The document discusses monetary policy, fiscal policy, and India's transition to a more liberalized, privatized, and globalized economy through the LPG model since the 1990s. It outlines the objectives, instruments, and limitations of monetary and fiscal policy. It also discusses the economic reforms of liberalization, privatization, and globalization that opened India's economy and led to higher growth rates and integration with the global economy.

1. MANAGERIAL ECONOMICS
MONETARY POLICY

2. MONETARY POLICY
• Monetary policy deals with the total money
supply and its management in an economy. It
is essentially a program of action undertaken
by central bank of a country to control and
regulate the supply of money with the public
and the flow of credit with a view to achieve
economic goals.

3. MONETARY POLICY OBJECTIVES
• Price stability
• Exchange rate stability
• Avoidance of negative impact of business
cycle
• Achievement of full employment
• Adequate flow of credit to various productive
sectors
• Contd…

4. MONETARY POLICY OBJECTIVES
Contd…
• Financial stability
• Rapid economic growth
• BOP equilibrium
• Equal income distribution

5. INSTRUMENTS
• Bank Rate
• Cash Reserve Ratio (CRR)
• Statutory Liquidity Ratio (SLR)
• Open Market Operations
• Margin requirements
• Credit Rationing
• Moral Suasion
• Direct actions

6. LIMITATIONS OF MONETARY POLICY
MEASURES
• Existence of non-monetized sector (unbanked,
barter transactions)
• Excess non-banking financial institutions (not
coming under monetary policy)
• Existence of unorganized financial markets (Rural
money lenders)
• Excess liquidity (rapid economic growth, deposits
keep increasing, excess liquidity cannot be
sucked)
• Monetary and Fiscal Policies lack co-ordination

7. MONETARY POLICY IN 2011-12
• Inflation pressures in I half year
• Up to mid Dec. 2011, monetary policy stance
continued to be tight
• By Dec. 2011, inflationary level started easing
but, domestic growth started slowing down
• Policy rates were kept at a pause during the
reminder of the year

8. MONETARY POLICY IN 2012-13
• Growing evidence of slowdown in economy
• SLR was reduced in July 12 to provide liquidity to
facilitate availability of credit to productive sectors
• CRR was cut
• RBI resorted to open market operations
• April 2011 to November 2011 WPI inflation at 9.7%
• Non-food inflation 7.7% as against 4% during the last 6
years
• Repo rate increased 5 times totaling 175 basis point
• Inflation continues to be above comfortable level

9. MOVEMENTS IN KEY POLICY
VARIABLES
• Effective Repo Rate CRR SLR
• May 3, 2011 7.25 (+0.50) 6 24
• June 16, 2011 7.50(+0.25) 6 24
• July 26, 2011 8.00 (+0.50) 6 24
• Sept.16, 2011 8.25(+0.25) 6 24
• Oct. 25, 2011 8.50(+0.25) 6 24
• Jan.28, 2012 8.50 5.50(-0.50)24

10. MOVEMENTS IN KEY POLICY
VARIABLES Contd…
• Effective Repo Rate CRR SLR
• Mar.10, 2012 8.50 4.75(-0.75)24
• Apr.17, 2012 8.00(-0.50)4.75 24
• June 18, 2012 8.00 4.75 24
• Aug.11, 2012 8.00 4.75 23 (- 1)
• Sept.22, 2012 8.00 4.50(-0.25)
• Nov.3, 2012 8.00 4.25(-0.25)

11. FISCAL POLICY
• Fiscal policy is defined as the conscious
attempt of the government to achieve certain
macro economic goals by altering the volume
and pattern of its revenue and expenditure

12. OBJECTIVES OF FISCAL POLICY
• Economic stability
• Price stability
• Full employment
• Social justice
• Export promotion
• Import substitution
• Mobilization of more public revenue
• Allocation of available resources
• Balanced regional growth

13. INSTRUMENTS
• Taxation
• Public borrowing
• Deficit financing

14. CLASSIFICATION OF EXPENDITURE
• Capital expenditure
• Consumption expenditure

15. TYPES OF EXPENDITURE
• Construction of roads, dams, etc.
• Establishment expenses
• Interest payments
• Transfer payments

16. BUDGET 2012-13
• KEY FEATURES
• GDP estimated to grow by 6.9% during 2011-
12 as against 8.4% in the preceding 2 years
• Growth moderated
• Fiscal balance deteriorated due to tight
monetary policy and expanded outlays
• Manufacturing sector under recovery phase

17. BUDGET ESTIMATES 2012-13
• Gross tax receipts 10,77,612 cr
• Net tax to Centre 7.71,071 cr
• Non-tax revenue receipts 1,64,614 cr
• Non-debt capital receipts 41,650 cr
• Total expenditure 14,90,925 cr
• Plan expenditure 5,21,025 cr
• Non-plan expenditure 9,69,900 cr
• Transfer to States 3,65,216 cr
• Fiscal deficit reduction from 5.9% to 5.1% of GDP

