...THE EFFECT OF FISCAL DEFICIT ON WHOLE SALE PRICE INDEX IN INDIA Submitted by, Group 7 – Sec A Ankit Rout (U111007) Chinmaya Swain (U111017) Kavindra Sharma (U111027) Nikhil Lukose (U111037) Samik Bhattacharjee (U111047) Swarup Kumar Mishra (U111057) ------------------------------------------------- ACKNOWLEDGEMENT We would like to express our whole-hearted gratitude to all those who have helped with the report or have been associated with the report in any way and made it a worth-while experience. We are greatly indebted to our batch mates and our seniors for having shared their invaluable thoughts and opinions that went a long way in helping us gather information and analyse issues for the report. And, a special mention of Professor Latha Ravindran, whom we cannot thank enough for having given us the opportunity and her total support for working on this project and completing our report. Thank you. INtroduction For the last several years the GDP of India has been growing rapidly. The real GDP growth of India averaged 8.5% in the five years ending March 2010. But at the same time food price inflation and consumer price inflation too have been on the increasing curve. The relationship between fiscal deficit and inflation which is measured by WPI in India is an important issue in macroeconomics study. The main purpose of the study is to analyze the relationship between budget deficit and Whole Sale Price Index. The fiscal deficit influences demand...
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...2012-14 Sem-2 Economic Environment of Business Faculty : Ms Simirit Kaur Project Report on Major obstacles to India s growth Submitted By: Harish Kumar (S-25) Manoj Paweria (S-36) Kumar Sikander (S-76) ACKNOWLEDGEMENT We owe a great many thanks to a great many people who helped and supported me during assignment . Our deepest thanks to professor, Ms. Simrit Kaur for assisting us at every stage of this project from the objectives, techniques and analysis to fine-tuning our entire findings. We owe a great many thanks to a great many people who helped and supported us during field assignment . We also extend our heartfelt thanks to our family and well wishers. 2 CONTENTS ~Acknowledgements~ _________________________________ 2 ~Objectives of this project~ ____________________________ 4 ~ Brief detail about factor effecting India s growth ~ ________ 5 ~ Q1 - Infrastructure Shortages effects ~ __________________ 6 ~ Key Initiatives / Information ~ _________________________ 6 ~ Q-2 - Large Fiscal Deficit ~ ___________________________ 10 ~ The Indian scenario ~ _______________________________ 12 ~ Bibliography ~ _____________________________________ 16 3 ~Objectives of this project~ India s economy has grown very rapidly in recent years. Since 1991 it has been among the top 10% of the world s countries in terms of economic growth. The primary challenge for India is to sustain this growth while spreading its benefits more widely. This requires continuous effort as international...
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...SUGGESTIONS AND ENCOURAGEMENT HELPED US TO COMPLETE THE PROJECT CONTENTS 1. Acknowledgment 2. Introduction to Indian economy 3. Meaning of fiscal policy 4. Need & importance of EP 5. Use of fiscal policy by Indian government 6. Fiscal policy before & after liberalization 7. Indian tax system & fiscal policy 8. Role in development of Indian Economy 9. Shortcomings or deficiencies in our fiscal policy 10.Findings & suggestions on Indian fiscal policy ECONOMY OF INDIA The economy of India is the eleventh largest in the world by nominal GDP and the third largest by purchasing power parity (PPP). The country is one of the G-20 major economies and a member of BRICS. On a per capita income basis, India ranked 140th by nominal GDP and129th by GDP (PPP) in 2011, according to the IMF. After the independence-era Indian economy (before and a little after 1947) was inspired by the Soviet model of economic development, with a large public sector, high import duties combined with interventionist policies, leading to massive inefficiencies and widespread corruption. However, later on India adopted free market principles and liberalized its economy to international trade under the guidance of Manmohan Singh, who then was the Finance Minister of India under the leadership of P.V. Narasimha Rao the then Prime Minister who eliminated License Raj a pre- and post-British Era mechanism of strict government control...
