Fiscal and Monetary Policy are an important tool for growth of any country. Here we have focused on these policies with respect to India over last decade. We have tried to focus on the functioning of these policies, their impact on growth and development of Economy by taking in perspective of human development. We also found the instances when both of these policies were in tandem and when they were not. The presentation also takes into consideration the impacts of Global Crisis on India which occurred in 2008-2009.
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Analysis of Fiscal and Monetary Policy of India for last decade (2004-2014)
1. FISCAL AND MONETARY POLICIES OF INDIA
AND THEIR IMPACT ON ECONOMY
IN LAST DECADE (2004 – 2014)
Janki Shah 131017
Jayraj Dave 131018
Jayheel Shah 131019
Kavi Pandya 131020
Kevin Shah 131021
Madhav Chauhan 131022
Manindar Sambhi 131024
GROUP-3
2. OUTLINE
• Fiscal Policies
1.Expenditure by Government
2.Taxation
• Monetary Policies
1.RBI policies
• Impact on Economy
1.Human development Index
2.Economic development
-> Coordination among Fiscal and Monetary
Policy
5. OVERVIEW:
-> India is a developing country having high unemployment rate. Thus, to
incorporate majority of its population into employment, it goes on amass public
expenditure whenever possible.
-> The above fact can be noted from above graph, showing linear increase in
the various government expenditure till 2008-2009.
-> Due to Global Crisis of 2008-2009, many of the people loose their job and
economy began to be in the period of recession.
-> To bring the economy out of recession, government increased its spending
tremendously to increase the flow of money into the market. Thus, the graph
shows the peak during the year 2009-2011.
-> This increased flow of money increased the money supply in the great
extent, leading to a rocket growth in inflation and to curtain that government
reduced its spending for year 2011 -2013.
-> With inflation under control it again began its normal expenditure policy
thereon.
-> Thus we see that the global crisis of 2008 actually affected government
expenditure policy till 2013.
7. OVERVIEW
-> Total Tax Revenue has increased linearly every year. Showing that each year
there is growth in the economic and there is increment in the salary of people and
that is transferred in terms of tax in the economy.
-> Similarly service tax has also incremented with year. Only, because of Global
Crisis of 2008-2009 there was need to bring economy out of recession and for the
same to increase the flow of money in the market, tax rates were reduced which
directly resulted in more disposable income with the normal residents of India.
->It is important to note that there has been an decrease in the corporate tax-
rates over the year. This, basically indicates that government is making its easy for
the business to operate within the countries by reducing tax burdens on the
company. The lesser the taxes, the more affordable it is for company to operate
and thus more employment.
->Customs too has been increased to check limits on import and by doing so it
aims at increasing the money supply into the domestic market.
12. ANALYSIS
Trends :
2004-2007
there is gradual increase in CRR, repo rate, reverse repo rate.
thus it shows that inflation was growing gradually, this was cost push
inflation
GDP per year grows gradually. thus the money in our country increases
thus shows a little increase in the income of the people.
increase in GDP should have resulted in decrease in unemployment, and
increase in inflation.
2008-2009
rapid increase of CRR, repo rate , reverse repo
showing a very high indication of growing inflation.
inflation was due to the rise in oil prices leading to cost push inflation
13. ANALYSIS
2009-2010:
the depression originated in America had brought about depression in
the indian economy. thus to equalise its effects, the CRR,repo
rate,reverse repo rates were decreased so that the money can be
more supplied in the market, so that india may rise from the
depression.
GDP of india was greatly hampered
unemployment all increased during this time
But due to better measures India didn’t incur huge losses
2011-2014:
gradually decreasing the CRR,repo rate ,reverse repo rate signs of
weaker economy
our GDP decreased drastically hence decreased CRR would help
us recover our GDP and thus creating more jobs and may
decrease unemployment.
Thus it was important to create more money supply
15. ANALYSIS
FDI:
2003-2007
Between flow of FDI increased 4 times thus showing trust in the Indian
market
2008-2009:
flow decreased due to
1) global depression
2) flow decreased due to the deterioration in the credit market
3) due to fragile and uncertain economy
its effect on the market:
investment decreased,
people lost hope in Indian market, thus people of India stopped investing
money
after 2010:
it remain stagnant for uncertain economy
after 2014 elections:
FDI flow increased due to new government and positive feedback
indian people also started investing more
16. ANALYSIS
Sectors affecting/invested by FDI
• manufacturing sector got continuous flow of FDI, be it inflation or
depression
• IT sector got blow by depression, as most of their customers were from
outside india, depression or deflation leads to losing their customers
Land:
prices of land in major cities increased manifold during 2008-2009. this was
due to a effect of inflation and nice GDP ,growing economy that many
companies got into the major cities providing job opportunities and due to
nice economy, people came for better prospects, increasing the price of
land.
this in turn led to more inflation, because most of the money acquires form
land, real estate doesn't go for taxation, thus a high flow of black money
prevails, and in turn leads to more demand for goods, increasing inflation.
18. LITERACY
Indian literacy rate has grown to 74.04% (2011
figure) from 12% at the end of British Rule in 1947.
Although this was a greater than sixfold
improvement, the level is well below the world
average literacy rate of 84%, and of all nations,
India currently has the largest illiterate population.
19.
20. REASON FOR LOW LITERACY RATE
One of the main factor is lack of proper schooling
facilities.
