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Macro Economics
1.An ideal and a most preferred economy is one where:
a.the unemployment rate is less than 4% of the workforce, b.core inflation is less than 2%,
c.favorable balance of payment d.Foreign reserve to meet at least 1 year of imports e. GDP
growth rate of 4% and above f.Adequate liquidity g.High domestic saving rates h.Good gross
capital formation h.High consumer confidence rating i.Political stability.
USA
These days rarely all the economic indicators are favorable. Post 2008 crisis thanks to the
accommodative monetary policy of Fed which lowered the federal funds rate from 6 percent to 1
percent. The economy picked up. The stock market recovered. The money flowed into emerging
markets to achieve higher returns. From 2002 to 2008, India was a major recipient of the flows.
This added with adequate domestic savings the economy flourished. Consistently 8 to 9 percent
GDP growth rate become the norm. The real growth came to an end in 2009 when the subprime
crisis in the US threatened to destroy the global economy.
The subprime crisis destroyed all liquidity in the system. Major brokerage houses and some
banks were either bankrupt or about to be bankrupt. The stock markets of the world dropped
nearly 60 percent. Unemployment soared to nearly 10 percent in the US.
To deal with this new economic environment the Federal Reserve chairman Dr. Ben Bernanke
introduced the concept of quantitative easing (QE). As a first step he pumped $ 875 billion in to
the economy. The economy responded lukewarmly with very little improvement in job creation.
Realizing that he need to add more money into the economy, he created another $ 600 billion
(often called the QE2) and this had some impact on the unemployment rate.
The Federal Reserve is set to end its economic stimulus program in October 2014, bringing to an
end the controversial five-year-old scheme even as officials said there were signs that the US
economy was still in trouble. Officials have been winding down their monthly purchases of
Treasury bonds and mortgage-backed securities since January, but had not set an end date for the
scheme, known as quantitative easing (QE).
Launched in 2009 in the heat of the financial crisis, QE and its successors are the largest
financial aid scheme in history. In three rounds, the Fed has bought about $4tn of Treasury bonds
and mortgage-backed assets. It held about $750bn of those assets before the recession bit.
Wrapping up the latest, and last, round of economic stimulus, known as QE3, the Fed is now
buying $35bn per month in assets, down from a peak of $85bn. It plans to reduce the purchases
in increments at its next three policy meetings, ending it in October. Controversial from the
outset, QE was designed to keep long-term interest rates down and encourage investors to back
stocks or corporate debt in order to stimulate the economy.
Last year, Andrew Huszar, a senior fellow at Rutgers business school and a former manager of
the Feds mortgage-backed security purchase programme, called for an end to QE in an article
for the Wall Street Journal. He said it had helped Wall Street far more than Main Street.
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In light of the cumulative progress toward maximum employment and the improvement in the
outlook for labor market conditions since the inception of the current asset purchase program, the
Committee decided to make a further measured reduction in the pace of its asset purchases.
Beginning in August, the Committee will add to its holdings of agency mortgage-backed
securities at a pace of $10 billion per month rather than $15 billion per month, and will add to its
holdings of longer-term Treasury securities at a pace of $15 billion per month rather than $20
billion per month. The Committee's sizable and still-increasing holdings of longer-term securities
should maintain downward pressure on longer-term interest rates, support mortgage markets, and
help to make broader financial conditions more accommodative, which in turn should promote a
stronger economic recovery and help to ensure that inflation, over time, is at the rate most
consistent with the Committee's dual mandate. (Federal Open Market Committee FOMC July
30, 2014)
The next FOMC Meeting September 16 and 17.
The US dollar index is currently trading between 83 - 84. The US Dollar Index (USDX) is
an index (or measure) of the value of the US dollar relative to a basket of 6 other major
currencies foreign currencies. These are Euro (EUR), 57.6% weight, Japanese yen (JPY) 13.6%
weight, Pound Sterling (GBP), 11.9% weight, Canadian dollar (CAD), 9.1% weight, Swedish
Krona (SEK), 4.2% weight, Swiss franc (CHF) 3.6% weight. USDX is trade-weighted, and its
trend alone might not reflect the USD's true performance. The USD has been weaker relative to
the euro, sterling and Swiss franc. It's the weighting of those three USDX components that has
kept the Index under pressure.