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...Fiscal Policy for Stabilization and Growth Sessions 11 & 12 Reading: Chapter 5 What is Demand Management? • Demand-constrained economy: – Increase aggregate demand to tackle recession/depression • Supply-constrained economy: – Manage demand to control demand-pull inflation 2 Policy focus: Demand-constrained Economy Aggregate demand K Potential output 3 Policy focus: Supply-constrained Economy Aggregate demand K Potential output Also: Long term – increase K to expand potential output 4 Recession/Depression • Recession: – Rule of thumb: two consecutive quarters of falling GDP • Depression: – “Severe” recession – no widely accepted definition: • Decline in real GDP that exceeds 10%, or one that lasts more than three years • Other alternative indicators: bursting of asset, credit bubble, fall in general price level 5 Examples of Depression (Using 10% GDP fall rule) 6 Economic Policy • Two main policy instruments to influence aggregate demand (C + I + G + X - M): – Fiscal Policy: • Through Government expenditure and revenue – Monetary policy: • Through Money supply and interest rates 7 Basic Logic of Demand Management (to ↑ demand) • Fiscal Policy: –↑G – ↓ income taxes to ↑ C – (Also: • ↑ tariff duties to reduce M • Provide incentives to ↑ X) • Monetary Policy: – ↓ rate of interest to ↑ C; ↑ I 8 Fiscal Policy and Demand Management in India 9 (see: http://indiabudget.nic.in) • • •...
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...FISCAL POLICY 1991 Economic Reform The root problem with India’s macroeconomic started in the early eighties when its revenue surpluses were starting to turn into deficits mainly because of the lack of fiscal policies. To finance its investment and current consumption, the government had to borrow externally from multilateral lending institutions, other government external aid, capital market, and non-resident Indians (NRIs). Coming into the 1990s, the external debt had tripled from $22.8 billion in 1983-84 to $69.3 billion in 1990-91. Also by 1990-91, the gross fiscal deficit had grown to about 10% of GDP, of which 4.3% of GDP was for interest payment. In addition, in 1990, the external investors, including the NRIs, started to lose their confidence in India’s economy and political stability. The political instability in 1990 shown by two changes of prime minister within a year led to the lack of confidence in government’s ability to build and manage any improvement in the economy. Two external events also played major roles in triggering withdrawal of capital and deposits in Indian banks by investors and NRIs. First, the steep rise in oil price during the Gulf crisis in 1990 put pressure on the exchange rate, thus causing expectation of rupees devaluation. Second, the collapse of the Soviet Union fueled the call for reconsideration of India’s economic strategy that was largely inspired by the Soviet Republic. As one of the result of this lack of confidence...
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...Rupee: A Testing Time for India Authorities The currency of a country often reflects its economic, political, geopolitical strength of the country. The currency swings often capture the capital movement and investor appetite in a comprehensive way. With dollar remaining as the major foreign currency for foreign trade and foreign reserve, the developing countries have limited options to control their respective currency. This same was experienced by many developing Asian countries in the recent financial rout. Determination of Exchange Rate and its Fluctuations Like other prices, exchange rate also changes with the changes in the state of market. Just as other prices depend on supply and demand, exchange rate also depends on the configuration of forces of supply and demand. However, two important facets have to be noted: (i) Unlike goods and services, foreign exchange has no direct cost of production. It has only opportunity cost (Walras.1874). Import bills have to be paid through export earnings. So cost of production of exportable surpluses may be taken to constitute the direct production cost of exports and indirect cost of imports (Aggarwal, R. (1981)). Opportunity cost is accounted by with drawl of exportable surplus from domestic consumption. Fluctuations are a natural characteristic of foreign exchange rate market, provided that the exchange rate is not an administered price. If exchange rate is an administered price, it is determined administratively by the central...
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...Y V Reddy: Fiscal policy and economic reforms Address by Dr Y V Reddy, Governor of the Reserve Bank of India, at the National Institute of Public Finance and Policy (NIPFP), New Delhi, 26 May 2008 (edited transcript). * * * Respected Professor Govinda Rao and distinguished scholars, I am honoured by my friend, Prof. Govinda Rao’s, kind invitation to me to visit the National Institute of Public Finance and Policy (NIPFP). I had the opportunity of working very closely with the NIPFP on several occasions. Apart from my personal affinity to the NIPFP, there is a close relationship between the Reserve Bank of India (RBI) and the NIPFP, from an institutional point of view also. For instance, Prof. Govinda Rao is a Member of the Southern Local Board of RBI. Initially, I thought of speaking on fiscal policy and economic reforms from a central banker’s perspective. I realised later that while I have been working as a central banker over the last one decade, I had worked for most parts of the three decades prior to that in the Ministry of Finance, in the Government of India as well as in the Government of Andhra Pradesh. So it was a difficult choice for me as to whether I should give a fiscal view of the monetary policy or a monetary view of the fiscal policy. I have worked for a short period in the World Bank, which gives a global governments’ view and also in the IMF, which gives a global monetary authority’s view. As a via-media, I have opted to give a practitioner’s perspective...
