Module 2 industrial policy

 Module 2: Industry, Business & Fiscal Policy 15 Hours

 Industrial Policy: New Industrial Policy 1991- Public Sector

Reforms-Privatisation and Disinvestment – Competition
Policy. Business Policy: Performance of MSMEs, Role of
MNCs in Industrial Development- Concepts of economic
and social infrastructure Fiscal Policy: Tax Expenditure,
Budgetary Deficits- Public debt management –VAT and GST
(concepts) –Finance Commission and its role – Fiscal
Federalism
 Industrial Policy is the set of standards and measures set by the Government to evaluate the
progress of the manufacturing sector to enhance economic growth and development of the
country.
 The government takes measures to encourage and improve the competitiveness and
capabilities of various firms.
 Objectives of Industrial Policy
1. To maintain steady growth in productivity.
2. To create more employment opportunities.
3. Utilize the available human resources better
4. To accelerate the progress of the country through different means
5. To match the level of international standards and competitiveness
 Industrial Policy Resolution, 1948
• It declared the Indian economy as Mixed Economy
• Small and cottage were given the importance
• The government restricted foreign investments
• Industries were divided into 4 categories
• Exclusive monopoly of central government(arms and ammunitions, production
of atomic energy and management of railways)
• New undertaking undertaken only by state(coal, iron and steel, aircraft
manufacturing, ship building, telegraph, telephone etc.)
• Industries to be regulated by the government(Industries of basic importance)
• Open to private enterprise, individuals and cooperatives(remaining)
 Industrial Policy Resolution, 1956 (IPR 1956)

• This policy laid down the basic framework of Industrial Policy

• This policy is also known as the Economic Constitution of India
 It is classified into three sectors
• Schedule A – which covers Public Sector (17 Industries)
• Schedule B – covering Mixed Sector (i.e. Public & Private) (12 Industries)
• Schedule C – only Private Industries
 industrial Policy Statement, 1977
• This policy was an extension of the 1956 policy.
• The maina aim was to create employment to the poor and reduction in the
concentration of wealth.
• This policy majorly focused on Decentralisation
• It gave priority to small scale Industries
• It created a new unit called “Tiny Unit”
• This policy imposed restrictions on Multinational Companies (MNC).
 Industrial Policy Statement, 1980
• The Industrial Policy Statement of 1980 addressed the need for promoting
competition in the domestic market, modernization, selective Liberalization,
and technological up-gradation.
• It liberalised licensing and provided for the automatic expansion of capacity.
• Due to this policy, the MRTP Act (Monopolies Restrictive Trade Practices) and
FERA Act (Foreign Exchange Regulation Act, 1973) were introduced.
• The objective was to liberalize the industrial sector to increase industrial
productivity and competitiveness of the industrial sector.
• The policy laid the foundation for an increasingly competitive export-based
and for encouraging foreign investment in high-technology areas.
 New Industrial Policy, 1991
 The New Industrial Policy, 1991 had the main objective of providing facilities to
market forces and to increase efficiency.
 Main objectives of New Economic Policy -1991
The main objectives to launch new economic policy (NEP) in 1991 are as
follows:
The main objective was to plunge Indian economy in to the field of
‘Globalization and to give it a new drive on market orientation.

The new economic policy intended to reduce the rate of inflation and to
remove imbalances in payment.