Euro Zone
The European Central Bank has cut its benchmark interest rate to 0.05%, and introduced new
stimulus measures. The ECB had earlier cut its rate from 0.25% to 0.15% in June, and also
became the first major central bank to introduce negative interest rates. It will also launch an
asset purchase programme, which will buy debt products from banks. It is hoped this move will
add liquidity to the financial system and revive lending.
Mario Draghi announced that the governing council will launch an asset-backed securities
programme, buying up financial assets from banks and other investors. The ABS scheme will
allow banks to sell bundles of assets, such as loans to companies and mortgages, to the ECB. Full
details arent available, but it is likely to see the ECB commit hundreds of billions of euros. Its
not a full-blown quantitative easing programme, but its another step along the road. The idea is
that banks will be more willing to make loans to the real economy if they can then package the
debt into new securities and sell them to the ECB.
The ECB has been under pressure to kick-start the eurozone economy, as manufacturing output
has slowed and inflation has fallen to just 0.3%.
Mr Draghi also gave an update on the ECB's forecasts for the eurozone economy. The new
predictions warned of slower growth, of 0.9% in 2014, and of 1.6% in 2015.
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Forecast for inflation was cut to 0.6% rising to 1.1% in 2015, and well short of the ECB's target
of close to, but below, 2.0%. After the latest news was announced the euro fell to $1.2996, the
lowest since July 2013 and the first time it has fallen below $1.30 since then.
The central bank also cut its deposit rate, what banks pay to keep their money at the central bank,
to minus 0.2% from minus 0.1%.It is hoped that this measure will encourage banks to lend to
business, rather than sit on their cash.
The final Markit's Eurozone Manufacturing Purchasing Managers' Index (PMI) dipped to 50.7 in
August, down from 51.8 in July. A figure above 50 indicates expansion. New orders dwindled
and factories suffered amid rising tensions between the EU and Russia over Ukraine.
The factory PMI for Germany, Russia's biggest trade partner in the EU, fell to an 11-month low
of 51.4. Meanwhile, in the bloc's second-largest economy, France, the PMI fell to 46.9. France
remains a real concern, as does Italy's descent from solid expansion to stagnation.
United Kingdom
United Kingdom- Revised estimates published in August show that GDP grew by 0.8% in Q2
2014. In the quarter to June, unemployment fell and employment rose. Inflation in July was
1.6%, below the Bank of Englands target below the Bank of Englands target of 2.0% for the
seventh successive month. In August, Treasurys average of independent economic forecasts of
GDP growth was 3.1% for 2014 and 2.6% for 2015. In July 2014, the IMF raised their 2014 and
2015 growth forecasts for the UK, last made in April 2014, from 2.9% to 3.2% in 2014 and from
2.5% to 2.7% in 2015. This puts forecasted GDP growth for the UK in 2014 ahead of that for the
other G7 countries (Canada is next highest at 2.2%). The IMF lowered its 2014 forecast for
US growth from 2.8% to 1.7% due to the weak Q1 2014 GDP outturn.
Japan
Japan says revised data show its economy contracted at an annual rate of 7.1 per cent in April-
June. It has suffered its sharpest quarterly contraction since the 2011 earthquake disaster. The fall
was blamed in part on a consumer sales tax introduced in April, with another rise planned for
2015. The single biggest factor behind the contraction in the second quarter is thought to be a
rise in the nation's sales tax in April, to 8% from 5%. Private consumption makes up some 60%
of Japan's economic activity. Retail spending figures have showed that the country's consumers
boosted spending the first quarter in an attempt to beat the sales tax hike in April. Mr Abe is
expected to make a decision in December about a second hike to the sales tax, which would see
it move to 10% in October next year.

Credit Suisse argued the Japanese economy had three problems in the July-September quarter --
slack personal spending, slow growth in factory output and dull foreign demand. Meanwhile,
separate data from the finance ministry on Monday showed Japan's current account surplus
for July fell 30.6 percent from a year earlier to 416.7 billion yen ($4.0 billion) with higher
fuel imports. Japan's imports of fuel have remained high with the country's nuclear reactors all
still offline more than three years after the Fukushima disaster.
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Japan went into serious recession in 1989 and has not recovered yet. Their real estate and the
stock market were completely destroyed beyond recognition. After nearly 24 years their stock
market has recovered to 15700. Recently Prime Minister Abe followed the US model of
quantitative easing and has pumped nearly a trillion dollars.
