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Monetary policy of India 
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. Other objectives of the monetary policy of India, as stated by 
RBI, are: 
Price Stability 
Price Stability implies promoting economic development with considerable emphasis on price stability. 
The center of focus is to facilitate the environment which is favourable to the architecture that enables 
the developmental projects to run swiftly while also maintaining reasonable price stability. 
Controlled Expansion Of Bank Credit 
One of the important functions of RBI is the controlled expansion of bank credit and money supply with 
special attention to seasonal requirement for credit without affecting the output. 
Promotion of Fixed Investment 
The aim here is to increase the productivity of investment by restraining non-essential fixed investment. 
Restriction of Inventories 
Overfilling of stocks and products becoming outdated due to excess of stock often results is sickness of 
the unit. To avoid this problem the central monetary authority carries out this essential function of 
restricting the inventories. The main objective of this policy is to avoid over-stocking and idle money in 
the organization 
Promotion of Exports and Food Procurement Operations 
Monetary policy pays special attention in order to boost exports and facilitate the trade. It is an 
independent objective of monetary policy. 
Desired Distribution of Credit 
Monetary authority has control over the decisions regarding the allocation of credit to priority sector and 
small borrowers. This policy decides over the specified percentage of credit that is to be allocated to 
priority sector and small borrowers. 
Equitable Distribution of Credit 
The policy of Reserve Bank aims equitable distribution to all sectors of the economy and all social and 
economic class of people 
To Promote Efficiency 
It is another essential aspect where the central banks pay a lot of attention. It tries to increase the 
efficiency in the financial system and tries to incorporate structural changes such as deregulating interest 
rates, ease operational constraints in the credit delivery system, to introduce new money market 
instruments etc. 
Reducing the Rigidity 
RBI tries to bring about the flexibilities in the operations which provide a considerable autonomy. It 
encourages more competitive environment and diversification. It maintains its control over financial 
system whenever and wherever necessary to maintain the discipline and prudence in operations of the 
financial system. 
Monetary operations 
Monetary operations involve monetary techniques which operate on monetary magnitudes such as money 
supply, interest rates and availability of credit aimed to maintain Price Stability, Stable exchange rate,
Healthy Balance of Payment, Financial stability, Economic growth. RBI, the apex institute of India which 
monitors and regulates the monetary policy of the country stabilizes the price by controlling Inflation. RBI 
takes into account the following monetary policies: 
Major Operations 
Open Market Operations 
An open market operation is an instrument of monetary policy which involves buying or selling of 
government securities from or to the public and banks. This mechanism influences the reserve position of 
the banks, yield on government securities and cost of bank credit. The RBI sells government securities to 
contract the flow of credit and buys government securities to increase credit flow. Open market operation 
makes bank rate policy effective and maintains stability in government securities market. 
Cash Reserve Ratio 
Cash Reserve Ratio is a certain percentage of bank deposits which banks are required to keep with RBI in 
the form of reserves or balances .Higher the CRR with the RBI lower will be the liquidity in the system 
and vice-versa.RBI is empowered to vary CRR between 15 percent and 3 percent. But as per the 
suggestion by the Narsimham committee Report the CRR was reduced from 15% in the 1990 to 5 percent 
in 2002. As of October 2013, the CRR is 4.00 percent 
Statutory Liquidity Ratio 
Every financial institution has to maintain a certain quantity of liquid assets with themselves at any point 
of time of their total time and demand liabilities. These assets can be cash, precious metals, approved 
securities like bonds etc. The ratio of the liquid assets to time and demand liabilities is termed as 
the Statutory liquidity ratio.There was a reduction of SLR from 38.5% to 25% because of the suggestion 
by Narshimam Committee. The current SLR is 22.0%(w.e.f.05/08/14) 
Bank Rate Policy 
The bank rate, also known as the discount rate, is the rate of interest charged by the RBI for providing 
funds or loans to the banking system. This banking system involves commercial and co-operative banks, 
Industrial Development Bank of India, IFC, EXIM Bank, and other approved financial institutes. Funds are 
provided either through lending directly or rediscounting or buying money market instruments like 
commercial bills and treasury bills. Increase in Bank Rate increases the cost of borrowing by commercial 
banks which results into the reduction in credit volume to the banks and hence declines the supply of 
money. Increase in the bank rate is the symbol of tightening of RBI monetary policy. As of 1 January 2013, 
the bank rate was 8.75% and as on 21 June 2014 bank rate is 9%. 
Credit Ceiling 
In this operation RBI issues prior information or direction that loans to the commercial banks will be 
given up to a certain limit. In this case commercial bank will be tight in advancing loans to the public. 
They will allocate loans to limited sectors. Few example of ceiling are agriculture sector advances, 
priority sector lending. 