It intended to move towards higher economic growth rate and to build
sufficient foreign exchange reserves
 Features of New Industrial Policy 1991
• Reduction in Government’s Monopoly: Government monopoly was
reduced by decreasing the number of industries reserved for the public
sector from 17 (as per 1956 policy) to 8 industries such as arms and
ammunition, atomic energy, coal, mineral oil, mining of iron ore,
manganese ore, gold, silver, mining of copper, lead, etc.
• Abolition of Industrial Licensing: The Industrial Licensing Policy abolished
the industrial licensing given to all industries except for the 18 industries,
which was further reduced to 6 industries in 1999. These included drugs
and pharmaceuticals, hazardous chemicals, explosives such as gunpowder
and detonating fuses, etc.
• Provision of Foreign Companies as a Major Stake: It allowed foreign
companies to have a majority stake in India. For example, in 47 high-
priority industries, up to 51% of FDI was allowed.
• Provision to Non-Residential Indians (NRIs): Non-Resident Indians (NRIs)
were allowed 100% equity investments on a non-repatriation basis in all
activities.
• Internal Agreements on Foreign Technologies: Various international
agreements were made about foreign technologies. For example,
permitting high-priority industries up to a lump sum payment of Rs. 1 crore,
with 5% royalty for domestic sales and 8% for exports.
• Restructuring of Portfolio Public Sector Investments: Restructuring the
portfolio of public sector investments, for example, the PSUs which were
unlikely to be turned around were to be referred to the Board for Industrial
and Financial Reconstruction (BIFR).
• Removal of Prior Approval from Central Government: To remove the
requirement of prior approval of the Central Government for the
establishment of new undertakings, expansion of undertakings, merger,
amalgamation, etc MRTP act was to be amended.
• Changes in the Standard for Small Units: The criteria for a tiny unit was
changed to a unit having an investment limit of Less than Rs. 5 Lakh.
• Establishment of National Renewal Fund: As per this policy, the
government announced the establishment of a National Renewal Fund
(NRF) to ensure a social safety net for labor.
 Impact of New Industrial Policy 1991
• Removal of Restrictions Regarding License, Permit, And Quota Raj: It
removed the restrictions experienced during the license, permit, and quota
raj. It intended to liberalize the economy by removing bureaucratic
restrictions on industrial growth.
• Public Sector’s Role And Disinvestment: The role of the public sector
was decreased and two sectors were reserved for the public. The process
of disinvestment was started in PSUs.
• Entry of Multi-National Companies: By removing restrictions it enabled
the entry of multinational companies, privatization, removal of asset limits
on MRTP companies, liberal licensing policy, etc.
• Increment in Domestic And Foreign Investment: Domestic, as well as foreign
investment, increased in almost every sector of the economy.
• Increment in Exports And Related Activities: Increased efforts were
undertaken to increase exports such as Export Oriented Units (EOU), Export
Processing Zones (EPZ), Agri-Export Zones (AEZ), etc emerged.
• Establishment of A Separate Ministry: To better resolve the issues of MSMEs
in 2006 a new act and separate ministry were established.
 Competition Act

The Competition Act, 2002 was enacted by the Parliament of India and
governs Indian competition law. It replaced the archaic The Monopolies
and Restrictive Trade Practices Act, 1969. Under this legislation,
the Competition Commission of India was established to prevent the
activities that have an adverse effect on competition in India.This act
extends to whole of India.
It is a tool to implement and enforce competition policy and to prevent
and punish anti-competitive business practices by firms and unnecessary
Government interference in the market. Competition law is equally
applicable on written as well as oral agreement, arrangements between
the enterprises or persons.
The Competition Act, 2002 was amended by the Competition
(Amendment) Act, 2007 and again by the Competition (Amendment) Act,
2009.
 The Act establishes a Commission which is duty bound to protect the interests
of free and fair competition (including the process of competition), and as a
consequence, protect the interests of consumers. Broadly, the commission's
duty is:-
• To prohibit the agreements or practices that have or are likely to have an
appreciable adverse effect on competition in a market in India, (horizontal and
vertical agreements / conduct);
• To prohibit the abuse of dominance in a market;
• To prohibit acquisitions, mergers, amalgamations etc. between enterprises
which have or are likely to have an appreciable adverse effect on competition in
market(s) in India.
 In addition to this, the Competition Act envisages its enforcement with the aid of
mutual international support and enforcement network across the world.
3. Combinations: As per the act a combination is defined as terms which lead
to acquisitions or mergers. But should such combinations cross the limits as
put forth by the Act, then the parties involved would be under the scrutiny of the
Competition Commission of India.
4. Competition Commission of India: The CCIis an independent body with the
powers to enter into contracts and should the contracts be broken they can sue
the parties involved. The Commission consists of a maximum of six members
who are tasked with sustaining and promoting the interests of consumers in
order to foster an ideal environment for economic competition.
The other function of the Commission is to advise the Government of India
regarding competition in the economy and create public awareness on the
same issue.
• Function of the Competition Act
• To eliminate practices having adverse effects on competition, protect the
interests of consumers and ensure freedom of trade in the markets of
India.
• To give opinion on competition issues on a reference received from a
statutory authority
• To undertake competition advocacy, create public awareness and impart
training on competition issues.
• Consumer Welfare: To make the markets work for the benefit and welfare
of consumers.
• Ensure fair and healthy competition in economic activities in the country
for faster and inclusive growth and development of the economy.
• Implement competition policies with an aim utilize most efficient
utilization of economic resources.
• Effectively carry out competition advocacy and spread the information on
benefits of competition among all stakeholders to establish and nurture
competition culture in the Indian economy.