In summary the following observations could be made:
a.But for QE1, QE2 and QE3 US would have gone through into a depression. Pumping liquidity
served them
b.Germany, the most successful of Euro zone countries has been responsible for keeping the 17
countries together. There is hardly any guarantee that this will continue as there is no free lunch
c.Japan GDP is stagnant for the last decade and is extremely slow to respond to any stimuli.
Pumping money is not increasing economic activity but only boosts the savings rate
China:
The china story is very different. They are sitting pretty with 3.95 trillion dollars reserve (2008
1.59 trillion dollars). GDP is growing at 7.5 percent. Having invested very heavily in
infrastructure their economy is bound to move up leaps and bounds.
China's monthly trade surplus hit a record high again in August, as improving external
demand fueled exports and weak domestic investment and falling commodity prices continued to
affect imports, new customs data showed on Monday. Chinas trade surplus in August jumped
77.8 per cent on a year-on-year basis to $49.8 billion.
The Gross Domestic Product (GDP) in China expanded 7.50 percent in the second quarter of
2014 over the same quarter of the previous year. GDP Annual Growth Rate in China averaged
9.10 Percent from 1989 until 2014, reaching an all time high of 14.20 Percent in the fourth
quarter of 1992 and a record low of 3.80 Percent in the fourth quarter of 1990. The CPI inflation
of China in 2014: 2.27 %
Indian Economy:
i.We have as of August 8, 2014, 319 billion dollars foreign reserves against which we have a
liability of 440 billion dollars and increasing
ii.We owe 104 billion dollars to NRI, nearly 146 billion dollars of external commercial
borrowing, rest mostly from FII
iii.In 2014, we need to return 89 billion dollars of short term loan
This is a tall asking. Indian rupee will continue to go down by a significant amount.
Monetary Policy
One of the most important functions of central banks is formulation and execution of monetary
policy. In the Indian context, the basic functions of the Reserve Bank of India as enunciated in
the Preamble to the RBI Act, 1934 are:
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to regulate the issue of Bank notes and the keeping of reserves with a view to securing
monetary stability in India and generally to operate the currency and credit system of the country
to its advantage. Thus, the Reserve Banks mandate for monetary policy flows from its
monetary stability objective.
Essentially, monetary policy deals with the use of various policy instruments for influencing the
cost and availability of money in the economy. As macroeconomic conditions change, a central
bank may change the choice of instruments in its monetary policy. The overall goal is to promote
economic growth and ensure price stability.
The quantity of money available in an economy is called money supply. In an economy that uses
fiat money, the government controls the supply of money. Legal restrictions give the government
a monopoly on the printing of money. The control over money supply is called monetary policy.
Monetary policy is delegated to a partially independent institution called Reserve Bank of India.
The primary way in which the Central bank controls the supply of money is through open market
operations. When the Central bank wants to increase the money supply, it buys government
bonds, thus, increasing the quantity of money in circulation. When it wants to decrease the
money supply, it sells government bonds, thus, decreasing money supply.
What is REPO & Reverse REPO?
Repo is the mechanism by which RBI adds liquidity to the banking system. Any bank can park
its Government securities with the RBI and meet its liquidity requirement with an agreement to
buy the security back from RBI after a specified number of days. (Present Rate -8%)
Under the reverse repo the banking system parks its excess liquidity with the RBI and in turn
purchases the Government security of equivalent amount with an underlying agreement to
reverse the transaction at a later date. The mechanism helps in absorption of excess liquidity
from the system. (Present Rate 7 %)
Repo rate is the rate at which RBI lends its short term funds or the process of injecting funds into
the system. Reverse repo is the rate at which the RBI borrows short term funds from commercial
banks or the process of sucking off of funds from the system.
The impact of increase in the repo rate will make loans costlier as the reverse repo rate represents
the benchmark interest rate. Repo rate also serves as the bench mark rate for the short/medium
term, while the Bank Rate is an indicator of the long rate rates.
What is Open Market Operations?
OMOs are the market operations conducted by the Reserve Bank of India by way of sale/
purchase of Government securities to/ from the market with an objective to adjust the rupee
liquidity conditions in the market on a durable basis.

