Monetary Policy
According to Harry G. Johnson, ‘Monetary policy is a policy
employing the Central Bank’s control of the supply of money as an instrument
for achieving the objective of General Economic Policy.’
Monetary policy is the process by which the monetary
authority (Central Bank) of a country controls the supply of money,
for the purpose of promoting economic growth and price stability.
Monetary Policy can be termed as Expansionary or Contractionary
in nature.
• Instruments
of Monetary Policy:
• Quantitative
methods
• Bank
Rate Policy – Used as an instrument of credit control
• Reserve
requirement changes – (Cash
Reserve Ratio, Statutory Liquidity Ratio) Higher cash reserve results in
reduction of money available in market
• Repo
rate and Reverse Repo rate changes
• Open
market operations – sale or purchase of different securities
• Qualitative
Methods
• Credit
Rationing
• Margin
requirements
• Variable
Interest Rates
Objectives of Monetary Policy
• Price
stability
• Maintaining
exchange rates
• Maximum
feasible output
• High
economic growth
• Full
employment
• Greater
equality of income and wealth
Problems related to Monetary Policies:
• Time
gap in implementation
• Presence
of Modern Financial Institutions results in limited role of monetary policy
• Underdeveloped
money market
• Abundance
of black money
• Contradictions
in objectives
FISCAL
POLICY
• Fiscal
Policy refers to the policy of government as regards taxation, public
borrowing and public expenditure with specific objectives in view.
• These
objectives are to produce desirable effects and avoid undesirable effects on
the national income, employment and general price level.
The importance of Fiscal Policy
• Objective
– To create Income Equality
• “The
goal of fiscal policy in a developing country is the promotion of the highest
possible rate of capital formation without inflation” (Raja J. Chelliah).
• An
Economic tool during the period of depressions
Instruments of Fiscal Policy
• Taxation
• Public
Debt
• Public
Expenditure
Problems related to Fiscal
Policies
• Time
Lags in implementation
• Tax
Policy problems
• Burden
of Public Debt
EXIM
POLICY (Export-Import Policy)
What is Foreign Trade Policy/ EXIM Policy?
• The
Union Commerce Ministry, Government of India announces the integrated Foreign
Trade Policy FTP in every five year. This is also called EXIM policy.
• This
policy is updated every year with some modifications and new schemes. New
schemes come into effect on the first day of financial year i.e. April 1, every
year.
• Exim policy or Foreign Trade Policy is a set of
guidelines and instructions established by the DGFT (Directorate General of Foreign Trade) in matters related to
the import and export of goods in India, and is regulated by the Foreign Trade
Development & Regulation Act 1992.
• The
main objective of the Foreign Trade (Development and Regulation) Act is to
provide the development and regulation of Foreign Trade by
facilitating imports into, and expanding exports from India
• India's
Export Import Policy aims at developing
export potential, improving export performance, encouraging foreign
trade and creating favorable balance of
payments position
Historical
Background
Import Policy–Pre-Reform Period
§
Import restrictions (1956-1977)
§
Import Substitutions
§
Import liberalization (1980-1991)
Import Policy–Post-Reform Period
–
In accordance with global changes
Export
Policy–Pre-Reform Period
–
Phase I-(1952-73)
– Phase
II-(1973-83)
–
Phase III-(1983-91)
Export Policy–Post-Reform Period
o Various
steps including Cash compensatory support, Duty drawback, SEZs, 100%EOU.
Main
Objectives of New Foreign Trade Policy 2009-14
1. To arrest and reverse
declining trend of exports is the main aim of the policy. This aim will be
reviewed after two years.
2. To Double India's exports of
goods and services by 2014.