 Achievements of CCI The Commission has adjudicated more than 1,200

antitrust cases i.e., case disposal rate is 89 % in antitrust cases.
• It has also reviewed more than 900 mergers and acquisitions till date, cleared
most of them, within a record average time of 30 days.
• The Commission has also come up with several innovations like the ‘Green
Channel’ provision for automated approval on combinations/transactions
and cleared more than 50 of such transactions.
 Micro small and medium enterprises development

 MSME act was enacted in 2006 which provides the legal framework of
the concept of enterprise and integrating the three tiers i.e micro, small
and medium enterprises. Investment for micro is fixed at 25 lakhs, small
between 25 lakhs to 5 crores and medium to 5 to 10 crores. The act
provides a mechanism where there is a wide representation of all
sections of stakeholders of the three classes of enterprises with advisory
functions.

 SMEs are micro, small and medium enterprises that engage

in the service sector or the manufacturing, processing,
production and preservation of goods. MSMEs contribute
significantly to India's total GDP, and the government's objective is
to raise this contribution to 50% in the coming years.
 Following are some of the essential elements of MSMEs –
1. MSMEs work for the welfare of the workers and artisans. They help
them by giving employment and by providing loans and other services.
2. MSMEs provide credit limit or funding support to banks.
3. They promote the development of entrepreneurship as well as up-
gradation of skills by launching specialized training centers for the
same.
4. They support the up-grading of developmental technology,
infrastructure development, and the modernization of the sector as a
whole
5. MSMEs are known to provide reasonable assistance for improved
access to the domestic as well as export markets.
6. They also offer modern testing facilities and quality certification
services.
7. Following the recent trends, MSMEs now support product development,
design innovation, intervention, and packaging.
 Features

 Establishment of funds for the promotion, development and enhancement of

competitiveness of these firms

 Notification of the available schemes

 progressive credit policies and practices

 Govt procurement of products produced by msmes

 Introducing effective mechanisms for mitigating the problems of delayed

payment to msmes. Simplifications of the process of closure pf business by
all 3 categories

 Certain products to be exclusively manufactured by the msmes

 Progress

 Msmes are contributing to 8% of the Indian economy. Bank lending to msmes is around rs
5.4 trillions.

 Contributes to nearly 40% of total exports.

 According to the latest reports of the govt of India there are around 30 million msmes in
India which provide employment to 60 million people in the 28 % is in manufacturing
sector and 72% in the service sector.

 Pne of the important aspects of the msmes in that it mobilizes major portion of its capital
from the lower middle class of the society in order to invest the same in productive
economic activities.