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Banks
Annual growth in deposits
FY 07
23.8%
FY 08
22.4%
FY 09
19.9%
FY 10 17.2%
FY 11 15.9%
FY 12 13.5%
FY 13 14.2%
FY 14 14.6%

The PSU banks are under significant stress because of Non-Performing Assets and
restructuring.
Year
NPA as a percentage of all advances
2011
2.32%
2012
3.17%
2013
3.34%
2014
4.44%

Total bank credit stood at Rs.61,22,531 crore for the week ended June 27, 2014 while deposits
were at Rs.79,52,160 crore during the same period, according to Reserve Bank of India's data.
The banks have lent very large amounts of money to a few selected companies and they are
delaying, dodging repayment claiming business failure and in adequate cash flows.
Bhushan Steel: Bhushan Steel, with a large amount of debt in proportion to its equity (3.5 times
more), is a highly leveraged company. The companys consolidated debt stands at Rs.31,839
crore, having risen 18 per cent from a year ago.
Over the years, the debt has risen steadily, sometimes at a faster pace than in the last year, as the
steelmaker added production capacity. For instance, three-fourths of its Odisha plants Rs.19,400
crore expansion programme (phase III) was debt-funded.
In the past, debt repayments did not matter as much for Bhushan Steel because its operations
generated cash well in excess of what it had to pay by way of interest and loan repayments.
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For instance, between financial years 2006 and 2010, while debt repayments ranged between
Rs.55 crore and Rs.316 crore a year, cash from operations (profit after tax plus non-cash
expenses) was much higher, at around Rs.400 crore each year.
These were the years when Bhushan Steel clocked net profit growth at a compound annual
growth rate of 53 per cent.
So, why has debt repayment become such a problem now?
The companys problems began in 2010-11, when its debt repayment obligation more than
trebled to Rs.1,118 crore. This was probably because a part of the loans taken for capacity
expansion, including for phases I and II of the Odisha plant, became due. Bhushan Steels
operating cash flows of Rs.994 crore, fell short of its debt-repayment obligations.
Problems on every front
The situation worsened in 2013-14, with more loans becoming due. The company repaid
Rs.3,384 crore in 2013-14, double what it had the year before.
Debt repayments apart, Bhushan Steels rising interest burden, too, had become a nagging
problem, shooting up eight-fold in four years to Rs.1,663 crore in 2013-14. The companys
profit shrank 93 per cent to Rs.59 crore during the same period.
A fall in global steel prices from their 2008 highs amid a glut did not help.
Bhushan Steel was consequently reduced to a position where its profit (before interest and tax
payments) was just about enough to meet its finance cost.
Together, these factors played into the companys desperation to prevent its loans from being
converted into non-performing assets. Ultimately, they may have resulted in the bribery charges
being framed against its top management as well as Syndicate Bank CMD SK Jain.
( BL - This article was published on August 12, 2014)

JP Associates: JP Associates is struggling under huge debt. According to Thomson Reuters data,
the company has a net debt of Rs 63,111 crore and a debt-to-equity ratio of nearly 6 times. To
de-leverage, the company has been trying to dispose some of its assets. According to research
firm Nomura, Indian banks have around USD 10 billion of exposure to the JPA Group. It says
while there could be some cash flow mismatches, JPA is currently servicing all its bank debt on
time and most of the bank exposure is backed by hard assets and ultimate write-downs (if any)
will be lower. Nomura says ICICI, IDBI and SBI are the 3 largest lenders to JPA Group.
BUDGET
The budget is a general list of all planned expenses and revenues. It is a plan for saving and
spending. It may also be defined as a financial document used to project future income and
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expenses. As the word suggests, it is at best an estimate and so deviations from the estimate
either positive or negative are possible.
A budget deficit is a common economic phenomenon. Budget deficit occurs when the spending
of a government exceeds that of its revenue. It may also be referred as fiscal deficit.
