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BUSINESS ENVIRONMENT-II BY S.SENTHIL GAVASKAR M.E;MBA ;(P.

hD) CLASS :2 DATE:19/8/2013

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contents
Salient features of Indian economic planning Achievements of economic planning Urbanization and its impact Fiscal Policy Monetary policy

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SALIENT FEATURES OF INDIAS FIVE YEAR PLANS Democratic Decentralized planning Regulatory mechanism Existence of central and state plan Public and private sector plan Periodic plan Balanced regional development Perspective planning on basic issues or problems Programme implementation and evaluation

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ACHIEVEMENTS OF PLANNING
Increase in national income Increase in per capita income Increase in rate of capital formation Development of agriculture

Elimination of disparity among people in the society


Development of infrastructure Employment generation

Attainment of self reliance


Development of science and technology Price stability and control
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URBANIZATION AND ITS IMPACT


An urban area is defined as follows: all places with a municipality, corporation, cantonment board or notified town area committee,

all other places which satisfy the following criteria : 1) a minimum


population of 5000 ii) at least 75% of the male working population engaged in non-agricultural pursuits iii) a density of population of at least 400 persons per sq km.

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Urbanization means the proportion of a nations population living in urban areas. Urbanization occurs when the urban population increases at a rate higher than that of the increase in total population. The degree of urbanization in India has been increasing at a slow pace. Urban population as a percentage of total population increased from 17.3 % in 1951 to 45% in 2012. In India the growth of industries also made a significant

contribution to the cause of urbanization.


Urbanization has taken place largely due to migration of people from rural to urban areas mainly in search for Job.
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POSITIVE EFFECTS
Economic growth through economies of scale enlarge market due to population growth results in increase in demand for products and services It leads to specialization, inventions, advanced technology, greater diversity of goods and services. Efficient transport and communication

system .

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NEGATIVE EFFECTS
It leads to overcrowding in cities and considerable pressure on basic civic amenities. The Government has to spend huge resource on power, water facilities, transport, public health and other services.

More demand for specialized labor due to shortage of labour


labors demand for more wages Increase in pollution rate. Cost of living is high in urban areas Difficult to get land within the city, where many industries are located at the outskirts of the city.
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FISCAL POLICY
In economics and political science, fiscal policy is the use of government expenditure and revenue collection (taxation) to influence the economy. It refers to the Revenue and Expenditure policy of the Govt. which is generally used to cure recession and maintain economic stability in the country.

Fiscal policy can be contrasted with the other main type of macroeconomic policy, monetary policy, which attempts to stabilize the economy by controlling interest rates and spending.
The two main instruments of fiscal policy are government expenditure and taxation. Changes in the level and composition of taxation and government spending can impact the following variables in the economy: Aggregate demand and the level of economic activity; The pattern of resource allocation; The distribution of income.
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Stances of fiscal policy


The three main stances of fiscal policy are: i) Neutral fiscal policy is usually undertaken when an economy is in equilibrium. Government spending is fully funded by tax revenue and overall the budget outcome has a neutral effect on the level of economic activity. ii)Expansionary fiscal policy involves government spending exceeding tax revenue, and is usually undertaken during recessions. iii) Contractionary fiscal policy occurs when government spending is lower than tax revenue, and is usually undertaken to pay down government debt..

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INSTRUMENTS OF FISCAL POLICY 1. Reduction of Govt. Expenditure 2. Increase in Taxation 3. Imposition of new Taxes 4. Wage Control 5.Rationing 6. Public Debt 7. Increase in savings 8. Maintaining Surplus Budget

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OTHER MEASURES

1. Increase in Imports of Raw materials


2. Decrease in Exports

3. Increase in Productivity
4. Provision of Subsidies

5. Use of Latest Technology


6. Rational Industrial Policy
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Methods of funding

Governments spend money on a wide variety of things, from the military and police to services like education and healthcare, as well as transfer payments such as welfare benefits. This expenditure can be funded in a number of different ways:
Taxation Seigniorage, the benefit from printing money Borrowing money from the population or from abroad Consumption of fiscal reserves. Sale of fixed assets (e.g., land).

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Borrowing A fiscal deficit is often funded by issuing bonds, like treasury bills or consols and gilt-edged securities. These pay interest, either for a fixed period or indefinitely. If the interest and capital requirements are too large, a nation may default on its debts, usually to foreign creditors. Public debt or borrowing : it refers to the government

borrowing from the public.

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What is monetary policy? The Monetary and Credit Policy is the policy statement, traditionally announced twice a year, through which the Reserve Bank of India seeks to ensure price stability for the economy. The Monetary Policy regulates the supply of money and the cost and availability of credit in the economy. It deals with both the lending and borrowing rates of interest for commercial banks. The Monetary Policy aims to maintain price stability, full employment and economic growth. The Monetary Policy is different from Fiscal Policy as the former brings about a change in the economy by changing money supply and interest rate, whereas fiscal policy is a broader tool with the government.
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The Fiscal Policy can be used to overcome recession and control inflation. It may be defined as a deliberate change in government revenue and expenditure to influence the level of national output and prices. What are the objectives of the Monetary Policy?

The objectives are to maintain price stability and ensure adequate flow of credit to the productive sectors of the economy.
Stability for the national currency (after looking at prevailing economic conditions), growth in employment and income are also looked into. The monetary policy affects the real sector through long and variable periods while the financial markets are also impacted through short-term implications.
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INSTRUMENTS OF MONETARY POLICY 1. Bank Rate of Interest 2. Cash Reserve Ratio 3. Statutory Liquidity Ratio 4. Open market Operations 5. Margin Requirements 6. Deficit Financing 7. Issue of New Currency 8. Credit Control

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1.BANK RATE OF INTEREST

It is the interest rate which is fixed by the RBI to control the


lending capacity of Commercial banks . During Inflation , RBI increases the bank rate of interest due to which borrowing

power of commercial banks reduces which thereby reduces the


supply of money or credit in the economy .When Money supply Reduces it reduces the purchasing power and thereby curtailing Consumption and lowering Prices.

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2. CASH RESERVE RATIO (CRR)

CRR, or cash reserve ratio, refers to a portion of deposits (as


cash) which banks have to keep/maintain with the RBI. During Inflation RBI increases the CRR due to which commercial

banks have to keep a greater portion of their deposits with


the RBI . This serves two purposes. It ensures that a portion of bank deposits is totally risk-free and secondly it enables that RBI control liquidity in the system, and thereby, inflation.

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3. STATUTORY LIQUIDITY RATIO (SLR)

Banks are required to invest a portion of their deposits in


government securities as a part of their statutory liquidity ratio (SLR) requirements . If SLR increases the lending capacity

of commercial banks decreases thereby regulating the supply


of money in the economy.

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4. OPEN MARKET OPERATIONS

It refers to the buying and selling of Govt. securities in the


open market . During inflation RBI sells securities in the open market which leads to transfer of money to RBI.Thus money

supply is controlled in the economy.

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5. MARGIN REQUIREMENTS During Inflation RBI fixes a high rate of margin on the securities kept by the public for loans .If the margin increases the commercial banks will give less amount of credit on the securities kept by the public thereby controlling inflation.

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6. DEFICIT FINANCING

It means printing of new currency notes by Reserve Bank of India.


If more new notes are printed it will increase the supply of money thereby increasing demand and prices.

Thus during Inflation, RBI will stop printing new currency notes
thereby controlling inflation.

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7. ISSUE OF NEW CURRENCY

During Inflation the RBI will issue new currency notes replacing
many old notes. This will reduce the supply of money in the economy.

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THANK YOU

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