Policies

1. • Economic policies: Privatisation-Problems and
prospects.
• Fiscal Policy: Objectives, Instruments, Union Budget,
Reforms –Raja Chelliah Committee
Recommendations, Taxes, Role of Government.
• Monetary Policy: Money, Measures of money supply,
Monetary system in India, Monetary policy- Tools for
credit control. Structure of the Banking system, RBI
and its functions, Banking structure reforms –
Narasimham committee recommendations.

2. • Governments generally accept the view that their key role is to
create appropriate public policies that promote economic growth.
Experience has proved that healthy economic growth is affected by
many factors, thereby requiring continuing efforts by government
policies that encourage investment, foster technology development,
provide key services and create a capable workforce through
education and training each year dozens of laws are proposed by
legislature to improve the nation‟sbusiness climate and promote
economic growth.
Objectives of economic policy:
• To achieve faster economic growth.
• To reduce inequalities of economic and wealth.
• To achieve full employment.
• Price stability.
• Balance of payments equilibrium.

3. • According to the World Bank, privatization “is the
transfer of transfer of ownership of state-owned
enterprises (SOEs) to the private sector by sale (full
or partial) of going concerns or by sale of assets
following the liquidation”.

4. • To reduce the burden on government
• To strengthen competition and efficiency
• To fund infrastructure growth
• To improve public finances
• Accountability to shareholders
• To reduce unnecessary interference
• More disciplined labour forces

5. • Ownership to a privileged few
• Labourers would be at the mercy of the owner
• Price and Ignorance factors
• Lack of social responsibility

6. • Fiscal policy is the government‟s schedule for
spending and tax implementation to influence
the economy for the year. 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.

7. • Development by effective Mobilization of
Resources.
• Efficient allocation of Financial
Resources.
• Reduction in inequalities of Income and
Wealth.
• Price Stability and Control of Inflation
• Employment Generation

8. • Taxation.
• Public Borrowing.
• Forced savings or Deficit
Financing.
• Public Expenditure.

9. Union budget is a comprehensive display of the government’s finances. It
is the most significant economic and financial event in India.
The finance minister puts down a report that contains Government of
India’s revenue and expenditure for one fiscal year. The fiscal year runs
from April 01 to March 31.
The union budget is preceded by an economic survey which outlines the
broad direction of the budget and the economic performance of the
country.

10.  Allocation of Resources
 Re-DistributiveActivities
 Economic Stability
 Management of Public Enterprises

11.  Gap between Needs and Resources of State Government
 Question of State Autonomy
 Reduced Importance of the Finance Commission
 Failure to Tackle the Problem of Regional Imbalances to Any
Satisfactory Extent

12. The Union Budget for 2013-14 aims at higher growth rate leading to
inclusive and sustainable development as 'mool mantra'. Finance
Minister P Chidambaram makes three promises: to women, the youth
and the poor.
 Nirbhaya Fund to empower women and to keep them safe and
secure, proposal to set up India's first Women's Bank as a public
sector bank, Rs 1,000 crore for skill development of ten lakh youth to
enhance their employability and productivity.
 Substantial rise in allocation to the social sector. Allocation for Rural
Development Ministry raised by 46 per cent to Rs 80,194 crore.
 Education gets Rs 65,867 crore, an increase of 17 per cent over RE for
2012-13.

13.  Drinking water and sanitation will receive Rs 15,260 crore. Rs 1,400
crore is being provided for setting up water purification plants to
cover arsenic and fluoride affected rural areas.
 Defence has been allocated Rs 2, 03,672 crore.
 Tobacco products, SUVs and Mobile Phones to cost more.
 Relief of Rs 2,000 for the tax payers in the first bracket of 2 to 5
lakhs.
 A surcharge of 10 per cent on persons (other than companies)
whose taxable income exceeds Rs 1 crore has been levied.

14.  A grant of Rs 100 crore each has been made to 4 institutions of
excellence including Aligarh Muslim University, Banaras Hindu
University, Tata Institute of Social Sciences, Guwahati and Indian
National Trust for Art and Cultural Heritage (INTACH).
 Rs 14,000 crore will be provided to public sector banks for capital
infusion in 2013-14.
 Technology Up gradation Fund Scheme (TUFS) for textile to
continue in 12th Plan with an investment target of Rs 1, 51,000 crore.
 Benefits or preferences enjoyed by MSME to continue up to three
years after they grow out of this category.

15.  First home loan from a bank or housing finance corporation up to
Rs 25 lakh entitled to additional deduction of interest up to Rs 1
lakh.
 The Jawaharlal Nehru National Urban Renewal Mission (JNNURM)
will receive Rs 14,873 crore as against RE of Rs 7,383 crore in the
current year.

16. July 24, 2013 17
Meaning and definition of Taxation:
According to Taylor, “Taxes are the compulsory payment to Government
without expectation of direct benefit to the tax payer‖.
In other words, it is a liability imposed upon the assesse who may be
individuals, groups of individuals and other legal entities.Acharge imposed
by a Government on a service, product, or activity in order to raise revenue.
Tax can be levied on business or personal income.