Budget 2014-15 July 10, 2014:
i.Only 76 paise out of every rupee they plan to spend, is received as tax revenue by the
government. The remaining 24 paise is borrowed from the market. This is too high and cannot
sustain for long. Further, Interest payment on the previously borrowed money eats away Rs.20
out of every Rs.100 spent.
ii.The fiscal deficit is expected to be 4.1% of GDP for the current year. But the economic
recovery process is still not yet in place though there are positive signals from the industry which
is evidenced by increased manufacturing activity. By considering the current state of affairs and
alarming levels of fiscal deficit, the Finance Minister of India has taken some bold measures to
contain the fiscal deficit to 4.1% of GDP in the forthcoming year. This is going to be one big
challenge.
iii. The government expects the growth rate to be around 5.4%
Non-Planned expenditure Rs.12,19,892 crores
Planned expenditure Rs.5,75,000 crores
Total Rs.17,94,892 crores
iv. Total revenue estimates:
Tax revenue (income and corporate taxes) Rs.9,77,258 Crores
Non-tax revenue (customs, excise duties and
service taxes)
Rs.2,12,505 Crores
Capital receipts other than borrowing Rs.73,952 Crores
Total Rs.12,63,715 Crores
v. Fiscal deficit budget
Rs.5.31 lakh Crores, which will be 4.1% of GDP and estimated redemption of Rs.1.39 lakh
Crores.
vi. Government is expected to borrow Rs.6 lakh Crores in FY 14-15.
vii. Governments disinvestment target set it at Rs.43,425 Crores. The government raised only
Rs.16,000 Crores in the 2013-14 budget.
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vii.A country cannot achieve a high level of growth with a high level of debt. USA has a debt of
$18 trillion plus. Best growth rate possible is less than 2% in the years ahead.
The current debt to GDP is approximately 70%.
In the Euro zone, many countries have more than 100% of GDP as debt. The growth rate is less
than 1%.
Japan, their debt level is staggering above 200% of GDP. It is in recession since 1989.
Towards interest payment, our government has allocated 20% of the budget expenditure of
Rs.17,94,892 Crores.
Budget 2014 positive for infrastructure in long term: Fitch
The country's Infrastructure sector will get a huge boost from the multitude budgetary proposals,
especially those on easing the funding for the sector, ratings agency Fitch said today.
It singled out the move to allow banks to raise long-term bonds for lending to longer gestation
infrastructure projects, and making it more attractive by giving concessions on the mandatory
bond holdings and cash reserve requirements, as one of the biggest positives.
"It is the measures to ease funding that are particularly noteworthy and will be critical for driving
the new investment cycle," it said.
Fitch said the new government led by Narendra Modi has made new long-term capital
investment cycle as a policy focus, which means fiscal and regulatory policy changes should be
supportive of corporates in the infrastructure, construction, and real estate industries.
However, these positives will not play out so much in the short term and are applicable only in
the medium to long term, it said.
Apart from Rs. 600 billion in direct infrastructure investments, special economic zones, new
ports and subway projects, the budget also included major announcements on urban
infrastructure and road building, it said.
Additionally, measures on the REIT (real estate investment trusts) will also be supportive to the
sector, while opening up the construction sector for greater foreign investor play.
On the power sector, the agency said the extension of tax benefits for generating companies by
three years will support their profits.
The plans to rationalise and improve coal supplies for power plants are also critical for
improving productivity, it added.
It can be noted that infrastructure is estimated to require over USD 1 trillion in investments
during the 12th Five-Year Plan period ending 2017. The sector has, however, suffered in the
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recent past due to host of reasons, including difficulties in getting project clearances, some
judicial interventions and also higher interest rates. (DNA Monday, 14 July 2014)
Per capita income
It can be calculated for a country by dividing the country's national income by its population.
Per capita income is often used as average income, a measure of the wealth of the population of a
nation, particularly in comparison to other nations. Per capita income is often used to measure a
country's standard of living. It is usually expressed in terms of a commonly used international
currency such as the Euro or USD, and is useful because it is widely known, easily calculated
from readily-available GDP and population estimates.
As it is a mean value, it does not reflect income distribution. If the distribution of income within
a country is skewed, a small wealthy class can increase per capita income far above that of the
majority of the population.
India's per capita income is projected to soar by 10.4 per cent to Rs.74,920 in 2013-14 as
the country becomes a $1.7 trillion economy. Per capita income is calculated by evenly
dividing the national income by the country's population.
India remains the poorest country among the G20, with per capita income at $1,499
compared to Chinas $6,807.

However, the increase in per capita income would be only 2.8 per cent in 2013-14 if it is
calculated on the basis of 2004-05 prices. The country's population is expected to increase to 123
crore by the end of March 2014, from 121.7 crore in March 2013.
