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PRESENT MONETARY AND FISCAL POLICY AND ITS RELEVENCE IN THE
TEXTILE SECTOR

  economic analysis for managerial applications








Aman Deep Pant








Dr. Binaya Bhushan Jena







 
 

  

 

 
   
Ministry of Textiles, Govt. of India
GH-0 Road, Nr Infocity,
Gandhinagar- 382007
91-079-23240771
www.niftindia.com
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&
 ' ³The Federal Reserve actions that are designed to influence the
availability and cost of money.´ Specific policy includes changing the discount rate,
altering bank reserve requirements, and open -market operations. In general, a policy
to restrict monetary growth results in tightened credit conditions and, at least
temporarily, higher rates of interest. This situation can be expected to have a
negative impact on the security markets in the short run, although the long -run
effects may be positive because of reduced inflationary pressures.


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()Fiscal policy is the means by which a government adjusts its levels
of spending in order to monitor and influence a nation's economy. ´ It is the sister
strategy to monetary policy with which a central bank influences a nation's money
supply. These two policies are used in various combinations in an effort to direct a
country's economic goals.

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r Repo rate remains unchanged at 4.75 percent.

r Reverse repo rate remains unchanged 3.75 percent.
r Cash reserve ratio unchanged at 5 percent.
r Statutory liquidity ratio unchanged at 24 percent.
r Inflation forecast hiked to 5 percent from 4 percent.
r India¶s growth forecast now forecast at 6% with upward bias.
r Money supply may grow 18% this fiscal.
r The cash reserve requirements however may be raised as liquidity conditions
have improved.
r Lower policy rates are slowly translating into lower commercial bank lending
rates, but businesses remain cautious about borrowing and investing.
r Higher energy prices earlier in 2008 had forced the government to increase
retail fuel prices, bringing the Wholesale Price Index (WPI), the RBI¶s target
indicator for inflation, close to 12% in July 2008.
r September WPI rose 0.5% y/y from a negative growth of 0.7% y/y in August,
while the Consumer Price Index (CPI) continued to surge.
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r The budget for the FY09/10 fiscal year projected a worsening of the deficit to
6.8% of GDP from 6.0% the previous year and a decline in tax revenues to
10.9% of GDP from 11.6%.
r Total expenditure of the central government is to increase to 17.4% of GDP
on the back of higher food subsidies and outlays on welfare and job creation
programs particularly in rural areas to boost demand and maintain the growth
trajectory.
r The time given to small farmers to pay their over dues under the debt waiver
and debt forgiveness scheme ha s been extended to end of year.
r More money will be pumped into the National Rural Employment Guarantee
scheme which ensures each rural family 100 days of work on public sector
projects.
r Much-needed infrastructure spend ing will see some improvements.
r Fiscal consolidation is to be sacrificed for short term growth and is to return in
the medium long term.
r The budget does not contain major reforms to benefit private business and
foreign investors.
r The higher deficit will exacerbate the debt to GDP ratio which is projected to
reach over 80% by the end of the fiscal year.

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r Interest subvention of 2% on pre-shipment credit sectors extended till March
31, 2010. This move is expected to benefit the textile exporters in terms of the
lower interest cost.?
r Adjustment assistance scheme extended up to March 2010. Assistance
scheme is required by a person engaged in any industry, in the form of a
grant or loan for rural adjustment. ?
r Handloom mega cluster to be set up in West Bengal and Tamil -Nadu, 1 power
loom mega cluster in Rajasthan to be set up. New mega clusters for carpets
to be also set up in Srinagar and Mi rzapur.
r Customs duty on cotton waste to be reduced from 10 -15%.?
 r Tax-holidays for exporters extended until 2011.  Tax-holidays  are temporary
reduction or elimination of taxes. Governments usually create tax holidays as
incentives for business investment. The taxes that are most commonly
reduced are sales taxes.?
r 30 integrated textile parks to be set up ± Govt. policies finance success - Rs
450 cr provision textile parks. ?
r The hike in duty from 4% to 8% on man -made fibers will further increase the
disparity between natural fibers and manmade fibers¶, reducing the latter¶s
profitability.
r There is no mention of private partnership in spending the money especially
in infrastructure and rural sector and there is no way growth can be
guaranteed without private partic ipation and we can only expect, that these
issues are addressed in separate policies in future and expect the next budget
to be more specific.
r No provision in the budget to compensate the exporters for derivative losses
suffered by the exporters due to vol atile foreign exchange markets.


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The policies were not as per the expectations. The weakening of Rupee against
Dollar normally had given some relief to textile exporters but due to persistent long
power cuts and sluggish market conditions, textiles and garments sector continued
to be extremely stressed sector. And? from the sunrise sector, textile sector is at
verge of again slipping back to stagnant phase.
Thus, some more tax concessions should still be extended to textiles and garments
so that India is able to retain its competitiveness, especially at time when these
industries are required to keep pace with stiff competition, emergi ng from India¶s
neighbour.