 According to the economic survey 20-21 with around 30 millions, the sector has been the
backbone of the economy and plays a crucial role in the emp generation and in
contributing to the gdp.
 Salient Features
 The following are the features of the Competition Act:
 1. Anti Agreements: Any individual or enterprises shall not deal in production
supply or distribution that may cause a negative impact regarding competition in
India. Any existence of such agreements is considered illegal.
 2. Abuse of dominant position: In the event, an enterprise or an associated
individual, it is found to indulge in practices that are unfair or discriminatory in
nature shall be considered an abuse of dominant position. If a party is found to be
in abuse of its position, then they will be subjected to an investigation from the
concerned authorities.
 Role of MSMEs in Indian Economy
 Since its formation, the MSME segment has proven to be a highly
dynamic Indian economy sector. MSMEs produce and manufacture a
variety of products for both domestic as well as international markets.
They have helped promote the growth and development of khadi, village,
and coir industries. They have collaborated and worked with the
concerned ministries, state governments, and stakeholders towards the
upbringing of rural areas.
 MSMEs have played an essential role in providing employment
opportunities in rural areas. They have helped in the industrialization of
these areas with a low capital cost compared to the large industries.
Acting as a complementary unit to large sectors, the MSME sector has
enormously contributed to its socio-economic development.
 MSMEs also contribute and play an essential role in the country’s
development in different areas like the requirement of low investment,
flexibility in operations, mobility through the locations, low rate of
imports, and a high contribution to domestic production.
 With the capability and capacity to develop appropriate local technology,
provide fierce competition in domestic and international markets,
technology-savvy industries, a contribution towards creating defense
materials, and generating new entrepreneurs by providing knowledge,
training, and skill up-gradation through specialized training centers.
 The Indian MSME sector provides silent support to the national economy
and acts as a defense against global economic shock and adversities.
Hence, we can say that India is propelling towards a robust global economy
through a silent revolution powered by MSMEs.
 Meaning of Infrastructure:


 “Infrastructure means those basic facilities and services which facilitates

different economic activities and thereby help in economic development of
the country, Education, Health, Transport and Communication, banking
and insurance, irrigation and power and science and technology etc. are the
examples of infrastructure. These are also called social over head capital.
These do not directly produce goods and services but induce production in
agriculture, industry and trade by generating external economies. For
example, an industry situated on or near the railway line or national
highway will produce commodities at less cost.

 Types of Infrastructure:
 Broadly speaking infrastructure can be divided in two categories:
 (a) Economic Infrastructure
 (b) Social Infrastructure
 Social infrastructure.

 Social infrastructure is comprised of the facilities, spaces, services

and networks that support the quality of life and wellbeing of our
communities. The Social Infrastructure in India includes the education
system in India, health care, the management of the education and health
services in India that form the basic social infrastructure definition. The
India government looks after the social development in India by careful
infrastructure planning and handling the social issues in close
coordination.
 The infrastructure development of any Country includes both economic
infrastructure development that is the development of various sectors like
Energy, Power, Telecom, Transport (Railways, Roadways, Aviation and
Shipping), Infotech, Finance, etc. and also the social infrastructures
including education and health issues.
 Social infrastructure.

 Social infrastructure is comprised of the facilities, spaces, services and
networks that support the quality of life and wellbeing of our
communities. The Social Infrastructure in India includes the education
system in India, health care, the management of the education and health
services in India that form the basic social infrastructure

 Social infrastructure means those basic activities and services which, in

addition to achieving certain social objectives, indirectly help various
economic activities. For example, education does not directly affect economic
activities like production and distribution but indirectly helps in the economic
development of the country by producing scientists, technologists and
engineers. So education, health service, sanitation and water supply etc. are
the examples of social infrastructure.
 Social Infrastructure
 Education in India:

Imparting education on an organized basis dates back to the days of 'Gurukul' in

India. Since then the India education system has flourished and developed with
the growing needs of the economy. The education in India statistics are however
in a sad state showing a below average literacy rate. The education ministry in
India formulates education policy in India and also undertakes education
programs designed specially for kids, for women, for the people in prisons and
other special projects for social development of India.