Gross National Income (GNI)
Gross national income (GNI) is defined as the sum of value added by all producers who are
residents in a nation, plus any product taxes (minus subsidies) not included in output, plus
income received from abroad such as employee compensation and property income. GNI
measures income received by a country both domestically and from overseas. In this respect,
GNI is quite similar to Gross National Product (GNP), which measures output from the citizens
and companies of a particular nation, regardless of whether they are located within its boundaries
or overseas.
What is Balance of Trade(BoT)?
The difference between a country's imports and its exports. Balance of trade is the largest
component of a country's balance of payments. Debit items include imports, foreign aid,
domestic spending abroad and domestic investments abroad. Credit items include exports,
foreign spending in the domestic economy and foreign investments in the domestic economy. A
country has a trade deficit if it imports more than it exports; the opposite scenario is a trade
surplus.
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What is Balance of Payment?(BoP)
A statement that summarizes an economys transactions with the rest of the world for a specified
time period. The balance of payments, also known as balance of international payments,
encompasses all transactions between a countrys residents and its non residents involving
goods, services and income; financial claims on and liabilities to the rest of the world; and
transfers such as gifts.
The balance of payments classifies these transactions in two accounts the current account and
the capital account. The current account includes transactions in goods, services, investment
income and current transfers, while the capital account mainly includes transactions in financial
instruments.
It consists of two parts- current account and capital account. We require positive BoP while
combining the balances of current account and capital account. If for eg. the current account is in
deficit it could be offset by surplus in the capital account and vice versa. Negative balance of
payment means that existing foreign reserves will have to be used and this may result in further
decline in the reserve.
Components of current account
This is basically merchandise account and involves the differential between the exports and
imports of goods and services of a country.
Exports- Exports of merchandise means exports of tangible goods such as oil, wheat, clothes,
automobiles, computers etc. PLUS
Exports of services means export for example of consulting engineering services, royalties,
patents, insurance premiums, shipping fee PLUS
Factor income such as interest income, dividend income, income from foreign investments,
foreign aid, reparations, gifts etc. So the inflow of foreign exchange is through
Exports = Export of merchandise + Export of service + Factor income through import.
The total of exports less the imports is called the trade balance. The trade balance could be a
surplus or deficit. If it is surplus foreign reserves will go up. Similarly, if it is deficit the foreign
reserves will go down.
Capital account
This is basically the inflow and outflow of foreign money into our economy. The major
components are:
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Foreign Direct Investment: This is the money coming from overseas for investment. For eg. so
many foreign automobile companies have invested in India. We need to attract money for
investment in several sectors like banking, insurance, retail sector etc. PLUS
Foreign Institutional Investor: This is basically the money invested by foreign investors and
company in our stock and bond market . PLUS
Loan from Overseas: This includes external commercial borrowing by Indian companies (LT)
from overseas banks plus short-term loans from banks.
So Capital account equals money through FDI plus money through FII plus money through ST
and LT loan.
The Capital account generally will be negative only if either the FIIs pull their money out of the
market or the companys close business and repatriate their money.
Current account deficit
A measurement of a countrys trade in which the value of goods and services it imports
exceeds the value of goods and services it exports. The current account also includes net
income, such as interest and dividends, as well as transfers, such as foreign aid, though these
components tend to make up a smaller percentage of the current account than exports and
imports. The current account is a calculation of a countrys foreign transactions, and along with
the capital account is a component of a countrys balance of payment.
Current account deficit (CAD) is estimated to widen to $48.7 billion (2.2 per cent of GDP),
mainly due to improved industrial growth outlook which will boost imports. However, the
financing of CAD may not prove challenging due to higher capital inflows.
Gross Domestic Product (GDP)
The GDP is one the primary indicators used to gauge the health of a country's economy. It
represents the total value of all goods and services produced over a specific time period - you can
think of it as the size of the economy. Usually, GDP is expressed as a comparison to the previous
quarter or year. For example, if the year-to-year GDP is up 3%, this is thought to mean that the
economy has grown by 3% over the last year.
Measuring GDP is complicated, but at its most basic, the calculation can be done in one of two
ways: either by adding up what everyone earned in a year (income approach), or by adding up
what everyone spent (expenditure method). Logically, both measures should arrive at roughly the
same total.
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The income approach, which is sometimes referred to as GDP(I), is calculated by adding up total
compensation to employees, gross profits for incorporated and non incorporated firms, and taxes
less any subsidies. The expenditure method is the more common approach and is calculated by
adding total consumption, investment, government spending and net exports.
