Establishes a system or provides guidelines to regulate cost and availability of credit in the country.
MEASURES OF MONEY STOCK
y M1 : currency with public ( Notes in circulation, coins)
and deposits at bank
(Described as money supply)
y M2 : M1 + Post office savings y M3 : M1 + Time deposits with banks
supply + fixed deposits with bank)
y M4 : M3 + Total post office deposits
INSTRUMENTS 0F MONETARY POLICY (CREDIT CONTROL )
1- General (quantitative controls) : To regulate total credit 2- Selective (qualitative controls) : To regulate specific form of credit
1- General (quantitative controls)
BANK RATE : the minimum rate at which central bank provides financial accommodation (i.e. loans) to commercial banks. It effects other interest rates. OPEN MARKET OPERATIONS : the purchase and sale by the central bank of a variety of assets like foreign exchange, gold, govt. securities, company shares. By this operation RBI works to assists govt. of India in its borrowing conditions and to maintain orderly condition of the market. Purchase of securities from commercial banks > increase in money supply
y VARIABLE RESERVE RATIO : An amount
deposited at central bank in the form of balance by commercial banks.
y STATUTORY LIQUID RATIO : According to
Bank Regulation Act, all banks have to maintain an amount of liquid assets which shall not be less than a certain specified percentage of their demand and time liabilities exclusive of cash balances.
2- SELECTIVE METHODS
SELECTIVE CREDIT REGULATION : Refers to regulation of credit for specific purpose or branches of economic activity. MORAL SUASION : Sometime suggestions are being given to banks or discussions held with them to control credit.
Policy of the government that governs expenditures and raise revenues by different means. It is done with the help of a tool called budget.
It is an estimate of revenue and expenditure for the financial year. It includes two sides
(a) Revenues (b) Expenditure.
CLASSIFICATION OF BUDGET
y 1- SURPLUS BUDGET : when revenues are higher than
y 2- DEFICIT BUDGET : when expenditures are higher than
y 3- BALANCED BUDGET : when revenues and
expenditures comes closer and no such deviation is found.
SOURCES OF REVENUE FOR UNION AND STATE
y 1- sources of revenues for union y 2- sources of revenues for state y 3- concurrent list
STRUCTURE OF BUDGET
Vertically two sides 1- revenue 2- expenditure Horizontally two parts 1- revenue account 2- capital account So it creates :1- revenue receipts : revenues from taxes 2- capital receipts : market loans, income from public undertakings, repayments etc. 3- revenue expenditure : current expenditures of govt. on administration 4- capital expenditure : capital transactions of govt.
IMPORTANCE OF BUDGET
1- Achieve economic stabilization 2- import substitution and export promotion 3- stimulates economic development 4- regulate expenditures 5- provide guidelines for expenditures in different sectors.