Professional Documents
Culture Documents
Fiscal
Fiscal
Economic Growth
Employment
Stabilization
Economic equality
Price Stability
Components of budget Revenue receipts Capital receipts Revenue expenditure Capital expenditure
Revenue receipts
700000
600000
500000
200000
100000
0 1990-91 2000-01 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08a 2008-09 2008-09
Capital Receipts
400000
350000
300000
250000
200000
Capital Receipts
150000
100000
50000
0 1990-91 2000-01 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08a 2008-09 2008-09
Revenue Expenditure
900000
800000 700000 600000 500000 400000 300000 200000 100000 0 1990-91 2000-01 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08a 2008-09 2008-09
Revenue Expenditure
Capital Expenditure
140000
120000
100000
80000
Capital Expenditure
60000
40000
20000
0 1990-91 2000-01 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08a 2008-09 2008-09
Public Debt
Government expenditure
Taxation
Government spending on the purchase of goods & services. Payment of wages and salaries of government servants Public investment
Transfer payments
Non quid pro quo transfer of private income to public coffers by means of taxes. 1. Direct taxes- Corporate tax, Div. Distribution Tax, Personal Income Tax, Fringe Benefit taxes, Banking Cash Transaction Tax 2. Indirect taxes- Central Sales Tax, Customs, Service Tax, Excise duty.
Direct Tax
400000
350000
300000
250000
200000
Direct Tax
150000
100000
50000
0 1990-91 2000-01 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08a 2008-09 2008-09
Indirect Tax
350000
300000
250000
100000
50000
0 1990-91 2000-01 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08a 2008-09 2008-09
Tax Rate
Nil 10% 20%
30% Over 5,00,000 Over 25,00,000 * Minimum slab changes to Rs 1.9 lakhs for women and Rs 2.4 lakhs for senior citizens
The Tax system has been modernized considerably. Eliminating exemptions and loopholes for both direct and indirect taxes would level the playing field, reduce distortions and make the system simpler for both tax payers and the administration.
1. 2.
Internal borrowings
Borrowings from the public by means of treasury bills and govt. bonds Borrowings from the central bank (monetized deficit financing)
1. 2. 3.
External borrowings Foreign investments International organizations like World Bank & IMF Market borrowings
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.
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
350000
300000
250000
100000
50000
0 1990-91 2000-01 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08a 2008-09 2008-09
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
1.
2.
Customs: Sharp reduction was effected in the import duty rates of various food items. 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: Service Tax continued at 10%. Tax base widened.
1. 2.
The part of the economic policy which regulates the level of money in the economy in order to achieve certain objectives.
In INDIA,RBI controls the monetary policy. It is announced twice a year, through which RBI,regulate the price stability for the economy.
1.Slack season policy April-September 2.Busy season policy October-March
India
U.S.A.
U.K. Pakistan
Establishment of RBI
Established in April 1935 with a share capital of Rs. 5 crores. Nationalized in the year 1949. Initially established in Calcutta but permanently moved to Mumbai in 1937.
Maximum feasible output. High rate of growth. Growth in employment & income Price stability. Stability of Forex & national currency Inflation Control Greater equality in the distribution of income and wealth. Healthy balance in balance of payments(BOP).
Repo rate: A repurchase agreement or ready forward deal is a secured short-term (usually 15 days) loan by one bank to another against government securities. Legally, the borrower sells the securities to the lending bank for cash, with the stipulation that at the end of the borrowing term, it will buy back the securities at a slightly higher price, the difference in price representing the interest.
Reverse repo rate is the rate that RBI offers the banks for parking their funds with it. Reverse repo operations suck out liquidity from the system.
Bank rate is the minimum rate at which the central bank provides loans to the commercial banks. It is also called the discount rate.
Dear money policy: Bank rate inc interest rate inc borrowing will be less profitable results contraction of credit.
Near money policy: Bank rate dec interest rate low borrowing will be more profitable results expansion of credit.
8.00
6.00 4.00 2.00 0.00
Years
In 1940s BR was at low 3% and remained unchanged till 1953.In 1953 RBI adopted policy controlled expansion BR raised to 3.5%.It reached at max. level in 1991 to 12%. Presently it is 6 %
The central bank of a country is empowered to determine within statutory limits, the cash reserve requirements of the commercial banks.
Statutory liquid ratio: Bank has to keep portion of total deposits with itself in liquid assets. Cash reserve ratio: The percentage of banks deposits which they must keep as cash with RBI.
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%
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 %
o o
Selective credit control They are distinguishable from quantitative tools by the fact that they are directed towards particular uses of credit and merely to total volume outstanding.
Rationing of credit. Changes in margin requirements. Moral suasion.
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 lions 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.
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.
SLR should not be used for directed investment in PSUs. It should be lower down to minimum limit of 25% CRR should be lower than the present rate. As an instrument it should be used less & Govt. should depend upon OMOs. Selective credit control should be slowly phased out Prime lending rate of commercial bank should be independent of RBI control
BANK RATE
CASH
COMMERCIAL BANKS
REDUCED BORROWING OF LOANS
CORPORATES
INDIVIDUALS
Following steps were taken: 1. Changes in Bank Rate from 3% in 1951 to 6% in 1965 and it remained the same till 1971. 2. Changes in SLR from 20% in 1956 to 28% in 1971.
3. Select Credit Control: In order to reduce the credit or bank loans against essential commodities, margin was increased.
2. Reverse Repo rate Through RRR, the RBI mops up liquidity from the banking system. The Repo rate was cut from 3.50% to 3.25%.
RBI In Recession
CRR cut to 5% Repo rate cut to 5.5% Reverse Repo rate cut to 4% Short-term lending and borrowing rates cut Slashed tax rates Injection of Money Opening up new borrowing channels for banks Government hikes its spending
IS CURVE
LM CURVE
IS/LM CURVE
Shifts in Curve
Expansionary Fiscal Policy - shifts IS right: will tend to increase Y and also increase the interest rate (r)
Contractionary Fiscal Policy - shifts IS left: will tend to reduce both Y and r Expansionary Monetary Policy - shifts LM right - reduces r and increases Y Contractionary Monetary Policy - shifts LM left increases r and reduces Y
Shifts in Curve
Thank You.