State the main functions of the Reserve Bank of India.
- In our country the Reserve Bank is the
Central Bank and it was set up in 1935. The functions of the Reserve Bank of
India are as follows:-
1) The Reserve Bank acts as the banker's bank. In this
capacity it performs 3 main functions:-
a) It acts
as the custodian of cash reserves of the commercial banks.
b) It acts as the lender of the last resort.
c) It
is the bank of central clearance, settlements and transfers.
2) The Reserve Bank enjoys the monopoly of note issue.
It estimates the requirement of cash and in this way the central bank can
increase or decrease the supply of notes.
3) The Reserve Bank acts as the banker of the
government. As the government's banker, the reserve bank keeps the accounts of
various government departments and institutions.
4) The Reserve Bank is the custodian of the nation's
gopld and foreign exchange reserve. This is an important function of the
central bank.
5) The Reserve Bank publishes economic statistics
about the various aspects of the government. It also publishes the monthly
bulletins for various sections of the indian economy.
6) It acts as the controller of credit. The Reserve
Bank is in a position to control credit in its capacity as the bank of issue
and as the custodian of cash reserves of the commercial banks.
What is deficit financing?
-when the government plans its budget, it
first of all determines its target expenditure. Both administrative expenditure
and developmental expenditure are included in it. After determining the level
of expenditure, the government tries to raise an equal amount of revenue in the
form of taxes,duties, income from Public sector units and Public borrowings. If
the revenue expected to be collected from these sources falls short of the
target expenditure,the gap is called deficit. The government finances this
deficit through- a)running down its cash balance with RBI
b)borrowing from the RBI
c)Printing new money by the government itself.
This is called Deficit financing.It is 4 different
types:-
a) Revenue deficit:- Total revenue receipts-Total
revenue expenditure
b)Fiscal deficit:- Revenue receipts + capital receipt
- total expenditure
c)Primary fiscal deficit:- Fiscal deficit- interest
payments
d) Budget deficits:- (revenue receipts + capital
receipts ) - (revenue expenditure + capital expenditure )
What is public debt?
-If government's payments are greater
than government's receipts, then there is defeicit in government's budget. In
order to overcome this deficit, the government takes loans.This loan is known
as public debt or public borrowings.
If the govt. borrowings from within the country, then
this deficit is known as internal debt.Internal sources of govt. borrowing are
- individuals, commercial banks, non-banking financial institutions and the
central bank.
When the govt. takes loans from the governments of
other countries or international institutions,then it is called external debt.
Sources of External debt are- IMF , World Bank, ADB, foreign governments etc.
Public debt has two types of burdens-money burden and
real burden. When the government borrows money, this money will have to be
repaid in future nd interest on this amount will have to be paid regularly.
This is known as the direct money burden of the public debt.
On the other hand ther real burden of public debt
refers to the loss of economic welfare as a result of the repayment of public
debt.
- We can divide the public income to the
Central government under two parameters:-
a) Tax
revenue
b) Non-tax revenue
1. income tax 1.
Profits of the RBI
2. Wealth tax 2.
Profits earned by state enterprises controlled by Indian government
3. Gift tax
3. Public borrowings.
4. Estate duty
5. Capital gains tax
6. Corporation tax
7. Central excise duty.
8. Customs duty.
-Functions of
WTO
1. To provide
facilities for implementation, administration and operation of multilateral and
bilateral agreements of the world trade.
2. To provide
a platform to member countries to decide future strategies related to trade and
tariff.
3. To
administer the rules and processes related to dispute settlement.
4. To implement rules and provisions related to
trade policy review mechanism.
5. To assist IMF and IBRD for establishment
coherence in universal economic policy determination.
6. To improve
standard of living of people in the member countries.
7. To ensure full employment and broad increase
in effective demand.
8. To enlarge
production and trade of goods.
9. The above
three objectives were also included in GATT, but WTO also included some other
objectives which are :
10. To
enlarge production and trade of services.
11. To ensure
optimum utilisation of world resources.
12. To accept
the concept of sustainable development.
13. To
protect environment.
Functions of
the IMF:-
1. To promote
international monetary co-operation
2. To provide
monetary help to the member countries to remove maladjustment in their balance
of payments.
3. To promote
exchange stability.
4. To direct
the member countries to avoid competitive exchange rate depreciation.
5. To aim at
reducing tariff and carries on a surveillance of the policies being adopted by
the member states.
6 To provide
technical advice to its member countries on monetary and fiscal policies.
7. To conduct
short training courses on fiscal, monetary and balance of payments policy
8. To provide
technical experts to member nations suffering from balance of payments
difficulties.
9. To conduct
many research studies and publishes
their results.
What is fiscal policy? Explain the various
instruments of fiscal policy.
-In
economics and political science, fiscal policy is the use of government revenue
collection (taxation) and expenditure (spending) to influence the economy. 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 in an economy:
Aggregate
demand and the level of economic activity;
The
distribution of income;
The pattern
of resource allocation within the government sector and relative to the private
sector.
Fiscal policy refers to the use of the government
budget to influence economic activity.
The three main stances of fiscal policy are:
1.Neutral
fiscal policy is usually undertaken when an economy is in equilibrium.
Government spending is fully funded by tax revenue and overall the budget
outcome has a neutral effect on the level of economic activity.
2.Expansionary fiscal policy involves government spending exceeding tax
revenue, and is usually undertaken during recessions.
3.Contractionary fiscal policy occurs when government spending is lower
than tax revenue, and is usually undertaken to pay down government debt.
By
instruments of fiscal policy we mean the policies that the govt. of country
tries to control through its revenue-esxpenditure process. The instruments
are:-
a) BUDGET
- The budget of a nation is a useful
instrument to assess the fluctuations in an economy. Different budgetary
principles have been formulated which are known as (1) annual balanced budget.
(2) Cyclical balanced budget (3) fully managed compensatory budget.
b) TAXATION
-
Taxation is a powerful instrument of fiscal policy. It greatly affects a change
in disposable income, consumption and investment. An anti-depression tax policy
increases disposable income of the individual, promotes consumption and
investment. Obviously, there will be more funds with the people for consumption
and investment purposes at the time of tax reduction . This will ultimately
result in the increase in spending activities
c) PUBLIC EXPENDITURE
- The
active participation of the government in economic activity has brought public
spending to the front line among the fiscal tools. The appropiate variation in
public expenditure can have more direct effect upon the level of economic
activity than even taxes.
Public Expenditure can be of two types :-
1. Puclic expenditure in inflation.
2. Public expenditure in depression.
d) PUBLIC WORKS
- Keynes
"General theory" highlighted public programme as the most significant
anti-depression device. There are two forms of expenditure ,i.e, Public Works
and Transfer payments. Public Works according to Prof. J.M.Clark are durable
goods, primarily fixed structure, produced by the Government. They include
expenditure on public works as roads, rail tracks, schools, parks, buildings,
airports wtc. The expenditure on capital assets is called capital expenditure.
e) PUBLIC DEBT
- Public
debt is a sound fiscal weapon to fight against inflation and deflation .It
brings about economic stability and full employment in the economy.
The government
borrowing may assume any of the following forms mentioned as under:-
1. Borrowing from
Non-bank public
2. Borrowing from the Banking system.
3. Drawing from treasury.
4. Printing of money.
No comments:
Post a Comment