The document discusses various topics related to monetary policy, fiscal policy, trade policy, budgets, capital markets, and financial institutions in India. It defines key concepts such as monetary policy, fiscal policy, primary and secondary capital markets, money markets, the Reserve Bank of India's credit policy, mobilization of savings, industrial sickness, trade policy, foreign direct investment, and competition commissions. The document provides overviews and explanations of these economic and financial terms.

1. Module 5
By
Kiran Kumar Thoti

2. Monetary policy
•
Monetary policy is the process by which
monetary authority of a country, generally a
central bank controls the supply of money in
the economy by its control over interest rates
in order to maintain price stability and achieve
high economic growth.
•
In India, the central monetary authority is
the Reserve Bank of India (RBI) is so designed
as to maintain the price stability in the
economy.

3. Contd..
•
Price Stability
•
Controlled Expansion Of Bank Credit
•
Promotion of Fixed Investment
•
Restriction of Inventories and stocks
•
Promotion of Exports and Food Procurement
Operations
•
Desired Distribution of Credit
•
Equitable Distribution of Credit

4. Fiscal policy
•
In economics and political science, fiscal
policy is the use of
government revenue collection (mainly taxes)
and expenditure (spending) to influence the
economy.
•
According to Keynesian economics, when the
government changes the levels of taxation and
government spending, it influences aggregate
demand and the level of economic activity.
•
Fiscal policy can be used to stabilize the

5. Contd..
•
The two main instruments of fiscal policy are changes in
the level and composition of taxation and government
spending in various sectors. These changes can affect the
following macroeconomic variables, amongst others, in
an economy:
•
Aggregate demand and the level of economic
activity;
•
Savings and Investment in the economy
•
The distribution of income

6. India’s Trade policy
•
Foreign trade in India includes all imports and
exports to and from India.
•
At the level of Central Government it is
administered by the Ministry of Commerce
and Industry

7. Free trade agreements
•
A free-trade area is the region encompassing
a trade bloc whose member countries have
signed a free trade agreement (FTA).
•
Such agreements involve cooperation
between at least two countries to reduce
trade barriers—import quotas and tariffs—
and to increase trade of goods and services
with each other.
•
If people are also free to move between the
countries, in addition to FTA, it would also be

8. Budget
•
A budget is a quantitative expression of a plan
for a defined period of time.
•
It may include planned sales volumes and
revenues, resource quantities, costs and
expenses, assets, liabilities and cash flows.
•
It expresses strategic plans of business units,
organizations, activities or events in
measurable terms

9. Budget Purpose
•
Budget helps to aid the planning of actual
operations by forcing managers to consider
how the conditions might change and what
steps should be taken now and by encouraging
managers to consider problems before they
arise.
•
It also helps co-ordinate the activities of the
organization by compelling managers to
examine relationships between their own
operation and those of other departments.

10. CAPITAL MARKET
Ø The market where investment instruments
like bonds, equities and mortgages are
traded is known as the capital market.
Ø The primal role of this market is to make
investment from investors who have
surplus funds to the ones who are running
a deficit.

11. Ø The capital market offers both long term
and overnight funds.
Ø The different types of financial
instruments that are traded in the capital
markets are:
> equity instruments
> credit market instruments,
> insurance instruments,
> foreign exchange instruments,
> hybrid instruments and
> derivative instruments.

12. Types of capital market
There are two types of capital market:
Ø Primary market,
Ø Secondary market

13. Primary Market
Ø It is that market in which shares,
debentures and other securities are
sold for the first time for collecting
long-term capital.
Ø This market is concerned with new
issues. Therefore, the primary market
is also called NEW ISSUE
MARKET.

14. Ø
In this market, the flow of funds is from
savers to borrowers (industries), hence, it
helps directly in the capital formation of
the country.
Ø
The money collected from this market is
generally used by the companies to
modernize the plant, machinery and
buildings, for extending business, and for
setting up new business unit.

15. Features of Primary Market
Ø It Is Related With New Issues
Ø It Has No Particular Place
Ø It Has Various Methods Of Float Capital:
Following are the methods of raising capital in
the primary market:
i) Public Issue
ii) Offer For Sale
iii) Private Placement
iv) Right Issue
v) Electronic-Initial Public Offer

16. Secondary Market
Ø The secondary market is that market
in which the buying and selling of the
previously issued securities is done.
Ø The transactions of the secondary
market are generally done through the
medium of stock exchange.
Ø The chief purpose of the secondary
market is to create liquidity in

17. Ø If an individual has bought
some security and he now wants
to sell it, he can do so through the
medium of stock exchange to sell
or purchase through the medium
of stock exchange requires the
services of the broker presently,
their are 24 stock exchange in
India.
.

18. Features of Secondary Market
•
It Creates Liquidity
•
It Comes After Primary Market
•
It Has A Particular Place
•
It Encourage New Investments

19. Money market
•
Short term instruments
•
Pure discount securities
•
Contracts up to 1 year
•
Huge volume and vigorous competition
•
No physical place
•
Essentially for professionals ( banks, fin. institutional
investors, brokerage firms, companies)
•
Liquidity ( fine spreads based on interest rate of lending and
borrowing)
•
Creditworthiness (risk and return) 19Vallyon Andrea 2010

20. RBI credit policy
•
In its efforts to keep inflation under check and
spur economic growth, the RBI has a quiver
full of arrows that it uses to control the flow of
money into the economy:
•
Bank rate is the rate at which RBI lends to
commercial banks. This influences the interest
rates commercial banks charge their
customers.