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...The Fiscal Deficit | | | | | | | | |What exactly is the Fiscal Deficit? | |The fiscal deficit is the difference between the government's total expenditure and its total receipts (excluding borrowing). | |The elements of the fiscal deficit are (a) the revenue deficit, which is the difference between the government’s current (or | |revenue) expenditure and total current receipts (that is, excluding borrowing) and (b) capital expenditure. The fiscal deficit | |can be financed by borrowing from the Reserve Bank of India (which is also called deficit financing or money creation) and | |market borrowing (from the money market, that is mainly from banks). | | | |Does a Fiscal Deficit Necessarily Lead to Inflation? | |No. Two arguments are generally...
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...Twin Deficit For the past 2 years, India has been fighting slow growth, high inflation and the twin deficits – fiscal deficit and current account deficit. The current account deficit reached the peak of 5.3% of GDP in Q1 FY13 which is much beyond the comfort zone of 3%. The fiscal deficit has also proved difficult to control, leading to a large part of borrowing going into servicing the debt rather than towards capital intensive activities. Off late the threat of being relegated to the status of junk bonds has made the government to swing into action and try and take steps to curb the deficits. It is the result of these measures that the fiscal deficit is not expected to go much beyond the government target of 5.3% of GDP. As a part of its efforts, government has also come up with the target of reducing the fiscal deficit to 3% of GDP by 2016-17. In order to rein in on the fiscal deficit, under the direction of Finance Minister, government managed to cut expenditures to the tune of Rs.80000 crores. Besides this, unlike previous years government has managed to keep its stake selling program on track, which is expected to result in the revenue receipts of about Rs.30000 crores. However, the government has also been cutting corners and using financial jugglery to cuts the deficit. Transferring the subsidy payment bills onto the next year and one time receipts from stake sale in PSUs are not effective and long term solution. Apart from this, losses like those of State Electricity...
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...Government Policy, Fiscal Deficit and Infrastructure. Emergence of FDI in Retail in India FDI in single brand retail was first introduced in 2006 and it was first in 2010 that the idea of FDI in multi-brand retail was proposed by the government as a step to boost the economy of the country. The Indian Retail industry is being seen as a concrete pillar to boost the economy. Currently the retail industry accounts to 14-15 % of the GDP and employs 6-7%of the total nation’s population. It is expected to reach 16-18% of the total market within the next five years. At the time when FDI in single brand retail was introduced in 2006 the limit was set to 49% ownership rights but in the fiscal year 2011-12 government of India agreed to reform its policy on the single brand retails and increased the ownership rights to 100%. Also in 2012, the Indian government allowed FDI in multi-brand retail in which the company has 51% ownership. Following are some of the points of proposed FDI in retail: * Minimum investment to be done is $100 million. * 50% of the investment should be done in improving the back end infrastructure. * 30% of all raw materials have to be procured from the small and medium enterprises ( this rule has been recently reformed as government has made exception for IKEA). * Permission to set retail stores only in cities with a minimum population of 10 lakhs. * Government has the first right to procure material from the farmers. Political Opposition: ...
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...INTRODUCTION The recent moves of the government to gradually deregulate the Petroleum, Oil and Lubricants(POL) sector in India as part of the agenda of ‘neo-liberal reform’ has generated discontent among the people. In the run-up to complete deregulation, there are instances of increase in the domestic price of POL products that are proportionately more than the rise in their international prices. In the most recent instance (of 13th September, 2012), the diesel price was raised by Rs.5 per litre at one go, even without any rise in international prices. These steps are being taken to eliminate the government subsidy on these products in a step-by-step manner. Deregulation of the POL sector is bound to eliminate the direct or indirect subsidies completely. And reduction in subsidy, according to the government, is the need of the hour in order to reduce the fiscal deficit as proportion to GDP. Deregulation is also necessitated in the current neo-liberal environment because if the government keeps subsidizing the public sector owned oil marketing companies (OMCs) like Indian Oil, Hindustan Petroleum and Bharat Petroleum, then the private companies like Reliance and others would not get a ‘level playing field’ and they would not be able to compete in price. In this way, the present subsidy regime indirectly restricts the private players from entering the oil marketing sector. Hence, if the priorities of the government in power are the reduction of subsidies and ensuring...
