FISCAL AND MONETARY POLICIES OF INDIAAND THEIR IMPACT ON ECONOMYIN LAST DECADE (2004 – 2014)

Janki Shah 131017Jayraj Dave 131018

Jayheel Shah 131019Kavi Pandya 131020Kevin Shah 131021

Madhav Chauhan 131022Manindar Sambhi 131024

GROUP-3

OUTLINE

• Fiscal Policies1.Expenditure by Government2.Taxation• Monetary Policies1.RBI policies• Impact on Economy1.Human development Index2.Economic development -> Coordination among Fiscal and

Monetary Policy

FISCAL POLICIES

GOVERNMENT EXPENDITURE

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.

GOVERNMENT REVENUE - TAX

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.

MONETARY POLICES

MONETARY POLICY

Monetary policy is the tool used by the RBI to stabilize the economy• Open Market Operations• CRR• Repo rate• Reverse repo rate

RATES – DATA OVERVIEW

ANALYSIS

ANALYSIS

Trends : 2004-2007there 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. 2008-2009rapid increase of CRR, repo rate , reverse reposhowing a very high indication of growing inflation. inflation was due to the rise in oil prices leading to cost push inflation

ANALYSIS2009-2010: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 timeBut due to better measures India didn’t incur huge losses  2011-2014:

gradually decreasing the CRR,repo rate ,reverse repo rate signs of weaker economyour 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 

ANALYSIS

ANALYSISFDI:2003-2007Between flow of FDI increased 4 times thus showing trust in the Indian market

2008-2009:flow decreased due to 1) global depression2) flow decreased due to the deterioration in the credit market3) 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 feedbackindian people also started investing more

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.

HUMAN DEVELOPMENT

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.

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.

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.

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.

GRAPH

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

0

10

20

30

40

50

60

70

Infant Mortality

Infant Mortality

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).

GRAPH FOR MMR

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

0

100

200

300

400

500

600

700

800

MMR

MMR

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.

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.

GRAPH FOR LIFE EXPECTANCY

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

62

63

64

65

66

67

68

Life Expectancy

Life Expectancy

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.

ECONOMIC DEVELOPMENT

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]

GDP

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.

POVERTY RATE

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.

UNEMPLOYMENT

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.

IMPORT PRICES

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.

EXPORT PRICES

NATIONAL INCOME

The total net value of all goods and services produced within a nation over a specified period of time, representing the sum of wages,profits, rents, interest, and pension payments to residents of the nation.

NATIONAL INCOME

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 2009-2010RBI 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.

->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.

UN-CORDINATIONIn 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.

REFERENCES

[1] https://data.oecd.org/gdp/gross-domestic-product-gdp.htm

[2]http://en.wikipedia.org/wiki/Gross_domestic_product

[3]http://www.oecd-ilibrary.org/sites/factbook-2010-en/11/02/02/index.html?itemId=/content/chapter/factbook-2010-89-en

[4] en.wikipedia.org/wiki/Unemployment [5] http://www.tradingeconomics.com/india [6]

http://www.thefreedictionary.com/national+income