 Education system India:

 Education in India until 1976 was the responsibility of the state governments; it
was then made a joint responsibility of both centre and state. The centre is
represented by the Education Ministry a subsidiary of the Ministry of Human
Resource Development India. The Education Ministry India decides the India
education budget allocating education grants for projects to upgrade the
education levels in India.
 The education system in India consists of primarily six levels:
o Nursery Class
o Primary Class
o Secondary Level
o Higher Secondary Level
o Graduation
o Post Graduation
 Education
 Education in India follows the 10+2 pattern. For higher education there
are various state run as well as private institutions and universities
providing a variety of courses and subjects. The accreditation of the
universities is decided under the universities grant commission act that
has formed autonomous institutions that have the right to provide
accreditation to universities and 'vishwvidyalayas'. The education
department consists of various schools, colleges and universities
imparting education on fair means and education for all sections of the
society.
 The education reforms taken up include a compulsory and free education
for all children below the age of 14 years, subsidized higher education
and various scholarship and education programs to achieve the literacy
targets.
 Education Problems and Reforms in India:


 The main problem of the education system in India is that the targets set by the
centre or the ministry of education to achieve a 100% literacy rate has never
been achieved except for Kerala state. Also the unorganized education sector
with many state and national level education boards operating like the SSLC,
ICSE, CBSE, IB and IGCSE having different curriculum and study patterns
provides a non-uniformity to the India education system.

The education reforms taken up include a compulsory and free education for
all children below the age of 14 years, subsidized higher education and
various scholarship and education programs to achieve the literacy targets.
 Health

 Health in India is a state government responsibility with the national health

policy laying down the necessary health policy in India. The central council of
health and welfare formulates the various health care projects and health
department reform policies. The administration of health industry in India as
well as the technical needs of the health sector are the responsibility of the
ministry of health and welfare India.
 Health care in India has many forms. These are the ayurvedic medicine
practice, Unani or Galenic Herbal Care, Homeopathy, Allopathy, Yoga, and
many more. Each different healthcare form has its own treatment system and
practice patterns. The medical practicing in India needs a proper licensing
from the health ministry.
 Health Department in India
 The health ministry in India takes care of the health department. The main
responsibility of the health ministry India is to provide hygienic health care
solutions for all, supervision of the basic health infrastructure development in
India by construction of hospitals, nursing homes and dispensaries as per
the needs of the area.

 Health Care Services in India:

 The health care services in India are mainly the responsibility of the health
ministry and also the private companies in the health industry in India
collectively. Provision for adequate medical facilities for all including enough
hospitals and other healthcare institutions to cater to the healthcare needs of
the people, medicines and drugs supply, medical equipments and other
medical products and ser vices required in the health department.
 Economic infrastructure

 Economic infrastructure can be defined as "internal facilities of a country that

make business activity possible, such as communication, transportation and
distribution networks, financial institutions and markets, and energy supply
systems". Infrastructure provides the most basic facilities that help serve
different economic activities and thereby help in the facilitation of the growth
of the country, development of the country, education, communication,
transport, banking and insurance, health, technology.

 Large financial facilities are available due to the existence of well organised
banking and insurance. There is revolutionary progress in science and
technology. These countries follow advanced technique of production. But in
a less developed countries like India, there is lack of qualitative
infrastructure. Due to this, the level of economic development is low.

 Student reference for the classification

 Revenue of the central govt

 It is divided into tax ad non tax revenue

 1 tax rev includes taxes on income

 Tax on property and capital transactions and taxes on commodities and services

 Non tax rev of the govt include

 Revenue from fees and other services

 Interest receipts

 Dividends and profits from public enterprises

 Deficit financing in India

 Is practised when revenue receipts from tax and non tax sources and borrowing are not
sufficient enough to meet the expenditure it is defined as the amount which is equal to
the net increase in the purchasing power r of the economy arising through budgetary
operations of the govt.

 Revenue deficit is the deficit in the current revenue account.

 Expenditure of the central govt

 Rev expenditure- Revenue expenditures are short-term expenses used in

the current period or typically within one year. Revenue expenditures
include the expenses required to meet the ongoing operational costs

 Capital exp- Capital expenditure is the money spent by the government on

the development of machinery, equipment, building, health facilities,
education, etc. It also includes the expenditure incurred on acquiring fixed
assets like land and investment by the government that gives profits or
dividend in future. Capital spending is associated with investment or
development spending, where expenditure has benefits extending years
into the future. Capital expenditure includes money spent on the
following:

