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The Impact of Fiscal Stimulus in The Recovery

The document discusses India's fiscal policy tools and their use to stimulate the economy during the 2008 global economic slowdown, including reducing taxes and increasing government spending to boost aggregate demand, as well as monetary policy measures by the Reserve Bank of India like lowering reserve requirements. It also outlines the impact of the slowdown on the Indian economy through reduced growth, rising unemployment, and falling stock markets.

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Nitin Kirnapure
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61 views28 pages

The Impact of Fiscal Stimulus in The Recovery

The document discusses India's fiscal policy tools and their use to stimulate the economy during the 2008 global economic slowdown, including reducing taxes and increasing government spending to boost aggregate demand, as well as monetary policy measures by the Reserve Bank of India like lowering reserve requirements. It also outlines the impact of the slowdown on the Indian economy through reduced growth, rising unemployment, and falling stock markets.

Uploaded by

Nitin Kirnapure
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Nitin Kirnapure

Yogesh Kedar
Raghunandan
Paras Gumbar
Richa Singh
Nidhi Jani
 Introduction to Fiscal Policy
 Meaning & Definition
 Objective & Tools of Fiscal Policy
 Fiscal PolicyTypes & Limitations
 Introduction to Indian Economy
 Economy Slowdown
 Recovery due to Fiscal stimulus
Fiscal Stimulus
Fiscal policy is the policy related to revenue,
expenditure and debt of the government for
achieving a set of objectives.
“Fiscal policy is defined as the discretionary
action by the government to change (i) the level
of government expenditure on goods , services
and transfer payments and (ii) the yield of
taxation at any given level of output.”

-D.C.
ROWAN
1)TAXATION POLICY:
Govt. collects large funds from public by way of
taxes, 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 demand
and vice versa
(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 of
government’s budget. when govt. meets its
budgetary deficit by borrowing from the central
bank, it is called deficit financing.
 Asian Development Bank(ADB)

 The Growth 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)


 Industry and Services
 Banking and Finance
There are other sector like…………

1)Petroleum and Natural gas

2)Pharmaceutical
November 2008
Taking action
Monetary and Fiscal action to protect the
growth in India
‘India not in recession, but hit by global
slowdown’
“India is not in recession but has been
badly hit by the global slowdown and the crisis
in 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.
 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.
 Reduced job opportunities
 Stock Market is lingering in the bottom.
 Inflation has increased.
 GDP has come down - the Indian GDP growth
has witnessed a slowdown from 9 percent
in year 2008 to 6.5 to 7.5 percent by the year
2009 end.
 Change in consumer behaviors and
purchasing power.
Pros of using Fiscal policy in global slowdown:

 Fiscal policy tool: Taxation


1)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.
 When spending goes up and taxes comes down , leads
to a budget deficit.

 Therefore, taxes can also be increased to accommodate


this.

 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.
 The main point of fiscal 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…….)
 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 to 24.0


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......)
 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…)
2006 2007 2008 2009 2010

World trade volume 9.4 7.2 4.1 -2.8 3.2


(goods and services)

Import
Advance economics 7.9 4.5 1.5 (-3.1) 1.9
Emerging and developing 14.9 14.5 10.4 (-2.2) 5.8
economics
Export
Advance economics 8.4 5.9 3.1 (-3.7) 2.1
Emerging and developing 11.2 9.6 5.6 (-0.8) 5.4
economics
 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.
Content:-
a) Report from National economic planning
b) Report of planning Commission

Websites:-
a) www.wikipedia.com
b) www.finmin.nic.in
c) www.rbi.org.in

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