Credit Authorization Scheme 
Credit Authorization Scheme was introduced in November, 1965 when P C Bhattacharya was the 
chairman of RBI. Under this instrument of credit regulation RBI as per the guideline authorizes the banks 
to advance loans to desired sectors.[7] 
Moral Suasion 
Moral Suasion is just as a request by the RBI to the commercial banks to take so and so action and 
measures in so and so trend of the economy. RBI may request commercial banks not to give loans for 
unproductive purpose which does not add to economic growth but increases inflation. 
Repo Rate and Reverse Repo Rate
Repo rate is the rate at which RBI lends to commercial banks generally against government securities. 
Reduction in Repo rate helps the commercial banks to get money at a cheaper rate and increase in Repo 
rate discourages the commercial banks to get money as the rate increases and becomes expensive. 
Reverse Repo rate is the rate at which RBI borrows money from the commercial banks. The increase in 
the Repo rate will increase the cost of borrowing and lending of the banks which will discourage the 
public to borrow money and will encourage them to deposit. As the rates are high the availability of 
credit and demand decreases resulting to decrease in inflation. This increase in Repo Rate and Reverse 
Repo Rate is a symbol of tightening of the policy. As of October 2013, the repo rate was 7.75 % and 
reverse repo rate was 6.75%. On January 28, 2014, RBI raised repo rate by 25 basis points to 8.00 % and 
reverse repo rate by 25 basis points to 7.00%. 
Key Indicators 
As of 5 August 2014, the key indicators are. 
Indicator Current rate 
Inflation 8.0% 
Bank rate 9% 
CRR 4.00% 
SLR 22.00% 
Repo rate 8.00% 
Reverse repo rate 7.00% 
Marginal Standing facility rate 9.00% 
Meaning of Fiscal Policy 
The fiscal policy is concerned with the raising of government revenue and incurring of government 
expenditure. To generate revenue and to incur expenditure, the government frames a policy 
called budgetary policy or fiscal policy. So, the fiscal policy is concerned with government 
expenditure and government revenue. 
Fiscal policy has to decide on the size and pattern of flow of expenditure from the government to the 
economy and from the economy back to the government. So, in broad term fiscal policy refers 
to "that segment of national economic policy which is primarily concerned with the receipts 
and expenditure of central government." In other words, fiscal policy refers to the policy of the 
government with regard to taxation, public expenditure and public borrowings. 
The importance of fiscal policy is high in underdeveloped countries. The state has to play active and 
important role. In a democratic society direct methods are not approved. So, the government 
has to depend on indirect methods of regulations. In this way, fiscal policy is a powerful 
weapon in the hands of government by means of which it can achieve the objectives of 
development. 
Main Objectives of Fiscal Policy in India 
The fiscal policy is designed to achieve certain objectives as follows :- 
1. Development by effective Mobilization of Resources 
The principal objective of fiscal policy is to ensure rapid economic growth and development. This 
objective of economic growth and development can be achieved by Mobilisation of Financial 
Resources. 
The central and the state governments in India have used fiscal policy to mobilise resources. 
The financial resources can be mobilised by :-
Taxation: Through effective fiscal policies, the government aims to mobilise resources by way of 
direct taxes as well as indirect taxes because most important source of resource mobilisation in 
India is taxation. 
Public Savings: The resources can be mobilised through public savings by reducing government 
expenditure and increasing surpluses of public sector enterprises. 
Private Savings: Through effective fiscal measures such as tax benefits, the government can 
raise resources from private sector and households. Resources can be mobilised through 
government borrowings by ways of treasury bills, issue of government bonds, etc., loans from 
domestic and foreign parties and by deficit financing. 
2. Efficient allocation of Financial Resources 
The central and state governments have tried to make efficient allocation of financial resources. 
These resources are allocated for Development Activities which includes expenditure on 
railways, infrastructure, etc. While Non-development Activities includes expenditure on 
defense, interest payments, subsidies, etc. 
But generally the fiscal policy should ensure that the resources are allocated for generation of goods 
and services which are socially desirable. Therefore, India's fiscal policy is designed in such a 
manner so as to encourage production of desirable goods and discourage those goods which are 
socially undesirable. 
3. Reduction in inequalities of Income and Wealth 
Fiscal policy aims at achieving equity or social justice by reducing income inequalities among 
different sections of the society. The direct taxes such as income tax are charged more on the 
rich people as compared to lower income groups. Indirect taxes are also more in the case of 
semi-luxury and luxury items, which are mostly consumed by the upper middle class and the 
upper class. The government invests a significant proportion of its tax revenue in the 
implementation of Poverty Alleviation Programmes to improve the conditions of poor people 
in society. 
