CHAPTER 5 BE
2 likes521 views
The document discusses various topics related to monetary policy, fiscal policy, trade policy, budgets, capital markets, and financial institutions in India. It defines key concepts such as monetary policy, fiscal policy, primary and secondary capital markets, money markets, the Reserve Bank of India's credit policy, mobilization of savings, industrial sickness, trade policy, foreign direct investment, and competition commissions. The document provides overviews and explanations of these economic and financial terms.
CHAPTER 5 BE
- 1. Module 5 By Kiran Kumar Thoti
- 2. Monetary policy • Monetary policy is the process by which monetary authority of a country, generally a central bank controls the supply of money in the economy by its control over interest rates in order to maintain price stability and achieve high economic growth. • In India, the central monetary authority is the Reserve Bank of India (RBI) is so designed as to maintain the price stability in the economy.
- 3. Contd.. • Price Stability • Controlled Expansion Of Bank Credit • Promotion of Fixed Investment • Restriction of Inventories and stocks • Promotion of Exports and Food Procurement Operations • Desired Distribution of Credit • Equitable Distribution of Credit
- 4. Fiscal policy • In economics and political science, fiscal policy is the use of government revenue collection (mainly taxes) and expenditure (spending) to influence the economy. • According to Keynesian economics, when the government changes the levels of taxation and government spending, it influences aggregate demand and the level of economic activity. • Fiscal policy can be used to stabilize the
- 5. Contd.. • The two main instruments of fiscal policy are changes in the level and composition of taxation and government spending in various sectors. These changes can affect the following macroeconomic variables, amongst others, in an economy: • Aggregate demand and the level of economic activity; • Savings and Investment in the economy • The distribution of income
- 6. India’s Trade policy • Foreign trade in India includes all imports and exports to and from India. • At the level of Central Government it is administered by the Ministry of Commerce and Industry
- 7. Free trade agreements • A free-trade area is the region encompassing a trade bloc whose member countries have signed a free trade agreement (FTA). • Such agreements involve cooperation between at least two countries to reduce trade barriers—import quotas and tariffs— and to increase trade of goods and services with each other. • If people are also free to move between the countries, in addition to FTA, it would also be
- 8. Budget • A budget is a quantitative expression of a plan for a defined period of time. • It may include planned sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows. • It expresses strategic plans of business units, organizations, activities or events in measurable terms
- 9. Budget Purpose • Budget helps to aid the planning of actual operations by forcing managers to consider how the conditions might change and what steps should be taken now and by encouraging managers to consider problems before they arise. • It also helps co-ordinate the activities of the organization by compelling managers to examine relationships between their own operation and those of other departments.
- 10. CAPITAL MARKET Ø The market where investment instruments like bonds, equities and mortgages are traded is known as the capital market. Ø The primal role of this market is to make investment from investors who have surplus funds to the ones who are running a deficit.
- 11. Ø The capital market offers both long term and overnight funds. Ø The different types of financial instruments that are traded in the capital markets are: > equity instruments > credit market instruments, > insurance instruments, > foreign exchange instruments, > hybrid instruments and > derivative instruments.
- 12. Types of capital market There are two types of capital market: Ø Primary market, Ø Secondary market
- 13. Primary Market Ø It is that market in which shares, debentures and other securities are sold for the first time for collecting long-term capital. Ø This market is concerned with new issues. Therefore, the primary market is also called NEW ISSUE MARKET.
- 14. Ø In this market, the flow of funds is from savers to borrowers (industries), hence, it helps directly in the capital formation of the country. Ø The money collected from this market is generally used by the companies to modernize the plant, machinery and buildings, for extending business, and for setting up new business unit.
- 15. Features of Primary Market Ø It Is Related With New Issues Ø It Has No Particular Place Ø It Has Various Methods Of Float Capital: Following are the methods of raising capital in the primary market: i) Public Issue ii) Offer For Sale iii) Private Placement iv) Right Issue v) Electronic-Initial Public Offer
- 16. Secondary Market Ø The secondary market is that market in which the buying and selling of the previously issued securities is done. Ø The transactions of the secondary market are generally done through the medium of stock exchange. Ø The chief purpose of the secondary market is to create liquidity in
- 17. Ø If an individual has bought some security and he now wants to sell it, he can do so through the medium of stock exchange to sell or purchase through the medium of stock exchange requires the services of the broker presently, their are 24 stock exchange in India. .
- 18. Features of Secondary Market • It Creates Liquidity • It Comes After Primary Market • It Has A Particular Place • It Encourage New Investments
- 19. Money market • Short term instruments • Pure discount securities • Contracts up to 1 year • Huge volume and vigorous competition • No physical place • Essentially for professionals ( banks, fin. institutional investors, brokerage firms, companies) • Liquidity ( fine spreads based on interest rate of lending and borrowing) • Creditworthiness (risk and return) 19Vallyon Andrea 2010
- 20. RBI credit policy • In its efforts to keep inflation under check and spur economic growth, the RBI has a quiver full of arrows that it uses to control the flow of money into the economy: • Bank rate is the rate at which RBI lends to commercial banks. This influences the interest rates commercial banks charge their customers.