• Acquiring fixed and intangible assets

• Upgrading an existing asset
• Repairing an existing asset
• Repayment of loan
 Budgetary deficit is the gap between total expenditure and
receipts i.e both rev and capital. In india deficit is mainly due to
capital account deficit

 Rev deficit = current rev exp- current rev receipts(net tax

rev+non tax rev

 Budgetary deficit=total expenditure(rev+capital)-total

receipts(rev+capital)

 .
 Budgetary and fiscal deficit
 Budgetary deficit is when expenditure of a particular financial year exceeds
its revenue it is termed as budgetary deficit also referred to as fiscal
deficit.
 Fiscal federalism

 refers to the financial relations between the country’s federal government system and
other units of government. It is the study of how expenditure and revenue are
allocated across different vertical layers of the government administration. Article 246
and Seventh Schedule of the Indian Constitution distributes powers and allots subjects
to the Union and the states with a threefold classification type:

a. List I: The Union is responsible for functions of national importance, including but not
limited to communications, constitution, defence, elections, external affairs and
organisation of the Supreme Court and the High Courts.

b. List II: States are responsible for touching on the life and welfare of the people, for
instance, through public order, police force, agriculture, local government, public
health, water land, etc.

c. List III: The Concurrent list includes the administration of justice, economic and social
planning, and more.
 Finance commission
 the Finance Commission is constituted by the President under article 280 of
the Constitution, it gives recommendations on distribution of tax
revenues between the Union and the States and amongst the States
themselves.
 The Finance Commission is a constitutional body formed every five years to give
suggestions on centre-state financial relations. Each Finance Commission is
required to make recommendations on: (i) sharing of central taxes with states, (ii)
distribution of central grants to states, (iii) measures to improve the finances of
states to supplement the resources of panchayats and municipalities, and (iv) any
other matter referred to it.

 Composition of transfers: The central taxes devolved to states are untied funds,
and states can spend them according to their discretion. Over the years, tax
devolved to states has constituted over 80% of the total central transfers to
states. The Centre also provides grants to states and local bodies which must be
used for specified purposes. These grants have ranged between 12% to 19% of the
total transfers.
 Tax devolution to states

 The 14th Finance Commission considerably increased the devolution of

taxes from the centre to states from 32% to 42%. The Commission had
recommended that tax devolution should be the primary source of transfer of
funds to states. This would increase the flow of unconditional transfers and
give states more flexibility in their spending.

 Criteria for share of revenue



• Population is an indicator of the expenditure needs of a state. Over the years,

Finance Commissions have used population data of the 1971 Census. The
14th Finance Commission used the 2011 population data, in addition to the
1971 data. The 15th Finance Commission has been mandated to use data from
the 2011 Census.


•
• Areais used as a criterion as a state with larger area has to incur additional
administrative costs to deliver services.

• Income distanceis the difference between the per capita income of a state with the
average per capita income of all states. States with lower per capita income may be
given a higher share to maintain equity among states.

• Forest cover indicates that states with large forest covers bear the cost of not having
area available for other economic activities. Therefore, the rationale is that these
states may be given a higher share.
 Module 3
 Module 3: Monetary Policy, Foreign Trade and Investment 15 Hours

 Monetary Policy – RBI- Monetary policy (Qualitative and

Quantitative methods) - Narasimhan Committee report Money
and Capital Markets-Difference between the money and capital
market- Components of India’s Money market- Role of SEBI.
Foreign Trade and Investment- India’s foreign trade- volume,
direction and composition (latest trends)- India’s Balance of
payment since 1991- FDI –Meaning, Trends and Patterns- New
EXIM policy
 MONETARY POLICY
 Economic policy of the central bank to control the movement of money
supply is termed as monetary policy
 Aim
 Maintain the value and stability of Indian currency at the int market
 To maintain blance in the eco development of certain region
 Movement of credit

 Quantitative instruments
 Qualitative instruments
 Quantitative instruments
 1Open market operation
 2Bank rate policy
 3Variable Reserve ratio (cash reserve ratio and SLR)