4. Price Stability and Control of Inflation 
One of the main objectives of fiscal policy is to control inflation and stabilize price. Therefore, the 
government always aims to control the inflation by reducing fiscal deficits, introducing tax 
savings schemes, Productive use of financial resources, etc. 
5. Employment Generation 
The government is making every possible effort to increase employment in the country through 
effective fiscal measure. Investment in infrastructure has resulted in direct and indirect 
employment. Lower taxes and duties on small-scale industrial (SSI) units encourage more 
investment and consequently generate more employment. Various rural employment 
programmes have been undertaken by the Government of India to solve problems in rural areas. 
Similarly, self-employment scheme is taken to provide employment to technically qualified 
persons in the urban areas. 
6. Balanced Regional Development 
Another main objective of the fiscal policy is to bring about a balanced regional development. There 
are various incentives from the government for setting up projects in backward areas such as 
Cash subsidy, Concession in taxes and duties in the form of tax holidays, Finance at 
concessional interest rates, etc. 
7. Reducing the Deficit in the Balance of Payment 
Fiscal policy attempts to encourage more exports by way of fiscal measures like Exemption of 
income tax on export earnings, Exemption of central excise duties and customs, Exemption of
sales tax and octroi, etc. 
The foreign exchange is also conserved by Providing fiscal benefits to import substitute industries, 
Imposing customs duties on imports, etc. 
The foreign exchange earned by way of exports and saved by way of import substitutes helps to solve 
balance of payments problem. In this way adverse balance of payment can be corrected either 
by imposing duties on imports or by giving subsidies to export. 
8. Capital Formation 
The objective of fiscal policy in India is also to increase the rate of capital formation so as to 
accelerate the rate of economic growth. An underdeveloped country is trapped in vicious 
(danger) circle of poverty mainly on account of capital deficiency. In order to increase the rate 
of capital formation, the fiscal policy must be efficiently designed to encourage savings and 
discourage and reduce spending. 
9. Increasing National Income 
The fiscal policy aims to increase the national income of a country. This is because fiscal policy 
facilitates the capital formation. This results in economic growth, which in turn increases the 
GDP, per capita income and national income of the country. 
10. Development of Infrastructure 
Government has placed emphasis on the infrastructure development for the purpose of achieving 
economic growth. The fiscal policy measure such as taxation generates revenue to the 
government. A part of the government's revenue is invested in the infrastructure development. 
Due to this, all sectors of the economy get a boost. 
11. Foreign Exchange Earnings 
Fiscal policy attempts to encourage more exports by way of Fiscal Measures like, exemption of 
income tax on export earnings, exemption of sales tax, etc. Foreign exchange provides fiscal 
benefits to import substitute industries. The foreign exchange earned by way of exports and 
saved by way of import substitutes helps to solve balance of payments problem. 
ECONOMIC TRENDS 
Introduction: The year 2014 will be a watershed for India in political and economic terms. The nation will 
conduct its 16th general elections to form the new central government. It will also implement several radical 
economic policies, such as deregulation of diesel prices and expansion of direct cash transfer of subsidies. In 
last year’s edition of this report, India in 2013, Accenture highlighted the need for economic growth and 
inflation management. However, both areas are still pain points for India. In September 2013, consumer 
inflation reached 9.8 percent, while the economy grew by just 4.8 percent over the previous year. Early in 
2014, amid these unfavorable trends, the nation faces a higher fiscal deficit, sluggish industrial growth and a 
larger current account deficit. Why is the Indian economy faltering on so many fronts simultaneously? The 
principle reason is that in the last few years, India has taken growth for granted and thus has invested less 
effort into raising the quality of growth. The fiscal deficit challenge serves as an excellent case in point. No 
doubt fiscal support (in such forms as excise duty cuts and tax concessions) provided much-needed stimulus 
to the Indian economy after the global economic crisis. Consequently, as economies around the world 
struggled to recharge growth during 2008-2011, India posted comparatively better growth numbers. 
Unfortunately, the nation did not simultaneously institutionalize mechanisms to enhance expenditure 
efficiency and manage subsidies. As a result, the national fiscal deficit ballooned during 2011-2012 and 
2012-2013. 
The rate by which India has responded to impending crises constitutes another problem. Take inflation 
management. For more than a year now, inflation continues to remain untamed. Meanwhile, leakages in the 
food and petroleum sectors—the two key drivers of inflation—persist. And critical road and rail 
infrastructure projects are progressing only slowly, preventing Indian businesses from exploiting the
shortest possible routes to efficiently transport food, raw materials and petroleum products. In addition, 
despite being home to one of the world’s largest pools of digital talent, India invests only 0.6 percent of its 
planned budget on using digital technologies to enhance the speed and quality of public transactions and 
services delivery. As a result of poor growth, inflation and fiscal management, the nation finds itself 
burdened with high interest rates, high operating costs and low consumer and business confidence. The 
only silver lining to this cloud remains the consumption growth registered by India’s rural economy. Backed 
by real income growth from higher inflation indexed wages under governmental employment schemes, 
consumption in rural India now accounts for significantly higher proportions of the industrial goods and 
services sold by the nation’s businesses. Clearly, the Indian economy is edging toward one of its weakest growth 
moments in a decade. The nation’s economic growth engine runs the real risk of losing momentum. Avoiding 
this scenario will require swift, effective action. But the widely held view amongst experts is that recovery will 
have to wait for the new government to assume power after the elections in May 2014. 
