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CONTRIBUTION ZISHAN HAYAT KHAN VISHAL GUPTA SHADAB GAURAV JAISWAL ASHISH TULSIYAN ANS 1 ANS 2 ANS 2 ANS

3 ANS 3

BUSINESS SCHOOL OF DELHI

MACRO ECONOMICS
ECONOMIC CONDITION OF INDIA
SUMITTED BY ASHISH TULSIYAN GAURAV JAISWAL ZISHAN HAYAT VISHAL GUPTA SHADAB

13\12\10

SUBMITTED TO :-DR.ATHAR ALI

Q.1 Makes a list of all monetary and fiscal measures taken by government of India to boost Indian economy out of recession.
 Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest to attain a set of objectives oriented towards the growth and stability of the economy. There is a list of all monetary measures which is taken by the government of India to boost Indian economy out of recession. Those are as follows y y y y y CASH RESERVE RATIO (CRR) Repo rate Reverse repo rate SLR Discount window lending

y Interest rates  Fiscal policy is the use of government expenditure and revenue collection to influence the economy. The list of all Fiscal measures which is taken by the government of India to boost Indian economy out of recession. Those are as follows y y y y Tax policy Government revenue Government debt Government spending

Q2. CRITICALLY evaluate the effectiveness of each method


MONETARY POLICY
 CASH RESERVE RATIO: - It is a Central bank regulation that sets the minimum reserves each Commercial bank must hold to customer deposits and notes i.e. the amount that the bank surrenders with the central bank. In the year of 2008 the whole country of the world had been affected by recession means in the whole country of the world unemployement had been increased. That time the govt. of India was trying to increase the money supply in the economy. So that by the concept of CRR govt. able to increase the money supply in the economy by decreasing the rate of CRR.  REPO RATE :- Whenever the banks have any shortage of funds they can borrow it from RBI. Repo rate is the rate at which our banks borrow rupees from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive.  REVERSE RAPO RATE :- Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks are always happy to lend money to RBI since their money are in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. It can cause the money to be drawn out of the banking system.  S.L.R :- Statutory Liquidity Ratio is the amount of liquid assets, such as cash, precious metals or other short-term securities, that a financial institution must maintain in its reserves. The statutory liquidity ratio is a term most commonly used in India.

 DISCOUNT WINDOW LENDING :- The discount window is an instrument of monetary policy that allows eligible institutions to borrow money from the central bank, usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions.

 INTEREST RATES :- An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for deferring the use of funds and instead lending it to the borrower.

FISCAL POLICY
 TAX POLICY :- Governments use tax policy to influence the level of aggregate demand in the economy, in an effort to achieve economic objectives of price stability, full employment, and economic growth. It suggests that increasing government spending and decreasing tax rates are the best ways to stimulate aggregate demand. This can be used in times of recession or low economic activity as an essential tool for building the framework for strong economic growth and working towards full employment. In theory, the resulting deficits would be paid for by an expanded economy during the boom that would follow; this was the reasoning behind the new deal and vice versa.

 GOVERNMENT REVENUE :- Governments acquire the resources to finance their expenditures through a number of different methods. In many cases, the most important of these by far is taxation. Governments, however, also have recourse to raising funds through the sale of their goods and services, and, because government budgets seldom balance, through borrowing.

 GOVERNMENT DEBT :- Government debt (also known as public debt, national debt) is money owed by any level of government; either central government, federal government, municipal government or local government. By contrast, annual government deficit refers to the difference between government receipts and spending in a single year. As the government draws its income from much of the population, government debt is an indirect debt of the taxpayers. Government debt can be categorized as internal debt, owed to lenders within the country, and external debt, owed to foreign lenders. Governments usually borrow by issuing securities, government bonds and bills. Less creditworthy countries sometimes borrow directly from supranational institutions. A broader definition of government debt considers all government liabilities, including future pension payments and payments for goods and services the government has contracted but not yet paid. Another common division of government debt is by duration until repayment is due. Short term debt is generally considered to be one year or less, long term is more than ten years. Medium term debt falls between these two boundaries  GOVERNMENT SPENDING :- Government spending or government expenditure is classified by economists into three main types. Government acquisition of goods and services for current use to directly satisfy individual or collective needs of the members of the community is classed as government final consumption expenditure. Government acquisition of goods and services intended to create future benefits, such as infrastructure investment or research spending, is classed as government investment (GFCF), which usually is the largest part of the government gross capital formation. Acquisition of goods and services is made through own production by the government (using the government's labour force, fixed assets and purchased goods and services for intermediate consumption) or through purchases of goods and services from market producers. The first two types of government spending, namely government final consumption expenditure and government gross capital formation, together constitute one of the major components of gross domestic product or GDP.

Q3. Do you think economy is on recovery path ? what future you perceive. Suggest policy changes required by the government for future growth?
 Yes, India is at a very crucial stage of economic recovery. With high growth rates, increasing industrial output, India seems to be out of the recession blues and well on the path of recovery. RBI recently reviewed its target growth to 7.5% this year from 6% earlier.

 Economy of India seems to have very bright future but it may be dominated by high rate of inflation in future because consumer prices are at never before levels. Inflation is at decade high. Annual food inflation based on the wholesale price index stood at 17.28 %. Though the WPI has eased marginally, food prices are 22% higher than last year which is among the highest in the world.The traditional policy dilemma of maintaining growth or reining in inflation has acquired a particularly sharp edge this time.

 That is why it is advisable to the government to focus on agriculture. There has to be a lot more investment in agriculture related infrastructure. Indias policy with the agricultural has been very subsidy oriented. Subsidy as a policy is not sustainable either from the fiscal or the ecological point of view. There has to be more spending on R&D and better quality seeds should be provided. The emphasis has to be put on increasing productivity. Also, we are a major importer of a few crops. Our domestic demand has a bearing on international prices and vice-versa. Considering that inflation depends a lot on commodity pricing, measures have to be taken to achieve food and oil security.