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Current fiscal and monetary ,industrial policy in India
- 1. CURRENT FISCAL &MONETARYPOLICY IN INDIA BY Dr.S.Subbalakshmi,MA,MPhil,PhD Chair, Business & Economics FBS Business School Vijayawada & Bangalore
- 2. Current Fiscal andMonetary Policy in India • What is fiscal policy? • It is government’s policy of expenditure and revenue. • What is monetary policy ? • It refers to the use of instruments under the control of Reserve Bank Of India to regulate the availability cost and use of credit.
- 3. Objectives of Fiscalpolicy in India 1. Resource mobilization and their efficient allocation. 2. To control inflation. 3. To reduce income inequalities through progressive taxation. 4. To facilitate balanced regional development. 5. Employment generation. 6. Capital formation and growth in National Income.
- 4. Continue…. 7.Allocation of resourcesto social and developmental objectives. 8.Reduction of balance of payments deficits TOOLS OF FISCAL POLICY. • Public expenditure • Government borrowings ( 1.from RBI , by selling bonds and securities to public ,2. from international financial institutions) • Income of the government(Revenue of the government)
- 5. Public expenditure • Planexpenditure Non plan expenditure • Incurred by centralIncurred by central government on programmes and projects(roads, bridges , canals ,railways ,energy generation, irrigation and rural development, science and technology. It includes both capital and revenue expenditure Interest payments , subsidies, salaries to government employees , grants to states &union territories , pensions , defense, police, maintenance of law & order
- 6. Revenue of theGovernment Revenue receipts Capital Receipts TAX REVENUE 1) DIRECT TAXES 2) INDIRECT TAXES NON TAX REVENUE PROFITS FROM GOVT FINANCIAL INSTITUTIONS &PSU PAYMENTS OF INTERESTS PAID BY STATE GOVTS & LOCALBODIES ON LOANS TAKEN FROM GOVT. 2) BORROWINGS FROM VARIOUS SOURCES 1)
- 7. Government borrowing 1. Borrowingfrom market by issuing bonds and selling it to public. 2. Borrowing from Reserve Bank India. 3. Borrowings from international finance institutions like World Bank and IMF. 4. Borrows by selling treasury bills through Reserve Bank of India 5. Raising funds from public such as national savings schemes , post office saving deposits provident fund collections etc.
- 8. BUDGET DEFICIT&FISCAL DEFICIT •Budget deficit is the difference between total receipts (Revenue + Capital) and total expenditure( including borrowings and liabilities in revenue receipts) • Fiscal deficit is budget deficit plus borrowings and other liabilities. • Fiscal deficit is more comprehensive measure to know the resource gap. • Fiscal deficit is estimated to be 3.2% of GDP in the current budget 2017-2018.
- 9. Fiscal consolidation • Fiscalconsolidation is reducing the fiscal deficit. • It can be done either by reducing public expenditure or by increasing public revenue. • It does not mean to increase the tax rates indiscriminately. • By increasing the tax base and controlling the parallel economy ,using progressive taxation methods public revenue can be increased . • Promote public expenditure towards investments in key sectors like infrastructure that will generate income to the government.
- 10. Important data -current fiscal policy 2017-2018 • Current fiscal deficit – 3.2% of GDP. • Revenue deficit -- 1.9% • Tax revenue as % of GDP –18% • Direct tax revenue to GDP – 11.3% • Direct tax revenue in total tax collections – 60%
- 11. Current Monetary policy Ason 19-5-2017 Bank rate --- 7.75% Cash reserve ratio --- 4% Statutory liquidity ratio --- 20 % Repo rate ---- 6.25% Reverse repo rate ---- 6%
- 12. Curative measures • Curativemeasures – Quantitative credit control measures • Monetary policy – Quantitative measures are • Bank Rate: Bank rate is the rate at which central bank discounts the bills of commercial banks. Undue expansion is prevented by increase in the bank rate – credit made dearer. During depression bank rate is decreased – stimulates business activity – help recovery.
- 13. Open market operations •Open market operations - Deliberate direct sale and purchase of government securities and bills . • During depression – purchase of securities – cash reserves with commercial banks strengthens, credit expansion takes place. During Boom – RBI sells securities – cash reserves with banks decrease – credit becomes dearer – investment options decrease.
- 14. Variable reserve ratio •Cash reserve ratio – refers to that portion of total deposits which commercial bank has to keep with RBI in the form cash reserves. . • Boom : CRR is increased • Depression : CRR is decreased
- 15. Statutory Liquidity Ratio •Statutory Liquidity Ratio: SLR is that portion of total deposits which the commercial bank is required to keep with itself in the form of liquid assts ie., cash, gold or government securities. • Boom : SLR is increased • Depression: SLR is decreased
- 16. continued • Reporate: Therate at which commercial banks borrow from RBI • Boom: Repo rate is increased – borrowing becomes costlier. • Depression – Repo rate is reduced – borrowings from RBI becomes cheaper.
- 17. Reverse Repo rate •Reverse Repo rate: The rate at which RBI borrows money from banks. • Boom: Reverse repo rate is increased. Commercial banks transfer more funds to RBI • Reserves with banks reduced – loans become costlier • Depression: Reverse repo rate is decreased – funds remain with banks – credit becomes cheaper.
- 18. Qualitative credit controlmeasures • Fixation of margin requirements • Consumer credit regulation for speculation • Issue of directives ( appeals or warnings written or oral) • Rationing of credit- based on purpose wise • Moral suasion – asking for cooperation from commercial banks to monetary policy • Direct action – Charging penal rate of interest.
- 19. New Industrial Policy •Aim --- To promote and develop frontier technologies innovations and enhancing competitiveness of domestic products. • NEED TO REVAMP 1991 INDUSTRIAL POLICY • It is an improvement over 1991 policy because • new policy is focussing more on easing of permits and controls rather than just on mere industrial development
- 20. Features of newpolicy 1. Ease of doing business for industrial licensing. 2. World Bank’s doing business Survey –Ease of Doing Business – India’s rank-138 out of 189 countries – 2016-17. Aim of Dept of Industrial Policy and Promotion – 90th rank in 2017-18. 3. Increasing initial validity period of the licences. 4. Simplification of application forms. 5. Introduction of new technologies , innovations .
- 21. Continuation 6 ) Supportof Artificial Intelligence. 7 ) Support of Research & Development. • New Industrial policy will be aligned with the Government flagship programmes such as Make India, Skill India, Start Up India and Foreign Investment Policy in the form of FDI and Foreign Portfolio Investment
- 22. Fiscal policy • Whatis fiscal policy? • It refers to the government policy of changing its taxation and public expenditure programs to achieve certain predetermined objectives.
- 23. Public expenditure • Publicexpenditure: Public expenditure increases the funds into the economy. Public expenditure increases private incomes and thereby increases private expenditure. This policy is used during depression. Keynes is the proponent who suggested government role of pump priming during great depressions of 1930’s
- 24. Taxation Policy • Taxationpolicy : It is withdrawal of funds from the private use. Taxation reduces private disposable income and thereby increases public expenditure. In order to retain boom and stop recession taxation policy is used.
- 25. Tax Revenue andGovernment expenditure • Tax revenue and government expenditure form the two sides of government budget. • These two policies together are jointly called budgetary policies.
- 26.