Hence the wheel of revival may not start turning until the second half of 2014. Once it does begin turning, it 
will have to move quickly and in the right direction to inject the necessary levels of efficiency and quality 
into India’s public and private spending as well as into the country’s inflation management efforts. Digital 
technologies can help the government as well as industry to achieve these goals. For instance, speedier 
implementation of government programs aimed at creating scalable digital platforms (such as the national 
broadband network) will help generate greater returns on investments in social programs through robust 
participation by citizens. At the same time, it will create a network of cheaper digital highways for industry 
to reach remote regions and consumers and unearth fresh sources of growth. Like the government, industry 
will need to “think outside the box” and take fresh approaches to surmounting its most pressing challenges. 
The manufacturing and services sectors alike can benefit by using digital technology to more productively 
engage with partners in their business ecosystems to create wealth in an inflationary environment. In this 
report, we discuss the trends shaping India’s macroeconomic and business environments. As always, we 
offer these ideas as starting points for lively dialogue about new business directions. 
This could be the year that 
 India’s new central government is formed after the elections for the 16th Lok Sabha 
 Subsidies are rolled out to support manufacturing of electric vehicles in India and to build a 
domestic industry of low-carbon transport 
 Diesel prices are fully deregulated 
 India overtakes the United States to become the second-largest Internet base in the world after 
China 
 The Indian space program takes a major leap forward with the Mars orbiter 
Spotlight 
Made in India” digital technologies: An opportunity whose time has come 
India’s digital economy is expected to grow exponentially in the next few years. The nation could have as 
many as 243 million Internet users by June 2014. If that happens, these users will outnumber American 
Internet users to make India the world’s second-largest online community after China. 18 Moreover, The 
Economist Intelligence Unit expects India’s Internet economy to reach a value of US$100 billion by 2015. 
Disruptive innovations in the digital hardware and digital electronics industries are reducing the cost of 
ownership of smarter platforms, spurring sales of smartphones, tablets and iPods in India. Indeed, India 
now constitutes the world’s third-largest smartphone market. 20 In April-June 2013 alone, 70 international 
and domestic vendors shipped 1.15 million tablets in India. 
Indian consumers’ unprecedented hunger for “smarter gadgetry” has met with an equally robust response 
from the nation’s entrepreneurs. In the last decade, more than four domestic brands have established a large 
footprint for themselves in the domestic smartphone handset and tablet market. At present, domestic 
brands have claimed 40 percent of the smartphone market 22 and around 11 percent of the tablet market.
Digital democratization is no longer limited to the demand side of the digital market. The supply side is also 
witnessing such democratization. Startups involved in e-commerce, B2B web-based tools and mobile 
applications that enhance end customers’ overall digital experience have mushroomed across India. 
According to the Microsoft India Accelerator Report (2012), among technology product startups, e-commerce 
startups constituted one third of all new companies, followed by B2B web-based tool companies. 
Angel investors and venture capitalists are showing more interest in financing ventures that have a digital 
technology background. As a result, the cost of establishing a startup in the digital technologies space has 
decreased. Digital technology incubators in the country are multiplying. India now boasts four specialized 
incubators for launching digital startups, and the number is expected to double in the next decade. 
The central government’s IT spending in India is expected to reach US$6.4 billion in 2013, According to 
Gartner. 23 By investing in Aadhar and initiating the National Broadband Plan, the Indian government has 
paved the way for creating a robust digital foundation for existing businesses and budding entrepreneurs. 
On the industry front, intensifying consumer demand for digital platforms and applications, coupled with a 
steadily maturing digital technology ecosystem, has incentivized large companies to explore greater use of 
digital technologies in their marketing and sales functions. Enterprises aware of the benefits of digital 
technologies across the value chain have started deploying them on the shop floor as well as across their 
design and procurement functions. 
Companies such as Hindustan Unilever Limited have invested in the development of digital media labs, and 
digital sales fronts are becoming commonplace in large consumer products companies. Tata Motors and 
Maruti have already adopted digital technologies to design complex systems on their shop floor. 