21. Contd..
•
The cash reserve ratio stipulates the minimum
proportion of deposits that banks must hold
with the central bank. When the RBI increases
the CRR, banks have fewer funds to lend or
invest since they have to park more money
with the central bank, helping it control
liquidity in an economy
•
Statutory liquidity ratio defines the minimum
proportion of their deposits that banks have
to maintain at the close of business every day

22. Contd..
•
Repo rate is the rate the central bank charges
to lend to banks against securities. If banks
have to pay more to borrow money, they may
increase the rates they charge their customers
or may borrow less, thus reducing inflation.
•
Reverse repo rate is the rate at which the RBI
borrows money from banks. So if the RBI hikes
the reverse repo rate, banks will be happy to
keep more funds with the RBI since they get a
higher rate of return.

23. Mobilization of savings for
Investment
•
the mobilization of savings entails three
distinct operations :
•
firstly, the increase in the saving ratio ;
•
secondly, the process of collecting savings
from the savers ; and,
•
thirdly, the process of transmitting savings to
borrowers for investment.
•
The analysis of economic behavior in financial
markets has suggested that there might be

24. Contd..
•
Raining the saving ration
•
Incentive s fo r th e mobilizatio n o f savings
•
Increasing the demand for investment
•
Inflation and the mobilization of savings
•
Centralization of savings and investment.
•
Differential returns
•
Policies for optimum allocation of Resources:
A digression

25. Mobilization of Savings
(case on Dharaka Mahela Scheme)
•
The group must determine the amount to be
saved by each member;
•
A specific day should be agreed for payment
of savings to ensure regular savings;
•
Each group member should be given a savings
book into which amounts saved are recorded
by group officials;
•
The group should open a groups savings
account into which all members' savings will

26. Industrial sickness
•
Industrial sickness is defined in India as "an
industrial company (being a company
registered for not less than five years) which
has, at the end of any financial year,
accumulated losses equal to, or exceeding, its
entire net worth and has also suffered cash
losses in such financial year and the financial
year immediately preceding such financial
year"

27. Causes of sickness in small scale
industry
Internal causes for sickness
•
Lack of Finance
•
Bad Production Policies
•
Marketing and Sickness
•
Inappropriate Personnel Management
•
Ineffective Corporate Management
External causes for sickness
•
Personnel Constraint

28. EXIM policy
•
Exim Policy or Foreign Trade Policy is a set of
guidelines and instructions established by
the DGFT in matters related to the import and
export of goods in India.
•
The Foreign Trade Policy of India is guided by
the Export Import in known as in short EXIM
Policy of the Indian Government and is
regulated by the Foreign Trade Development
and Regulation Act, 1992.
•
DGFT (Directorate General of Foreign

29. Contd..
•
Exim Policy Committee to review the
government previous export import policies.
The committee was later on approved by the
Government of India.
•
Mr. V. P. Singh, the then Commerce Minister
and announced the Exim Policy on the 12th of
April, 1985.
•
Initially the EXIM Policy was introduced for the
period of three years with main objective to
boost the export business in India

30. Contd..
•
Indian EXIM Policy contains various policy
related decisions taken by the government in
the sphere of Foreign Trade, i.e., with respect
to imports and exports from the country and
more especially export promotion measures,
policies and procedures related thereto.
•
Trade Policy is prepared and announced by the
Central Government (Ministry of Commerce).
•
India's Export Import Policy also know as
Foreign Trade Policy, in general, aims at

31. FDI in manufacturing and Service
•
Foreign direct investment (FDI) inflows into
the services sector experienced a boom during
the 1990s.
•
By 2002, services accounted for 60% of the
world stock of FDI, a four-fold increase since
1990 (UNCTAD, 2004).
•
The main recipients of FDI have been profit-
seeking producer services which range from
network-intensive services such as electricity,
telecommunications, and transport to finance

32. Contd..
•
A potentially powerful means to achieve such
improvements is FDI which can lead to
increases in the quality and variety of services
available and lower their cost.
•
Manufacturing firms may also benefit from
their interaction with foreign services
suppliers through spillovers of management,
organizational, marketing, or technological
knowledge.

33. Competition Commission
•
The Competition Commission was a non-
departmental public body responsible for
investigating mergers, markets and other
enquiries related to regulated industries
under competition law in the United Kingdom.
•
It was a competition regulator under
the Department for Business, Innovation and
Skills (BIS).
•
It was tasked with ensuring healthy
competition between companies in the UK for

34. Contd..
•
The Commission has been in past engaged in
undertaking advocacy with ministries,
regulators, state governments and other
authorities.
•
For examples: The Commission has given its
opinion on the draft of Petroleum and Natural
Gas Regulatory Bill, 2005.
•
Warehousing (Development and Regulation)
Bill, 2006 Indian Post Office (Amendment) Bill,
2007, and the Shipping Trade Practices Bill,