 1. Open market operation

 Reserve bank openly buys and sells securities, bonds, foreign exchange and
financial papers in theopen market
 Old operation of the central
 Rbi ---------------5000 crores

expansionar
R y
 Open market operation
 Open-market operation, any of the purchases and sales of government
securities and sometimes commercial paper by the central banking authority
for the purpose of regulating the money supply and credit conditions on a
continuous basis. Open-market operations can also be used to stabilize the
prices of government securities, an aim that conflicts at times with the credit
policies of the central bank. When the central bank purchases securities on the
open market, the effects will be (1) to increase the reserves of commercial
banks, a basis on which they can expand their loans and investments; (2) to
increase the price of government securities, equivalent to reducing their interest
rates; and (3) to decrease interest rates generally, thus encouraging business
investment.
 Bank rate policy

 A bank rate is the interest rate at which a nation's central bank lends money to
domestic banks, often in the form of very short-term loans. Managing the bank rate is
a method by which central banks affect economic activity. Lower bank rates can help
to expand the economy by lowering the cost of funds for borrowers, and higher bank
rates help to reign in the economy when inflation is higher than desired.

RBI
RE
C EXP
 Cash reserve ratio- CRR AND SLR
 Cash Reserve Ratio (CRR) is the share of a bank's total deposit that is
mandated by the Reserve Bank of India (RBI) to be maintained with the latter
in the form of liquid cash - 3%
 The reserve ratio, set by the central bank, is the percentage of a commercial bank's
deposits that it must keep in cash as a reserve in case of mass customer withdrawals
 Statutory liquidity ratio
 Statutory Liquidity Ratio or SLR is a minimum percentage of deposits that a
commercial bank has to maintain in the form of liquid cash, gold or other
securities. It is basically the reserve requirement that banks are expected to
keep before offering credit to customers. 18%

rec

Revival/exp
 Repo rate is the rate at which the central bank of a country (Reserve Bank of
India in case of India) lends money to commercial banks in the event of any
shortfall of funds. Repo rate is used by monetary authorities to control inflation.
 Repo Rate, or repurchase rate, is the key monetary policy rate of interest at
which the central bank or the Reserve Bank of India (RBI) lends short term
money to banks, essentially to control credit availability, inflation, and the
economic growth. Repo Rate in India is the primary tool in the RBI’s Monetary
and Credit Policy. Other policy rates, such as Reverse Repo Rate and Marginal
Standing Facility Rate, are often directly linked with the Repo Rate of RBI.
Reverse Repo Rate is, on the other hand, an exact opposite of the Repo Rate.
Banks park money with the RBI for short term at the prevailing Reverse Repo
Rate.
 Repo Rate is the most significant rate for the common man too. Everything from
interest rates on loans to returns on deposits is influenced by this crucial rate set
by the RBI, which is why interest rates on home loans, car loans and other kinds
of borrowings go up and down based on the direction of Repo Rate change.
Similarly, banks adjust savings account, fixed deposit returns based on this
benchmark.
 Reserve repo commercial banks lend money to RBI
 Qualitative instruments
 Rationing of credit
 Credit rationing – a situation in which lenders are unwilling to advance
additional funds to borrowers at the prevailing market interest rate – is now
widely recognized as a problem arising because of information and control
limitations in financial markets.
 Margin requirement- borrowing from financial inst
 Priority sector lending-
 Moral suasion
 Direct action
 Fiscal Policy
 Economic policy of the govt in power
 Fiscal policy
budget

Public rev Public exp Public debt

Tax Planned 1. Bal B

Non tax exp ID 2. Sur B
rev
rev 3. Def B
Di
re ED
Un plan
ct Foreign
Ind aid
rec Regn fee
T Income
Licensing
Foreign
Gr
 Causes for increased publ ic expenditure
 High population
 Social welfare
 Defence expn
 Infrastructure buildings
 Excess imports
 Imbalance in the economic development
 Boom
 Monetary-policy - OMO—sell securities
 Bank rate--- increase int rate
 CRR---increased,SLR—increased

 Recession
 Monetary –
 OMO -------buy back securities
 Bank rate -----decreased int rate
 CRR and SLR -------decreased reserves