India is readying itself to take advantage of a historical opportunity similar to the one it successfully 
unlocked two decades ago. In the nineties, the nation drew on its young English-speaking talent and 
entrepreneurial mindset to introduce “Made in India” scalable business models and cost-competitive 
processes in software technologies. This helped spark a services revolution that enabled India to record 
robust GDP growth rates. It also gave birth to a new, young middle class in India and introduced a new 
breed of Indian managerial and entrepreneurial talent to the world. Businesses, policymakers, academic 
institutions and other stakeholders now need to invest energy and resources to launch “Made in India” 
affordable and scalable digital technologies. They have the talent to embark on this journey, the 
entrepreneurship to innovate and a digital-savvy market to test and buy new offerings.

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ECONOMIC TRENDS, Monetary policy of India,

  • 1. Monetary policy of India 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. Other objectives of the monetary policy of India, as stated by RBI, are: Price Stability Price Stability implies promoting economic development with considerable emphasis on price stability. The center of focus is to facilitate the environment which is favourable to the architecture that enables the developmental projects to run swiftly while also maintaining reasonable price stability. Controlled Expansion Of Bank Credit One of the important functions of RBI is the controlled expansion of bank credit and money supply with special attention to seasonal requirement for credit without affecting the output. Promotion of Fixed Investment The aim here is to increase the productivity of investment by restraining non-essential fixed investment. Restriction of Inventories Overfilling of stocks and products becoming outdated due to excess of stock often results is sickness of the unit. To avoid this problem the central monetary authority carries out this essential function of restricting the inventories. The main objective of this policy is to avoid over-stocking and idle money in the organization Promotion of Exports and Food Procurement Operations Monetary policy pays special attention in order to boost exports and facilitate the trade. It is an independent objective of monetary policy. Desired Distribution of Credit Monetary authority has control over the decisions regarding the allocation of credit to priority sector and small borrowers. This policy decides over the specified percentage of credit that is to be allocated to priority sector and small borrowers. Equitable Distribution of Credit The policy of Reserve Bank aims equitable distribution to all sectors of the economy and all social and economic class of people To Promote Efficiency It is another essential aspect where the central banks pay a lot of attention. It tries to increase the efficiency in the financial system and tries to incorporate structural changes such as deregulating interest rates, ease operational constraints in the credit delivery system, to introduce new money market instruments etc. Reducing the Rigidity RBI tries to bring about the flexibilities in the operations which provide a considerable autonomy. It encourages more competitive environment and diversification. It maintains its control over financial system whenever and wherever necessary to maintain the discipline and prudence in operations of the financial system. Monetary operations Monetary operations involve monetary techniques which operate on monetary magnitudes such as money supply, interest rates and availability of credit aimed to maintain Price Stability, Stable exchange rate,
  • 2. Healthy Balance of Payment, Financial stability, Economic growth. RBI, the apex institute of India which monitors and regulates the monetary policy of the country stabilizes the price by controlling Inflation. RBI takes into account the following monetary policies: Major Operations Open Market Operations An open market operation is an instrument of monetary policy which involves buying or selling of government securities from or to the public and banks. This mechanism influences the reserve position of the banks, yield on government securities and cost of bank credit. The RBI sells government securities to contract the flow of credit and buys government securities to increase credit flow. Open market operation makes bank rate policy effective and maintains stability in government securities market. Cash Reserve Ratio Cash Reserve Ratio is a certain percentage of bank deposits which banks are required to keep with RBI in the form of reserves or balances .Higher the CRR with the RBI lower will be the liquidity in the system and vice-versa.RBI is empowered to vary CRR between 15 percent and 3 percent. But as per the suggestion by the Narsimham committee Report the CRR was reduced from 15% in the 1990 to 5 percent in 2002. As of October 2013, the CRR is 4.00 percent Statutory Liquidity Ratio Every financial institution has to maintain a certain quantity of liquid assets with themselves at any point of time of their total time and demand liabilities. These assets can be cash, precious metals, approved securities like bonds etc. The ratio of the liquid assets to time and demand liabilities is termed as the Statutory liquidity ratio.There was a reduction of SLR from 38.5% to 25% because of the suggestion by Narshimam Committee. The current SLR is 22.0%(w.e.f.05/08/14) Bank Rate Policy The bank rate, also known as the discount rate, is the rate of interest charged by the RBI for providing funds or loans to the banking system. This banking system involves commercial and co-operative banks, Industrial Development Bank of India, IFC, EXIM Bank, and other approved financial institutes. Funds are provided either through lending directly or rediscounting or buying money market instruments like commercial bills and treasury bills. Increase in Bank Rate increases the cost of borrowing by commercial banks which results into the reduction in credit volume to the banks and hence declines the supply of money. Increase in the bank rate is the symbol of tightening of RBI monetary policy. As of 1 January 2013, the bank rate was 8.75% and as on 21 June 2014 bank rate is 9%. Credit Ceiling In this operation RBI issues prior information or direction that loans to the commercial banks will be given up to a certain limit. In this case commercial bank will be tight in advancing loans to the public. They will allocate loans to limited sectors. Few example of ceiling are agriculture sector advances, priority sector lending. Credit Authorization Scheme Credit Authorization Scheme was introduced in November, 1965 when P C Bhattacharya was the chairman of RBI. Under this instrument of credit regulation RBI as per the guideline authorizes the banks to advance loans to desired sectors.