Professional Documents
Culture Documents
Policies of INDIA
Somya Agrawal (09020541004)
Amish Daniel (09020541008)
Nikhil Girme (09020541022)
Priyesh Agrawal (09020541042)
Siddhartha Das (09020541047)
Sneha Bhadoria (09020541054)
Fiscal Policy???
Components of budget
Revenue receipts
Capital receipts
Revenue expenditure
Capital expenditure
Revenue Receipts
Capital Receipts
Revenue Expenditure
Capital Expenditure
Instruments of Fiscal
Policies
Government Expenditure
1.
Direct taxes- Corporate tax, Div.
Distribution Tax, Personal Income
Tax, Fringe Benefit taxes, Banking
Cash Transaction Tax
2. Indirect taxes- Central Sales Tax,
Direct Tax
Indirect Tax
Tax Slabs(09-10)
Table : New Proposed Tax Slabs
Internal borrowings
1.Borrowings from the public by means of
treasury bills and govt. bonds
2.Borrowings from the central bank
(monetized deficit financing)
External borrowings
1.Foreign investments
2.International organizations like World
Bank & IMF
3.Market borrowings
Budgetary Surplus &
Deficit
Early 1980s:net of depreciation
consistently negative.
Late 1980s:large deficit averaging
about 8% of GDP
Post liberalization: Fiscal deficit
decreased.
LPG effect was till 1996-1997
2001:Fiscal deficit increased to 10%
of GDP.
Budgetary Surplus &
Deficit
2003:FRBM was adopted.
FRBM improved the transparency in
budgetary policy.
As a result fiscal deficit decreased to
3.7% of GDP.
In 2007-2008 fiscal deficit was 2.7 %
Shot up to 6 % in 2008-2009.
Fiscal Deficit(as % of
GDP)
Fiscal Deficit (in crores
of Rs.)
Fiscal Policy Overview
(2009-10)
Budget 2008-09 presented in the
backdrop of impressive growth.
Fiscal deficit 2009-10 estimated at 2.5
per cent of GDP
After presentation of budget Indian
economy was hit by global crisis.
Fiscal policy shifted from fuelling
growth to containing inflation, which
had reached 12.9 per cent in August,
2008.
Stimulus package of Rs .1,50,320 crore
was provided
Tax Policy
Customs:
1.Sharp reduction was effected in the import
duty rates of various food items.
2.Import duties on crude petroleum was
reduced to nil and on petrol and diesel
to 2.5% (earlier 7.5%).
Excise:
Reduction of 4 %points in the ad valorem
rates of excise duty on non-petroleum
items.
Service tax:
1.Service Tax continued at 10%.
2.Tax base widened.
Government Borrowings,
Lending and Investments
The gross borrowings: Rs 2,40,167
crore
The net borrowings : Rs 1,68,710
An Overdraft (OD) for 24 days daily
average of OD was Rs.11,233
crore.
Government has set up National
Policy Evaluation
Statutory
liquid ratio:
Bank has to keep
portion of total deposits with itself in
liquid assets.
Cash reserve ratio:
The percentage of
bank’s deposits which they must keep
SLR Trend
It was 25% in
1949 after that it
increased
continuously
32%(1972)--- 35%
(1981)---36%(1984)---
38%(1988).
From 1997 it is
constant at 25%
CRR Trend
In beginning it
was 5% of demand
deposit & 2% of
time deposits.
Reached max. in
1991,92 after 1993
it followed
Narsimham report &
decreased.
But from dec.06 it
raised 7 times,
250bp to cool
credit growth &
supply.
Currently, it is
5 %
Qualitative Control Tools:
o Selective credit control
o
o They are distinguishable from quantitative
tools by the fact that they are directed
towards particular uses of credit and merely
to total volume outstanding.
o
Important selective control measures are:
Rationing of credit.
Changes in margin requirements.
Moral suasion.
o
Credit Rationing
When there is a shortage of institutional credit
available for the business sector, the large and
financially strong sectors or industries tend to
capture the lion’s share in the total institutional
credit.
As a result the priority sectors and essential
industries are of necessary funds.
Below two measures are generally adopted:
Imposition of upper limits on the credit available
to large industries and firms
Charging a higher or progressive interest rate on
the bank loans beyond a certain limit.
Change in Lending Margins
§The banks provide loans only up to a certain
percentage of the value of the mortgaged property.
§
§The gap between the value of the mortgaged property
and amount advanced is called Lending Margin.
§
§The central bank is empowered to increase the
lending margin with a view to decrease the bank
credit.
Moral Suasion
The moral suasion is a method of persuading and
convincing the commercial banks to advance credit
in accordance with the directives of the central
bank in overall economic interest of the country.
Under this method the central bank writes letter
to hold meetings with the banks on money and
credit matters.
EXPANSIONARY MONETARY
POLICY
Problem: Recession and
unemployment
Measures: (1) Central bank buys
securities
through
open market operation
(2) It reduces
cash reserves ratio
(3) It lowers
the bank rate
Money
supply increases
Investment increases
CONTRACTIONARY MONETARY
POLICY
Problem: Inflation
Measures: (1) Central bank sells securities
through
open market operation
(2) It raises cash
reserve ratio
and
statutory liquidity
(3) It raises bank
rate
(4) It raises
maximum margin against
holding of
stocks of goods
Money supply
decreases
Interest rate
raises
Investment
expenditure declines
Recommendation of
Narshimham Committee
Nov.1991
SLR should not be used for directed investment
in PSUs. It should be lower down to minimum
limit of 25%
CENTRAL BANK
SECURITIES AND TRESURY BILLSBANK RATE INC CASH RESERVE RATIOSTATUTORY LIQUID RATIO
RR
CASH
N C
REA RATE
SO
LD
SE
SE I
%
LEN
EA
DIN
INCR
G
COMMERCIAL BANKS
REDUCE LIQUIDITY IN
CORPORATES MARKET INDIVIDUALS
Monetary Policy of India - Overview
The Monetary Policy aims to maintain price stability, full
employment and economic growth.
Thank
You…….