When the economy is healthy, you will typically see low unemployment and wage increases as
businesses demand labor to meet the growing economy. A significant change in GDP, whether
up or down, usually has a significant effect on the stock market. It's not hard to understand why:
a bad economy usually means lower profits for companies, which in turn means lower stock
prices.
GDP is commonly used as an indicator of the economic health of a country. Critics of using GDP
as an economic measure say the statistic does not take into account the - transactions that, for
whatever reason, are not reported to the government. Others say that GDP is not intended to
gauge material well-being, but serves as a measure of a nation's productivity.
When the RBI feels there is excess liquidity in the market, it resorts to sale of securities thereby
sucking out the rupee liquidity.
Similarly, when the liquidity conditions are tight, the RBI will buy securities from the market,
thereby releasing liquidity into the market.
DEBT POSITION OF THE GOVERNMENT OF INDIA
The outstanding internal and external debt and other liabilities of the Government of India at the
end of 2013-2014 is estimated to amount to Rs. 56,51,484.22 crore, as against Rs. 50,39,131.01
crore at the end of 2012-2013 (RE). Broad details are as follows:-
Rs.in crore
As on 31st March 2013 As on 31st March 2014
Internal debt and other
liabilities
48,66,829.00 54,68,622.11
of which under Market
Stabilisation Scheme
--- 20,000.00
External debt 1,72,302.01 1,82,862.11
Total 50,39,131.01 56,51,484.22
Indias external debt stock stood at US$ 440.6 billion at end-March 2014, increasing by US$
31.2 billion (7.6 per cent) over the level at end-March 2013. The external debt- GDP ratio was
23.3 per cent at end-March 2014, as against 22.0 per cent at end March 2013.
At end-March 2014, long-term external debt was US$ 351.4 billion, showing an increase of 12.4
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per cent over the level at end-March 2013. At this level, long-term external debt accounted for
79.7 per cent of total external debt at end-March 2014 vis--vis 76.4 per cent at end-March 2013.
Short-term external debt stood at US$ 89.2 billion at end-March 2014, showing a decline of 7.7
per cent over US$ 96.7 billion at the end-March 2013. This owed to the compression in import
arising from the slowdown in aggregate demand and restrictions on gold imports. Thus, the share
of short-term external debt in total external debt declined from 23.6 per cent at end-March 2013
to 20.3 per cent at end-March 2014.

Government (sovereign) external debt stood at US$ 81.5 billion at end-March 2014 vis-a-vis
US$ 81.7 billion at end-March 2013 and constituted 18.5 per cent of the total external debt at
end-March 2014 as against 19.9 per cent at end-March 2013. Government guaranteed external
debt was US$ 9.9 billion at end-March 2014 vis-a-vis US$ 9.5 billion at end-March 2013.
Government Finances
The gross fiscal deficit of the Central Government in budget estimates (BE) 2014-15 (FY15)
was placed at Rs.5,31,177 crore (4.1 per cent of GDP) as against Rs.5,24,539 crore (4.6per cent
of GDP) in the revised estimates (RE) for 2013-14. The gross and net market borrowing of the
Government in FY15 BE at Rs.6,00,000 crore and `4,61,205 crore shows anincrease of 6.4 per
cent and 1.6 per cent, respectively over the levels of `5,63,911 crore(gross) and `4,53,902 crore
(net) in FY14RE.
The total public debt (excluding liabilities under the Public Account) of the Government
increased to Rs.48,24,691 crore at end-June 2014 from Rs.46,53,458 crore at end-March
2014(Table 8). This represented a quarter-on-quarter (QoQ) increase of 3.7 per cent (provisional)
compared with an increase of 0.5 per cent in the previous quarter (Q4 of FY14). Internal debt
constituted 91.4 per cent of public debt, compared with 91.1 per cent at the end of the previous
quarter. Marketable securities (consisting of Rupee denominated dated securities and treasury
bills) accounted for 83.4 per cent of total public debt as compared with 82.8 per cent as at end-
March 2014. The outstanding internal debt of the Government at Rs.44,11,432.6 crore increased
marginally to 37.5 per cent of GDP at end-June 2014 from 37.3 per cent as at end-March 2014.






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