[7] Moral Suasion Moral Suasion is just as a request by the RBI to the commercial banks to take so and so action and measures in so and so trend of the economy. RBI may request commercial banks not to give loans for unproductive purpose which does not add to economic growth but increases inflation. Repo Rate and Reverse Repo Rate
  • 3. Repo rate is the rate at which RBI lends to commercial banks generally against government securities. Reduction in Repo rate helps the commercial banks to get money at a cheaper rate and increase in Repo rate discourages the commercial banks to get money as the rate increases and becomes expensive. Reverse Repo rate is the rate at which RBI borrows money from the commercial banks. The increase in the Repo rate will increase the cost of borrowing and lending of the banks which will discourage the public to borrow money and will encourage them to deposit. As the rates are high the availability of credit and demand decreases resulting to decrease in inflation. This increase in Repo Rate and Reverse Repo Rate is a symbol of tightening of the policy. As of October 2013, the repo rate was 7.75 % and reverse repo rate was 6.75%. On January 28, 2014, RBI raised repo rate by 25 basis points to 8.00 % and reverse repo rate by 25 basis points to 7.00%. Key Indicators As of 5 August 2014, the key indicators are. Indicator Current rate Inflation 8.0% Bank rate 9% CRR 4.00% SLR 22.00% Repo rate 8.00% Reverse repo rate 7.00% Marginal Standing facility rate 9.00% Meaning of Fiscal Policy The fiscal policy is concerned with the raising of government revenue and incurring of government expenditure. To generate revenue and to incur expenditure, the government frames a policy called budgetary policy or fiscal policy. So, the fiscal policy is concerned with government expenditure and government revenue. Fiscal policy has to decide on the size and pattern of flow of expenditure from the government to the economy and from the economy back to the government. So, in broad term fiscal policy refers to "that segment of national economic policy which is primarily concerned with the receipts and expenditure of central government." In other words, fiscal policy refers to the policy of the government with regard to taxation, public expenditure and public borrowings. The importance of fiscal policy is high in underdeveloped countries. The state has to play active and important role. In a democratic society direct methods are not approved. So, the government has to depend on indirect methods of regulations. In this way, fiscal policy is a powerful weapon in the hands of government by means of which it can achieve the objectives of development. Main Objectives of Fiscal Policy in India The fiscal policy is designed to achieve certain objectives as follows :- 1. Development by effective Mobilization of Resources The principal objective of fiscal policy is to ensure rapid economic growth and development. This objective of economic growth and development can be achieved by Mobilisation of Financial Resources. The central and the state governments in India have used fiscal policy to mobilise resources. The financial resources can be mobilised by :-
  • 4. Taxation: Through effective fiscal policies, the government aims to mobilise resources by way of direct taxes as well as indirect taxes because most important source of resource mobilisation in India is taxation. Public Savings: The resources can be mobilised through public savings by reducing government expenditure and increasing surpluses of public sector enterprises. Private Savings: Through effective fiscal measures such as tax benefits, the government can raise resources from private sector and households. Resources can be mobilised through government borrowings by ways of treasury bills, issue of government bonds, etc., loans from domestic and foreign parties and by deficit financing. 2. Efficient allocation of Financial Resources The central and state governments have tried to make efficient allocation of financial resources. These resources are allocated for Development Activities which includes expenditure on railways, infrastructure, etc. While Non-development Activities includes expenditure on defense, interest payments, subsidies, etc. But generally the fiscal policy should ensure that the resources are allocated for generation of goods and services which are socially desirable. Therefore, India's fiscal policy is designed in such a manner so as to encourage production of desirable goods and discourage those goods which are socially undesirable. 3. Reduction in inequalities of Income and Wealth Fiscal policy aims at achieving equity or social justice by reducing income inequalities among different sections of the society. The direct taxes such as income tax are charged more on the rich people as compared to lower income groups. Indirect taxes are also more in the case of semi-luxury and luxury items, which are mostly consumed by the upper middle class and the upper class. The government invests a significant proportion of its tax revenue in the implementation of Poverty Alleviation Programmes to improve the conditions of poor people in society. 