The average Pupil Teacher Ratio for All India is
1:42, implying teacher shortage.
Absolute poverty in India has also deterred the
pursuit of formal education as education is not
deemed of as the highest priority among the poor
as compared to other basic necessities.
The large proportion of illiterate females is another
reason for the low literacy rate in India.
21. STEPS TAKEN
The National Literacy Mission, launched in 1988. It
imparts functional literacy to non-literates in the age
group of 35–75 years.
The Census 2013 provisional reports indicate that
India has made significant progress in the field of
literacy during the decade since the previous
census in 1991.
The Sarva Siksha Abhiyan was launched in 2001
to ensure that all children in the 6–14-year age-
group attend school and complete eight years of
schooling by 2010.
22. INFANT MORTALITY RATE
The infant mortality rate (IMR) is the number
of deaths of infants under one year old per 1,000
live births.
The current Infant Mortality Rate (IMR) of India, as
per the Sample Registration System (SRS) 2013,
is 40 per 1,000 live births.
The infant mortality rate of the world is 49.4
according to the United Nations and 42.09
according to the CIA World Factbook.
24. MATERNAL MORTALITY RATE
- The Maternal mortality rate (MMR) is the annual
number of female deaths per 100,000 live births
from any cause related to or aggravated by
pregnancy or its management (excluding accidental
or incidental causes).
26. STEP TAKEN BY GOVERNMENT TO REDUCE
IMR & MMR
Navjaat Shishu Suraksha Karyakram (NSSK).
Home Based New Born Care (HBNC) through
ASHAs with series of home visits.
Establishment of Nutritional Rehabilitation Centres
to address severe and acute malnutrition.
Promotion of institutional deliveries through Janani
Suraksha Yojana (JSY).
Janani Shishu Suraksha Karyakaram (JSSK) has
been launched on 1st June, 2011.
27. LIFE EXPECTANCY
The average period that a person may expect to live is
can Life Expectancy.
The Life Expectancy of the World is 71 years.
The Life Expectancy in India is 67.11 years.
28. GRAPH FOR LIFE EXPECTANCY
62
63
64
65
66
67
68
Life Expectancy
Life Expectancy
29. REASON
As we see the expected
Life Expectancy in India
is least.
The reasons for this is
that the Expected
schooling years are
minimum when
compared to other
countries.
And due lack of
education there is less
employment and lesser
income.
31. GDP (GROSS DOMESTIC PRODUCT)
GDP is the standard measure of the value of final
goods and services produced by a country during a
period minus the value of imports.[1]
GDP estimates are commonly used to measure the
economic performance of a whole country or
region.[2]
33. POVERTY RATE
The poverty rate is the ratio of the number of
people who fall below the poverty line and the total
population.[3]
The poverty line is here taken as half the median
household income.[3]
It is a common characteristic found in all developing
and underdeveloped nations.
In actual sense poverty means poor economic
development.
35. UNEMPLOYMENT
The unemployment rate is a measure of the
prevalence of unemployment and it is calculated
as a percentage by dividing the number
of unemployed individuals by all individuals
currently in the labor force.
During periods of recession, an economy usually
experiences a relatively high unemployment rate.
37. IMPORT PRICES
Import Prices correspond to the rate of change in
the prices of goods and services purchased by
residents of that country from, and supplied by,
foreign sellers.
Import Prices are heavily affected by exchange
rates.
39. EXPORT PRICES
Export Prices correspond to the rate of change in
the prices of goods and services sold by residents
of that country to foreign buyers.
Export Prices are heavily affected by exchange
rates.
41. NATIONAL INCOME
The total net value of all goods and services produc
ed within a nation over a specified period of time, re
presenting the sum of wages,profits, rents, interest,
and pension payments to residents of the nation.
43. COORDINATION BETWEEN MONETARY POLICY AND
FISCAL POLICY
Together in Crisis:
-> During the times of global crisis they work in tandem with each other:
In 2008-2009 crisis:
For 2009-2010
RBI slashed:
CRR from 9.0 percent to 5.0 percent,
SLR 25.0 percent to 24.0 percent,
Repo-Rate 9.0 percent to 4.75 percent and
Reverse Repo Rate 5.0 percent to 3.25 percent from July 2008 to July 2009
Governments Reaction:
In the same time, cuts the excise duty, customs duty and service tax to increase
the demand of industrial goods. Doing so, it aims at incrementing supply of
money in the market.
44. ->Governments borrowing requirement is catered by RBI:
Whenever borrowing demand is increased RBI tries to absorb the liquidity from
the market by increasing CRR.
For example in 2010-2011 CRR was increased from 5.75 to 6 to absorb
Rs12,500 crore of liquidity from the market. This, was done to cater to
government’s borrowing requirements.
-> RBI changing rates depending upon governments policy:
When Governments focuses/device policy of infrastructure or other sector then
RBI makes it easier to get loans in that sector.
Summary:
-> To satisfy all the above needs and relation among the activities we witness
that over the years both Government and RBI have worked parallel with each
other decreasing CRR and monetary rates at same time when there is
decrease in the taxes by government.
45. UN-CORDINATION
In 2008 and 2009 there was an indifference of opinion on the
amount of stimulus to be given to the people.
-> RBI demanded more stimulus but Government provided an
underfunded budget. As a result its net market borrowings more than
doubled from the initial estimates.