18. MAJOR TAX PROPOSALS ON DIRECT
TAXES
• Exemption limit for individual tax payers
enhanced from Rs. 1.80 lacs to Rs.2 lacs
• Upper limit of 20% tax slab raised from Rs. 8
lacs to Rs. 10 lacs
• Interest income from Savings Bank Account
exempted from tax up to Rs.10,000/

19. ECONOMIC ENVIRONMENT AND
TRANSITION IN INDIA
• INTRODUCTION
• Economic growth is the foremost objective of
macroeconomic policies
• Higher the economic growth, higher the
national income
• Higher national income will help solve
problems of poverty, unemployment, inflation
and international trade

20. SOURCES OF ECONOMIC GROWTH
AND DEVELOPMENT
• ECONOMIC FACTORS
• Natural resources
• Human resource and population growth
• Capital formation
• Technological progress
• Entrepreneurship
• Investment policies
• Removal of market imperfections (reducing
monopoly market)
• Capital output ratio

21. SOURCES OF ECONOMIC GROWTH
AND DEVELOPMENT Contd…
• NON-ECONOMIC FACTORS
• Desire for development
• Widespread education
• Social and industrial reform
• Good governance

22. BARRIERS TO FASTER ECONOMIC
GROWTH
• Low productivity
• Infrastructure deficiencies
• Rising public debt
• High subsidies fostering inefficiency
• Low literacy levels
• Demographic deficiencies
• Rigid labor laws
• Functioning of judicial system
• Campaign against consumerism
• Corruption

23. GROWTH POTENTIAL
• Large potential market
• Booming IT and Bio-tech sectors
• High professional and scientific manpower
• Trend towards political decentralization
• Dominant player in South Asian region
• Competitive environment

24. LIBERALISATION, PRIVATISATION AND
GLOBALISATION (LPG)
• NEED FOR LIBERLISATION
• Low economic growth
• Low per capita income
• Less than 1% share in world trade
• Trade deficit
• Heavy government borrowing
• Inefficiency in use of resources
• Contd…

25. LIBERALISATION, PRIVATISATION AND
GLOBALISATION (LPG) Contd…
• NEED FOR LIBERLISATION Contd…
• Mismanagement of economy
• PSU losses
• Poor technological development
• Shortage of foreign exchange
• Burden of national debt
• Inflationary pressures

26. LIBERALISATION
• Disinvestment
• De-licensing
• FDI allowed up to 51%
• No permission required for hiring foreign
professionals
• BIFR for PSUs
• Greater autonomy to PSUs
• Economy opened up
• Contd…

27. LIBERALISATION
Contd…
• Deregulation and liberalization of the industries
• Lowering of tariffs and easing of import licensing
requirements
• Export incentives
• Promotion of SEZs
• Single window licensing policy
• Declining incidence of poverty
• Divestment of PSUs
• Contd…

28. LIBERALISATION
Contd…
• Liberalization of banking and financial sectors
• Promotion of FDI
• Tax incentives for capital investments
• Managed exchange rate in place of controlled
exchange rate
• Portfolio investment strengthened

29. WEAKNESSES OF LPG MODEL
• Narrow focus
• Free entry of MNCs
• Agricultural sector bypassed
• Facilitated more imports
• Capital intensive development

30. PRIVATISATION
• Sale of part of nationalized industries to the
private sector
• Sale of individual assets of government bodies
to private sector
• Creation of competitive spirit of the private
sector to the state enterprises
• Disinvestment – disposal of equity in PSUs to
private sector

31. ARGUMENTS IN FAVOUR OF
PRIVATIZATION
• Reduction in cost of production due to productive
efficiency
• Quality enhancement due to R & D
• Innovation
• Invisible hand of the market ensuring optimal
allocation of resources
• Widening of share ownership
• Reduction in public borrowing and state spending

32. GLOBALIZATION
• Globalization means integrating the domestic
economy with the world economy
• Globalization is a process of integration of the
world into one market by removal of all the
political, geographical trade and business
barriers among nations.

33. STEPS TO OVERCOME CHALLENGES OF
GOBALIZATION
• Human resources development
• Enhancing quality of products
• Improving marketing strategies
• Attracting FDI
• Improving good governance
• Evolving risk management strategies

34. EFFECT OF GLOBALIZATION ON
INDIVIAN ECONOMY
• India’s share in world export increased from
0.53% in 1950 TO 1% in 2005
• Foreign exchange reserve improved
• Export growth rate increased (Maximum of
20% per annum)
• Reduction in current account deficit (3% to
1.1%)
• Reduction in external debt crisis

35. UPSHOT OF GLOBALIZATION
• Unprecedented economic growth
• Multi-locational manufacturing
• Surge in international trade
• Explosive growth in capital movements
• Increase in labor movement
• Emergency of cultural commonalities