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...Balance of payment of Nepal The balance of payments account is a systematic record of all the transactions of a country’s inhabitants with the rest of the world over a given period of time. All transactions must be recorded somewhere. The IMF publishes a Balance Of Payments manual to standardize all balances of payments, and it contains the rules about which transactions are allowed. A favorable balance of payments usually implies a surplus which means that more funds are flowing in than leaving. Every transaction is recorded twice, once as a credit and once as a debit. A key point to remember about the balance of payments account is that the value of all the transactions must sum to zero. The balance of payments account consists of the following components: • Current Account • Capital Account Current Account The Current Account includes all transactions which give rise to or use up national income. The current account has four components: • The balance on goods, which records exports and imports of physical, relocatable merchandise. The export of betel nut, for example, brings in a credit, while the import of cars creates a debit. • The balance on services, which records transactions relating to the provision of non-physical items such as transport, travel and insurance. • The balance on investment income, which records dividends and interest payments that Nepalese earn on assets held overseas, and also payments to foreign residents on assets held in Nepal. •...
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...RAISONI GROUP OF INSTITUTIONS G H RAISONI COLLEGE OF ENGINEERING National Conference on Business & Economics Conference Theme : Financial Management Topic : The Drivers of Indian Economy Presented By Shashwati Bhowmick Sr. Faculty (Retail Management) Footwear Design & Development Institute Chhindwara (M.P) Abstract Economic growth and development is the key to the growth and development of the nation. There are various factors, attributes which drives the economic growth. This paper studied about roles played by drivers of economy. The result focuses on the need, importance , implementation and management of these drivers by the government to ensure sustained economic growth and development of India. Introduction Economy is...
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...NARANJI THANKI FT163082 TEJAS PRAMOD MADAN FT163098 SHABARISH NAMA RADHAKONAIAH FT164080 VARUN M FT164096 As per the recent report by the World Bank, India is all set to be the world’s fastest growing economy by 2015 ahead of China. India’s GDP is forecasted to be 7.5% through 2015 and is forecasted to be 8% in FY16. This improvement can be attributed to the new government’s strong reforms RBI’s inflation focus and falling global commodity prices. GDP : 65445.9 billion Rate of growth (GDP) FY15 | 7.4% | Status of Employment | 29650 billion | India Industrial Production | 4.1% | Agricultural Sector | 18% of GDP ; 4152.28 Billion INR | Services Sector | 65% of GDP | Investment and Consumption expenditure | | Current account Deficit | 0.2% of GDP ; 1.3 billion USD | Fiscal Deficit | 3.9% of GDP ; 1.27 lakh crore INR | Interest Rate | 7.25 % | Net Exports | 22146.75 Million USD | Foreign Exchange Reserve | 355460 Billion USD | Credit Off Take | 10.19% ; Rs 65,24,257 crore | Rate of Growth of States Gross State Domestic Product at current prices State Gross Domestic product at Current Prices It can be seen that Maharashtra contributes the highest among the 33 Indian states and union territories.. The Top 5 States share about 44% of India’s total economy. Eight states of North East India share just around 2% of India’s GDP. Goa is found to have highest per capita income. Average Growth in Gross State Domestic Product since 2005 During...
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...an indicator of economic and political stability. For example, if a country has a consistently positive BOP, this could mean that there is significant foreign investment within that country. It may also mean that the country does not export much of its currency. This is just another economic indicator of a country's relative value and, along with all other indicators, should be used with caution. The BOP includes the trade balance, foreign investments and investments by foreigners. COMPARATIVE ANALYSIS OF BALANCE OF INDIAN PERSPECTIVE Uses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items. When all components of the BOP accounts are included they must sum to zero with no overall surplus or deficit. For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counter-balanced in other ways such as by funds earned from its foreign investments, by running down central bank reserves or by receiving loans from other countries. The balance of payments of a country is a systematic record of all transactions between the residents of a country and the rest of the...
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