17. Direct Tax Indirect Tax
• Personal Tax
• Net Wealth Tax
• Capital Tax
• Value Added Tax
• Real estate Tax
• Stamp Duty
• Customs Duties

18. • Raising Public Revenue
• Regulation and Control
• Reduction of Inequalities in Income andWealth
• Promoting Capital Formation
• Political Objectives
• Increase in National Income
• Restrict Unnecessary Consumption
July 24, 2013 19

19. • July 24, 2013 • 20
• Providing a Stable set of Institutions, Laws and
Rules
• Promoting Effective and Workable competition
• Correcting for Externalities
• Providing public Goods
• Creating an Environment that Fosters Economic
Stability and Growth
• Adjusting for Undesirable Market
Results

20. • Monetary policy refers to the policy adopted by the monetary
authority of a country with respect to the supply of money, the
rate of interest and other matters. In other words, it is the
process by which the government, central bank or monetary
authority of a country controls (i) the supply of money, (ii) the
availability of money, and (iii) the cost of money or the rate of
interest in order to attain a set of objectives oriented towards
the growth and stability of the economy.

21. • The objectives of a monetary policy in India are similar to the
objectives of its five year plans.Indian planning aims at
growth, stability and social justice. After the Keynesian
revolut in economics, many people accepted significance
of monetary policy in attaining following objectives.
• Rapid :- The monetary policy can
influence economic growth by controlling real interest rate and
its resultant impact on the investment. If the RBI opts for a
cheap or easy credit policy by reducing interest rates, the
investment level in the economy can be encouraged. This
increased investment can speed up economic growth. Faster
economic growth is possible if the monetary policy succeeds
in maintaining income and price stability.

22. • Price Stab :- All the economics suffer from inflation and
deflation. Both inflation are harmful to the economy.
Thus, the monetary policy having an objective of price
stability tries to keep the value of money stable. It helps
in reducing the income and wealth inequalities.
• Exch :- Exchange rate is the price of a
home currency expressed in terms of any foreign
currency. If this exchange rate is very volatile leading to
frequent ups and downs in the exchange rate, the
international community might lose confidence in our
economy. The monetary policy aims at maintaining the
relative stability in the exchange rate.

23. • Balance of :- Many developing
countries like India suffers from the Disequilibrium in the
BOP. RBI through its monetary policy tries to maintain
equilibrium in the balance of payments.
• Full :- It refers to absence of involuntary
unemployment. In simple words 'Full Employment' stands for
a situation in which everybody who wants jobs get jobs.
However it does not mean that there is a Zero unemployment.
If the monetary policy is expansionary then credit supply can
be encouraged. It could help in creating more jobs in different
sector of the economy.

24. • Neutrality of :- Many economists have alwaysconsidered
money as a passive factor. According to them, money should play
only a role of medium of exchange and not more than that.
Therefore, the monetary policy should regulate the supply of money.
The change in money supply creates monetary disequilibrium. Thus
monetary policy has to regulate the supply of money and neutralize
the effect of money expansion. However this objective of a
monetary policy is always criticized on the ground that if money
supply is kept constant then it would be difficult to attain price
stability.
• Equal Income :- monetary policy can make special
provisions for the neglect supply such as agriculture, small-scale
industries, village industries, etc. and provide them with cheaper
credit for longer term. This can prove fruitful for these sectors to
come up. Thus in recent period, monetary policy can help in
reducing economic inequalities among different sections of society.

25. growth of financial
• Strategic goals.
• Annual performance objectives.
• Performance metrics.
• Operational processes and resources required to meet goals.
• Validation and verification of measured values.
• A most suitable interest structure.
• A correct balance between the demand and supply ofmoney.
• The establishment, functioning and
institutions of the economy.
• Proper management of public debts.

26. • These tools can be divided into two categories—
quantitative and qualitative credit control. There are
three main methods of quantitative credit control—
bank rate policy, open market operation and changes
in statutory reserve requirements. The qualitative
methods of credit control are also known as selective
credit control method. These include rationing, direct
action, changes in margin requirements, moral
suasion, etc. the quantitative control measures are
also known as traditional credit control measures.

27. • Bank rat Bank rate is defined as the official
minimum rate at which the central bank rediscounts approved
bills of exchange. When the central bank raises the bank rate,
the obtaining fund from the central bank becomes costlier for
commercial banks. The reverse happens when the bank rate is
lowered during the period of depression.
• Open- It refer to the purchase and sale of
government securities and other approved securities by the
central bank. An open-market sale decreases the money supply
and a purchase increases the money supply.

28. • Cash reverse : It refers to that portion of
banks’ total cash reserve which they are statutory required to
hold with the RBI. The remaining portion of the total cash
reserves of the banks refers to excess reserves which banks
keep them-selves to facilitate their normal functioning. An
increase in the legal cash reserves ratio decreases the banks’
and their optimum credit creating capacity.
• Statutory The main role of the statutory
liquidity ratio is to allocate bank credit between government
and commercial sectors. This instrument is also used to control
the supply of money.

29. The selective credit control measures are very popular in developing
countries like India. These controls are exercised through official
regulations. Section 21 of Banking Regulation Act 1949 empowers
the RBI to issue directives to banks with regard to advances. These
directives may be with regard to;-
• The purpose for which banks may or may not give advances.
• The margins to be maintained with regard to secured advances.
• The maximum amount of advance to any particular borrower.
• The rate of interest and the other terms and conditions for granting
advances.
• The maximum amount up to which guarantee may be given by the
bank.