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ECONOMICS PROJECT

Should the Government Fight Recessions with Spending Hikes or Tax Cuts..??
Presented By: Ankit Mahajan Anuj Kumar Apoorva Verma Ariyama Yadav 12PGDM011 12PGDM012 12PGDM013 12PGDM014

FAVOUR

Arguments for fighting recessions with spending

What is recession
A Recession is a contraction phase of the business cycle. National Bureau of Economic Research (NBER) is the official agency in charge of declaring that the economy is in a state of recession. They define recession as :significant decline in economic activity lasting more than a few months, which is normally visible in real GDP, real income, employment, industrial production, and wholesaleretail sales. For this reason, the official designation of recession may not come until after we are in a recession for six months or longer.

What Causes Recession ?


An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years A recession normally takes place when consumers loose confidence in the growth of the economy and spend less. This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment Investors spend less as they fear stocks values will fall and thus stock markets fall on negative sentiment.

US Crisis Hits India.


US Crisis Hits India US faced major crisis because of - Subprime mortgage crisis (home loan defaults) Rising oil prices at $100 a barrel Global Inflation High unemployment rates A declining dollar value All this slowed down the growth of the economy and as the GDP growth rate fell to 2%, recession set in.

Total Expenditure And Revenue Of The Central Government


Years Total Expenditure (Rs. Crores) 501083 570185 Years TAX REVENUE (Rs. Crores)

2005-06 2006-07

2005-06
2006-07

665280
736708

2007-08
2008-09 2009-10(RE) 2009-11(BE)

688909
864530 1005298 1079955

2007-08
2008-09 2009-10(RE) 2009-11(BE)

870329
915450 996884 1160267

Source: Ministry of Finance, Government of India

Total Expenditure (Rs.crore)


1200000 1000000 800000 600000 400000 200000
Total Expenditure (Rs. Crores)

Tax Revenue
1400000 1200000 1000000 800000 600000

TAX REVENUE

400000
200000 0

OPERATIONS OF ROAD TRANSPORT


4400 4200 4000 3800 3600 Length of roads (Thousand km)
Years Length of roads Length of national highways 2004-05 3929.4 65.6 2006-07 4140.5 66.6 2007-08 4236.4 66.8

2004-5 2006-07 2007-08

Length of state highways

144.4

152.2

154.5

Source : Department of Road Transport & Highways. # Includes roads constructed under the Pradhan Mantri Gram Sadak Yojana (PMGSY) since December 2000 and erstwhile Jawahar Rozgar Yojana (JRY) of the 1990s.

Defence and subsidies


140000 120000 100000 80000 60000 40000 20000 0 Major subsidies
2005-2006 Major subsidies 44480 2006-07 53495

2005-2006 2006-07 2007-08 2008-09 2009-2010(BE)

2009-2010(PE)
Defene expenditure
2007-08 67498 2008-09 123581 20092010(BE) 106004

2010-2011(BE)
20092010(PE) 123396 20102011(BE) 109092

Defene 48211 expenditue

51682

54219

73305

86879

90668

87344

Source: Ministry of Finance, Government of India

Health expenditure, total (% of GDP)


4.2 4.1 2005 2006

4
3.9 3.8 VALUE

2007
2008 2009 2010

YEAR

2005

2006

2007

2008

2009

2010

VALUE

4.03

4.05

3.96

4.01

4.16

4.05

Health expenditure, total (% of GDP) in India was 4.05 as of 2010. Its highest value over the past 15 years was 4.84 in 2001, while its lowest value was 3.96 in 2007. Definition: Total health expenditure is the sum of public and private health expenditure. It covers the provision of health services (preventive and curative), family planning activities, nutrition activities, and emergency aid designated for health but does not include provision of water and sanitation. Source: World Health Organization National Health Account database (see http://apps.who.int/nha/database for the most recent updates).

EMPLOYMENT IN ORGANISED SECTORSPUBLIC AND PRIVATE


290

280
270 260 250 TOTAL 2005 public SECTOR(1) 180.07 PRIVATE SECTOR(2) 84.52 TOTAL(1+2) 264.58
Source: Ministry of Finance, Government of India

2005 2006 2007 2008

2009
2010

2006 181.88 88.05 269.93

2007 180.02 92.74 272.76

2008 176.74 98.75 275.49

2009 177.95 103.77 281.72

2010 178.62 108.46 287.08

(Lakh persons as on 31 March)

Under the NREGA, which is a major rural employment initiative, during the year 2009-10, 4.34 crore households have been provided employment so far. Out of the 182.88 crore person days created under the scheme during this period

Year 200607 200708 200809 $2.5bn $2.6bn $6.6bn

Total Outlay(TO) 66 68 67

Wage Expenditure(Percent of TO)

200910
201011

$8.68bn
$8.91bn

70
71

(MGNREGA) is an Indian job guarantee scheme, enacted by legislation on August 25, 2005. MGNREGA started with an initial outlay of $2.5bn(Rs 11300cr) in year 200607.The funding has considerably been increased as shown in the table below

Pay arrears are due from January 2006 till September 2008. Almost all the Government employees received 40% of the pay arrears in 2008 and balance 60% arrears (as promised by Government) has also been credited in Government employees account in 2009. The Sixth Pay Commission mainly focused on removing ambiguity in respect of various pay scales and mainly focused on reducing number of pay scales and bring the idea of pay bands. It recommended for removal of Group-D cadre.

GDP % PER YEAR


%GDP
12
10 8 6 4 2 0 %GDP

YEAR %GDP

2005-06 9.5

2007-08 9.6

2008-09 9.3

2009-2010 6.7

2010-2011 8.4

2011-2012 86.9

Source: Ministry of Finance, Government of India

So we can see that the Indian Government has increased the spending in order to come out of recession..