- 21. Contd.. • The cash reserve ratio stipulates the minimum proportion of deposits that banks must hold with the central bank. When the RBI increases the CRR, banks have fewer funds to lend or invest since they have to park more money with the central bank, helping it control liquidity in an economy • Statutory liquidity ratio defines the minimum proportion of their deposits that banks have to maintain at the close of business every day
- 22. Contd.. • Repo rate is the rate the central bank charges to lend to banks against securities. If banks have to pay more to borrow money, they may increase the rates they charge their customers or may borrow less, thus reducing inflation. • Reverse repo rate is the rate at which the RBI borrows money from banks. So if the RBI hikes the reverse repo rate, banks will be happy to keep more funds with the RBI since they get a higher rate of return.
- 23. Mobilization of savings for Investment • the mobilization of savings entails three distinct operations : • firstly, the increase in the saving ratio ; • secondly, the process of collecting savings from the savers ; and, • thirdly, the process of transmitting savings to borrowers for investment. • The analysis of economic behavior in financial markets has suggested that there might be
- 24. Contd.. • Raining the saving ration • Incentive s fo r th e mobilizatio n o f savings • Increasing the demand for investment • Inflation and the mobilization of savings • Centralization of savings and investment. • Differential returns • Policies for optimum allocation of Resources: A digression
- 25. Mobilization of Savings (case on Dharaka Mahela Scheme) • The group must determine the amount to be saved by each member; • A specific day should be agreed for payment of savings to ensure regular savings; • Each group member should be given a savings book into which amounts saved are recorded by group officials; • The group should open a groups savings account into which all members' savings will
- 26. Industrial sickness • Industrial sickness is defined in India as "an industrial company (being a company registered for not less than five years) which has, at the end of any financial year, accumulated losses equal to, or exceeding, its entire net worth and has also suffered cash losses in such financial year and the financial year immediately preceding such financial year"
- 27. Causes of sickness in small scale industry Internal causes for sickness • Lack of Finance • Bad Production Policies • Marketing and Sickness • Inappropriate Personnel Management • Ineffective Corporate Management External causes for sickness • Personnel Constraint
- 28. EXIM policy • Exim Policy or Foreign Trade Policy is a set of guidelines and instructions established by the DGFT in matters related to the import and export of goods in India. • The Foreign Trade Policy of India is guided by the Export Import in known as in short EXIM Policy of the Indian Government and is regulated by the Foreign Trade Development and Regulation Act, 1992. • DGFT (Directorate General of Foreign
- 29. Contd.. • Exim Policy Committee to review the government previous export import policies. The committee was later on approved by the Government of India. • Mr. V. P. Singh, the then Commerce Minister and announced the Exim Policy on the 12th of April, 1985. • Initially the EXIM Policy was introduced for the period of three years with main objective to boost the export business in India
- 30. Contd.. • Indian EXIM Policy contains various policy related decisions taken by the government in the sphere of Foreign Trade, i.e., with respect to imports and exports from the country and more especially export promotion measures, policies and procedures related thereto. • Trade Policy is prepared and announced by the Central Government (Ministry of Commerce). • India's Export Import Policy also know as Foreign Trade Policy, in general, aims at
- 31. FDI in manufacturing and Service • Foreign direct investment (FDI) inflows into the services sector experienced a boom during the 1990s. • By 2002, services accounted for 60% of the world stock of FDI, a four-fold increase since 1990 (UNCTAD, 2004). • The main recipients of FDI have been profit- seeking producer services which range from network-intensive services such as electricity, telecommunications, and transport to finance
- 32. Contd.. • A potentially powerful means to achieve such improvements is FDI which can lead to increases in the quality and variety of services available and lower their cost. • Manufacturing firms may also benefit from their interaction with foreign services suppliers through spillovers of management, organizational, marketing, or technological knowledge.
- 33. Competition Commission • The Competition Commission was a non- departmental public body responsible for investigating mergers, markets and other enquiries related to regulated industries under competition law in the United Kingdom. • It was a competition regulator under the Department for Business, Innovation and Skills (BIS). • It was tasked with ensuring healthy competition between companies in the UK for
- 34. Contd.. • The Commission has been in past engaged in undertaking advocacy with ministries, regulators, state governments and other authorities. • For examples: The Commission has given its opinion on the draft of Petroleum and Natural Gas Regulatory Bill, 2005. • Warehousing (Development and Regulation) Bill, 2006 Indian Post Office (Amendment) Bill, 2007, and the Shipping Trade Practices Bill,