4. Price Stability and Control of Inflation One of the main objectives of fiscal policy is to control inflation and stabilize price. Therefore, the government always aims to control the inflation by reducing fiscal deficits, introducing tax savings schemes, Productive use of financial resources, etc. 5. Employment Generation The government is making every possible effort to increase employment in the country through effective fiscal measure. Investment in infrastructure has resulted in direct and indirect employment. Lower taxes and duties on small-scale industrial (SSI) units encourage more investment and consequently generate more employment. Various rural employment programmes have been undertaken by the Government of India to solve problems in rural areas. Similarly, self-employment scheme is taken to provide employment to technically qualified persons in the urban areas. 6. Balanced Regional Development Another main objective of the fiscal policy is to bring about a balanced regional development. There are various incentives from the government for setting up projects in backward areas such as Cash subsidy, Concession in taxes and duties in the form of tax holidays, Finance at concessional interest rates, etc. 7. Reducing the Deficit in the Balance of Payment Fiscal policy attempts to encourage more exports by way of fiscal measures like Exemption of income tax on export earnings, Exemption of central excise duties and customs, Exemption of
  • 5. sales tax and octroi, etc. The foreign exchange is also conserved by Providing fiscal benefits to import substitute industries, Imposing customs duties on imports, etc. The foreign exchange earned by way of exports and saved by way of import substitutes helps to solve balance of payments problem. In this way adverse balance of payment can be corrected either by imposing duties on imports or by giving subsidies to export. 8. Capital Formation The objective of fiscal policy in India is also to increase the rate of capital formation so as to accelerate the rate of economic growth. An underdeveloped country is trapped in vicious (danger) circle of poverty mainly on account of capital deficiency. In order to increase the rate of capital formation, the fiscal policy must be efficiently designed to encourage savings and discourage and reduce spending. 9. Increasing National Income The fiscal policy aims to increase the national income of a country. This is because fiscal policy facilitates the capital formation. This results in economic growth, which in turn increases the GDP, per capita income and national income of the country. 10. Development of Infrastructure Government has placed emphasis on the infrastructure development for the purpose of achieving economic growth. The fiscal policy measure such as taxation generates revenue to the government. A part of the government's revenue is invested in the infrastructure development. Due to this, all sectors of the economy get a boost. 11. Foreign Exchange Earnings Fiscal policy attempts to encourage more exports by way of Fiscal Measures like, exemption of income tax on export earnings, exemption of sales tax, etc. Foreign exchange provides fiscal benefits to import substitute industries. The foreign exchange earned by way of exports and saved by way of import substitutes helps to solve balance of payments problem. ECONOMIC TRENDS Introduction: The year 2014 will be a watershed for India in political and economic terms. The nation will conduct its 16th general elections to form the new central government. It will also implement several radical economic policies, such as deregulation of diesel prices and expansion of direct cash transfer of subsidies. In last year’s edition of this report, India in 2013, Accenture highlighted the need for economic growth and inflation management. However, both areas are still pain points for India. In September 2013, consumer inflation reached 9.8 percent, while the economy grew by just 4.8 percent over the previous year. Early in 2014, amid these unfavorable trends, the nation faces a higher fiscal deficit, sluggish industrial growth and a larger current account deficit. Why is the Indian economy faltering on so many fronts simultaneously? The principle reason is that in the last few years, India has taken growth for granted and thus has invested less effort into raising the quality of growth. The fiscal deficit challenge serves as an excellent case in point. No doubt fiscal support (in such forms as excise duty cuts and tax concessions) provided much-needed stimulus to the Indian economy after the global economic crisis. Consequently, as economies around the world struggled to recharge growth during 2008-2011, India posted comparatively better growth numbers. Unfortunately, the nation did not simultaneously institutionalize mechanisms to enhance expenditure efficiency and manage subsidies. As a result, the national fiscal deficit ballooned during 2011-2012 and 2012-2013. The rate by which India has responded to impending crises constitutes another problem. Take inflation management. For more than a year now, inflation continues to remain untamed. Meanwhile, leakages in the food and petroleum sectors—the two key drivers of inflation—persist. And critical road and rail infrastructure projects are progressing only slowly, preventing Indian businesses from exploiting the
  • 6. shortest possible routes to efficiently transport food, raw materials and petroleum products. In addition, despite being home to one of the world’s largest pools of digital talent, India invests only 0.6 percent of its planned budget on using digital technologies to enhance the speed and quality of public transactions and services delivery. As a result of poor growth, inflation and fiscal management, the nation finds itself burdened with high interest rates, high operating costs and low consumer and business confidence. The only silver lining to this cloud remains the consumption growth registered by India’s rural economy. Backed by real income growth from higher inflation indexed wages under governmental employment schemes, consumption in rural India now accounts for significantly higher proportions of the industrial goods and services sold by the nation’s businesses. Clearly, the Indian economy is edging toward one of its weakest growth moments in a decade. The nation’s economic growth engine runs the real risk of losing momentum. Avoiding this scenario will require