page 25: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/25.jpg)
EXPENDITURE BUDGET The central government is responsible for issues that usually concern the
country as a whole like national defence, foreign policy, railways, national highways, shipping, airways, post and telegraphs, foreign trade and banking.
The state governments are responsible for other items including, law and order, agriculture, fisheries, water supply and irrigation, and public health.
Some items for which responsibility vests in both the Centre and the states include forests, economic and social planning, education, trade unions and industrial disputes, price control and electricity.
![Page 26: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/26.jpg)
THE EXPENDITURE BUDGET INCLUDES FOUR MAIN REVENUE EXPENDITURES Total expenditure is Rs.16,65,297 crores (11.5% increase)
![Page 27: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/27.jpg)
FISCAL DEFICIT Fiscal Deficit = Total Expenditure (that is Revenue
Expenditure + Capital Expenditure) – (Revenue Receipts + Recoveries of Loans + Other Capital Receipts)
Currently the deficit is 5.1 % of GDP
![Page 28: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/28.jpg)
MAJOR CHANGES IN BUDGET(2013-14) TO CURB DEFICIT… One year surcharge of 10 % on the Superrich. Increased Duties on Imported or domestic luxury vehicles
such as SUV’s, Mobiles (>Rs.2000), set top boxes, A/c restaurants and Cigarettes.( bring in Rs.18,000 crores)
Disinvestment Proceedings to be around Rs.55,000 Crore for this fiscal.
No additional subsidy for fuel, food and fertilizer prices. Buyers of immovable property other than agriculture land
will have to pay a tax of 1% of the sale where the value exceeds Rs.50 lakh.
![Page 29: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/29.jpg)
CONCLUSION Fiscal deficit Current account deficit Currency depreciation Lower growth Supply side gap in Food (inflation) Only 42800 earn more than 1 crore and 1.9 lakh people earn
more than 10 lakhs!!!!!!
![Page 30: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/30.jpg)
REVIEWSSubbarao, RBI Governor (2012) explained that, India is unique in the
sense that we are one of the economies in the world that is supply constrained. There is shortage of infrastructure both in quantum and quality. We need to improve that so that corporates become more competitive, so that economic production becomes more competitive. First on infrastructure, second, we need to improve supply of food, especially of protein foods. Third, is skilled labour. It is one thing to have a huge labour force but another to have a labour force that is not adequately skilled. The skill shortage is going to be a big threat.
Bhatt (2012) suggested that the need of today is not just the pumping of liquidity in to the Indian economy but also in addition the injection of demand. This can occur only through direct fiscal action by government. In India, larger government expenditure has to be oriented towards agriculture, rural development, health, human resources and infrastructure to make inclusive and balanced growth.
![Page 31: Monetary&Fiscal policy of india](https://reader036.fdocuments.net/reader036/viewer/2022062905/58717f3f1a28ab230b8b70c7/html5/thumbnails/31.jpg)
Thank YouSai Teja -1113218Bhargav Santhosh - 1113262