The Impact of Fiscal Stimulus in the Recovery

8/9/2019 The Impact of Fiscal Stimulus in the Recovery

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Nitin KirnapureYogesh KedarRaghunandanParas Gumbar

Richa SinghNidhi Jani


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Introduction to Fiscal Policy

Meaning & Definition

Objective & Tools of Fiscal Policy Fiscal Policy Types & Limitations

Introduction to Indian Economy

Economy Slowdown Recovery due to Fiscal stimulus


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Fiscal Stimulus

Fiscal StimulusGovt.Policy


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Fiscal policy is the policy related to revenue,expenditure and debt of the government for

achieving a set of objectives.


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Fiscal policy is defined as the discretionary

action by the government to change (i) the levelof government expenditure on goods , services

and transfer payments and (ii) the yield oftaxation at any given level of output.

-D.C. ROWAN


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TaxationGovt.

Expenditure

Public DebtDeficit

Financing

FiscalPolicy


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1)TAXATION POLICY:

Govt. collects large funds from public by way oftaxes, these taxes are broadly classify as direct

taxes & indirect taxes

2)GOVERNMENT EXPENDITURE POLICY:

Aggregate demand is influenced by govt.expenditure. On increase in public (govt.)expenditure there is increase in aggregate demandand viceversa


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(3) PUBLIC DEBT POLICY:

Aggregate demand is also influenced by public debt

policy public debt is of two kinds (i) internal debt (ii)external debt.

(4)DEFICIT FINANCING:

It refers to financing to financing of the deficit ofgovernments budget. when govt. meets itsbudgetary deficit by borrowing from the centralbank, it is called deficit financing.


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Asian Development Bank(ADB)

TheGrowth projection for India has been revised

down to 7% in 2008 ,6.5 % in 2009 from 9% in 2007

Inflation has been an ongoing threat in India,especially when it reached a peak of 12% in early

August, 2008.

Decreased Demand as the Global Down turn

World Economic Forum (WEF)


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Industry and Services


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Banking and Finance


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There are other sector like

1)Petroleum and Natural gas

2)Pharmaceutical


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November 2008

Taking actionMonetary and Fiscal action to protect the

growth in India


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India not in recession, but hit by

global slowdown

India is not in recession but has beenbadly hit by the global slowdown and the crisisin different sectors,

said by Mr P. Chidambaram.

This global slowdown has started from December2007 till July 2009.

The high economic growth rate, the tremendous development in IT , a young

population, the feeling that we are the world champions in cricket in 2010 and

in everything else in the conceivable future that optimism has been

tempered recently but still we are growing and considered a rising country in

the world.


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Consumers lose confidence in the growth of the economy and

spend less.

Results in decreased demand for goods and services.

Decrease in production, lay-offs and a sharp rise in

unemployment.

Investors spend less as they fear stocks values will fall and thus

stock markets fall

on negative sentiment.


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Reduced job opportunities

Stock Market is lingering in the bottom.

Inflation has increased.

GDP has come down - the Indian GDP growth haswitnessed a slowdown from 9 percent

in year 2008 to 6.5 to 7.5 percent by the year 2009end.

Change in consumer behaviors and purchasingpower.


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Pros of using Fiscal policy in global slowdown:

Fiscal policy tool: Taxation1)Reducing income taxes- cause unemployment to decrease.

2) Provide an optimistic financial strategy for majority of the employed

workforce.

3) It also increases productivity.

4) Taxation gives the government the ability to function and the ability to

focus on the publics' interests of expenditures in a specific sector of the

fiscal policy.


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When spending goes up and taxes comes down , leads to a

budget deficit.

Therefore, taxes can also be increased to accommodatethis.

Increasing taxation during a global slowdown will cause

unemployment to increase

higher.

Increasing taxation decreases worker productivity, income,

and most importantly,

the optimism of a workforce.


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The main point offiscal policy is to keep the surplus

or deficit swings in the economy to a minimum by

reducing inflation and recession.

Fiscal tools are used to boost the economy.

The RBI has taken many measures since mid-

September 2008.(contd.)


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has reduced the Cash Reserve Ratio (CRR) from 9.0

per cent to 5.0 per cent

Statutory Liquidity Ratio (SLR) from 25.0 per cent to24.0 per cent.

during the last few months or so, have raised the

market borrowing programme of the government

for the year 2008-09.

Market Stabilisation Scheme (MSS) on February

26, 2009,

(CONTD......)


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an amount of Rs 45,000 crore was transferred from

the MSS cash account to the normal cash account

of the Government of India by March 31, 2009.

the RBI has conducted purchase of government

securities under its open market operations.

The Government has given liquidity support to the

housing sector and particularly to Housing Finance

Companies (HFC), adversely affected by the recent

financial market developments

(contd)


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World Trade Projections(percentage change)

2006 2007 2008 2009 2010

World trade volume(goods and services)

9.4 7.2 4.1 -2.8 3.2

Import

Advance economics 7.9 4.5 1.5 (-3.1) 1.9

Emerging and developingeconomics

14.9 14.5 10.4 (-2.2) 5.8

Export

Advance economics 8.4 5.9 3.1 (-3.7) 2.1

Emerging and developingeconomics

11.2 9.6 5.6 (-0.8) 5.4


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government is also helping the overseas financial

companies in many ways for financing imports to

India

Attempts are being made to ensure adequate

liquidity in order to maintain the flow of credit for all

productive purposes in the housing, export and

small and medium industry sectors.


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Content:-

a) Report from National economic planning

b) Report of planning Commission

Websites:-

a) www.wikipedia.com

b) www.finmin.nic.inc) www.rbi.org.in


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Documents

The Impact of Fiscal Stimulus in the Recovery