swift, effective action. But the widely held view amongst experts is that recovery will have to wait for the new government to assume power after the elections in May 2014. Hence the wheel of revival may not start turning until the second half of 2014. Once it does begin turning, it will have to move quickly and in the right direction to inject the necessary levels of efficiency and quality into India’s public and private spending as well as into the country’s inflation management efforts. Digital technologies can help the government as well as industry to achieve these goals. For instance, speedier implementation of government programs aimed at creating scalable digital platforms (such as the national broadband network) will help generate greater returns on investments in social programs through robust participation by citizens. At the same time, it will create a network of cheaper digital highways for industry to reach remote regions and consumers and unearth fresh sources of growth. Like the government, industry will need to “think outside the box” and take fresh approaches to surmounting its most pressing challenges. The manufacturing and services sectors alike can benefit by using digital technology to more productively engage with partners in their business ecosystems to create wealth in an inflationary environment. In this report, we discuss the trends shaping India’s macroeconomic and business environments. As always, we offer these ideas as starting points for lively dialogue about new business directions. This could be the year that  India’s new central government is formed after the elections for the 16th Lok Sabha  Subsidies are rolled out to support manufacturing of electric vehicles in India and to build a domestic industry of low-carbon transport  Diesel prices are fully deregulated  India overtakes the United States to become the second-largest Internet base in the world after China  The Indian space program takes a major leap forward with the Mars orbiter Spotlight Made in India” digital technologies: An opportunity whose time has come India’s digital economy is expected to grow exponentially in the next few years. The nation could have as many as 243 million Internet users by June 2014. If that happens, these users will outnumber American Internet users to make India the world’s second-largest online community after China. 18 Moreover, The Economist Intelligence Unit expects India’s Internet economy to reach a value of US$100 billion by 2015. Disruptive innovations in the digital hardware and digital electronics industries are reducing the cost of ownership of smarter platforms, spurring sales of smartphones, tablets and iPods in India. Indeed, India now constitutes the world’s third-largest smartphone market. 20 In April-June 2013 alone, 70 international and domestic vendors shipped 1.15 million tablets in India. Indian consumers’ unprecedented hunger for “smarter gadgetry” has met with an equally robust response from the nation’s entrepreneurs. In the last decade, more than four domestic brands have established a large footprint for themselves in the domestic smartphone handset and tablet market. At present, domestic brands have claimed 40 percent of the smartphone market 22 and around 11 percent of the tablet market.
  • 7. Digital democratization is no longer limited to the demand side of the digital market. The supply side is also witnessing such democratization. Startups involved in e-commerce, B2B web-based tools and mobile applications that enhance end customers’ overall digital experience have mushroomed across India. According to the Microsoft India Accelerator Report (2012), among technology product startups, e-commerce startups constituted one third of all new companies, followed by B2B web-based tool companies. Angel investors and venture capitalists are showing more interest in financing ventures that have a digital technology background. As a result, the cost of establishing a startup in the digital technologies space has decreased. Digital technology incubators in the country are multiplying. India now boasts four specialized incubators for launching digital startups, and the number is expected to double in the next decade. The central government’s IT spending in India is expected to reach US$6.4 billion in 2013, According to Gartner. 23 By investing in Aadhar and initiating the National Broadband Plan, the Indian government has paved the way for creating a robust digital foundation for existing businesses and budding entrepreneurs. On the industry front, intensifying consumer demand for digital platforms and applications, coupled with a steadily maturing digital technology ecosystem, has incentivized large companies to explore greater use of digital technologies in their marketing and sales functions. Enterprises aware of the benefits of digital technologies across the value chain have started deploying them on the shop floor as well as across their design and procurement functions. Companies such as Hindustan Unilever Limited have invested in the development of digital media labs, and digital sales fronts are becoming commonplace in large consumer products companies. Tata Motors and Maruti have already adopted digital technologies to design complex systems on their shop floor. India is readying itself to take advantage of a historical opportunity similar to the one it successfully unlocked two decades ago. In the nineties, the nation drew on its young English-speaking talent and entrepreneurial mindset to introduce “Made in India” scalable business models and cost-competitive processes in software technologies. This helped spark a services revolution that enabled India to record robust GDP growth rates. It also gave birth to a new, young middle class in India and introduced a new breed of Indian managerial and entrepreneurial talent to the world. Businesses, policymakers, academic institutions and other stakeholders now need to invest energy and resources to launch “Made in India” affordable and scalable digital technologies. They have the talent to embark on this journey, the entrepreneurship to innovate and a digital-savvy market to test and buy new offerings.