3. Simplification of the
application procedure for availing various benefits
4. To set in motion the strategies
and policy measures which catalyze the growth of exports
Focus Areas in New policy
• Market
Diversifications
• Technological
Upgradations
• Agriculture
and Village Industry
• Handlooms
• Handicrafts
• Gems
& Jewellery
• Leather
and Footwear
• Electronics
and IT Hardware Manufacturing Industries
• Green
products and technologies
•
Incentives for Exports from the North Eastern
Region
• Towns
of Export Excellence (TEE)
• The
following cities have been recognized as towns of export excellence (TEE)
• Handicrafts
: Jaipur, Srinagar and Anantnag
• Leather
Products : Kanpur, Dewas and Ambur
• Horticultural
Products: Malihabad
Foreign
Exchange Management Act, 1999
Objectives of FEMA
• To
facilitate External trade
• To
ensure orderly growth and development of foreign market
Main Provisions of FEMA
• Dealing
in Foreign Exchange- with permission of authorized agent only
• Holding
of Foreign Exchange- Not permitted except with the permission of RBI
• Current
Account transactions-Allowed for sale or purchase of foreign exchange
• Capital
Account transactions- Permitted only for specific class of foreign exchange
dealing as allowed by RBI
• Export
of goods and services-Details to be submitted to RBI
• Realization
and repatriation of foreign exchange-If any amount is due, take necessary
steps to recover foreign exchange
Administration & Penalties
• Administration: Important role OF RBI
• Penalty:
Amount up to three times of contravention (if contravention is quantifiable and
up to Rs 2 lacs)
• In
case of non-quantifiable or continuing nature breach penalty up to Rs five thousand per day from the date
of first contravention
• In
case of non-payment of penalties, it may convert into imprisonment after show cause notice and personal hearing
Differences between FERA
& FEMA
Basis of Difference
Provisions and complexity
– FERA 1973 - 81 Sections & Complex provisions
– FEMA 1999- 49 Sections with simple provisions
Intention
– FERA 1973- Negative Intentions (Talks about
Regulation)
– FEMA 1999-Positive intentions (Talks about
Management
Authorized persons
– FEMA 1973- Included government
representatives
– FERA 1999-Exhaustive definition: includes
banks, money changers
Definition of Resident
– FEMA 1973- Unclear and not in line with other
enactments
– FERA 1999-In line with other enactments like
Income Tax Act
Punishment
– FEMA 1973- Offences treated as criminal in
nature
– FERA 1999-Considered as civil offence
Penalty quantum
– FEMA 1973-
5 Times of amount involved
– FERA 1999- 3 Times of amount involved
Appellant authority
– FEMA 1973-1. Adjudicating officer 2. High
Court
– FERA 1999- 1. Adjudicating officer 2.
Appellant Tribunal 3. High Court
Legal assistance during
legal proceedings
– FEMA 1973-Unclear Provisions
– FERA 1999-Assistance from legal practitioner
or chartered accountant can be taken
Role
of Government in Regulation & Development of Business
•
Government
worked as producer through Public Sector enterprises. Since privatization
government had to play role of regulator for ensuring ethical business
practices as well as creating suitable atmosphere for development of
businesses. Therefore both the roles become important for country.
•
Reasons
for Government regulation
– Market Failure in lack of regulations
– Ethical Failure for ensuring fairness and
justice
– Public Reaction regarding unwanted events at
national level
– Political advocacy regarding interest of
minorities.
•
Reasons
for Development role of government
– Providing needed infrastructure
– Ensuring balanced growth
– Curbing Monopolies
– Skill development
– Providing Financial facilities
– Direct & Indirect participation
Important regulatory steps taken by government
•
Air (Prevention and Control of Pollution)
Act, 1981- For preservation of
quality of air and control of air pollution
•
Environment Protection Act, 1986- Environment includes water, air, land and
interrelationships that exists with human beings and other living creatures
including plants
•
Wildlife protection Act, 1972- safeguard to wildlife including any animal,
bees,
butterflies, birds and reptiles.
•
Companies Act, 1956: For incorporating and functioning as
company
•
Central Excises Act, 1944: For specified listed manufacturing units
•
Competition Act, 2002: To ensure healthy competition among
businesses
•
Consumer Protection Act, 1986: To safeguard interest of consumers
•
Contract Act, 1872: providing basics while entering into contract
•
Customs Act, 1962: For international trade
•
Factories Act, 1948: for ensuring benefits to workers in
factories
•
Limitation Act, 1963: limitation to file a suit
•
Partnership Act, 1932: To function as a partnership firm
•
Sale of Goods Act, 1930: provisions related to sales and related
activities
•
Income Tax Act, 1961: For computing taxable income
•
Information Technology Act, 2000: making IT transactions reliable and safe
•
Trade Unions Act, 1926- includes all kinds of unions, workers and
association of employers whether temporary or permanent
•
Payment of Bonus Act, 1965- Applicable to factories and other
establishments with 20 or more employees
•
Employee’s Provident Fund Act, 1952- Compulsory payment by employer for future
requirements of employee or his family
•
Workmen’s Compensation Act, 1923- Provides relief to employee or his family
members in case of accidental death or disablement to employee (in course of
employment)
•
Prevention of Food Adulteration Act, 1954- Ensures quality and quality of the food articles
supplied by vendor to customer
•
Anti Dumping Policies- exporting low quality product in huge
quantity, at lesser price than prices at exporting country
Important development related steps taken by
government
•
Agricultural
development- providing agricultural facilities
•
Infrastructural
development- needed facilities for industrial growth and better lifestyle for
citizens
•
Transportation
development- Investing large funds for smooth functioning of various business
related and other activities
•
Finance
facilities- through financial institutions
•
Business
participation and curbing monopolies
•
Development
through various policies including Monetary policy, Fiscal Policy, EXIM Policy
and foreign exchange policy
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