During global meltdown RBI had provided aggressive stimulus measures,But the time has come to exit those stimulus packages step by step..A doctor always advice you to take the medicine when you are ill and discontinue once you recover. The same is happening with our Indian economy.RBI has to exit from those stimulus packages which provided during worldwide slowdown. but now Indian economy is on recovery mode.
RBI has hiked both repo and reverse repo rate by 25 point each.
Repo rate is rate at which RBI lends money to banks for short term. The hike in repo rate means it will make cost of borrowing costlier for banks and Reverse repo rate is the rate at which banks parks their money with RBI. Hike in reverse repo rate means it will lucrative for commercial banks to park their money with RBI. Repo rate increased from 4.75% to 5% and reverse repo from 3.25 to 3.5%.this will check inflation by checking the cheap money availability which has begun by RBI as a part of stimulus packages.It has become crucial to counter inflationary pressure because it exceeded than what RBI had projected for march 2010. The annual inflation rate for march 2010 is 9.9% while projection was 8.65a approx and it is expected that it will cross double digits.
India is on recovery mode but inflation is becoming serious matter of concern day by day and govt with the help of RBI wants to ease it but hike in repo rate will ease inflation but impact our growth rate.RBI saying is that to counter inflation we have to compromise growth in near term but in medium term it will benefit. increases in repo rate will increase interest rate. Inflation from food items is also catching now non food items.So to check inflation we have to compromise with growth.At this point of time the biggest challenge ahead RBI is inflation growth trade off. So by tightening monetary policy we can see growth in middle term.
Wednesday, March 31, 2010
Saturday, March 6, 2010
Fluctuations in dollar and its impact in the Indian economy
During 1970-80, India which was consider isolated from the world economy , It had very less impact of dollar fluctuations because it was more relied on import but post 1980,India started to indulge more and more in exports,and now trade among India and US has begun.When we see US as an importer,it has huge demand for the products like ready made garments, textiles, tea, diamonds that are mainly produced by India, and when we see India as an importer then India has huge demand for the products that are produced in US, euro ope, Iraq etc. like oil,petroleum products,pharmaceuticals etc.
But how fluctuations in dollar has huge impact in the Indian economy?
Fluctuations in currency occurs due to demand and supply mismatches of the currency, if supply of currency exceeds the demand then it value depreciates, on the other hand if demand exceeds supply then its value appreciates. In the recent global meltdown we had seen that US was facing economic crunch, the demand in the US had fell down, drop in demand had badly hurt Indian export sectors, our supply exceeds the demand in US therefore Indian currency rupees in 2008-09 touched the $1=50Rs and in 2007 when our economy was booming, foreign investors had huge appetite in our country, export sector had huge demand, the rupees appreciated w.r.t dollar. and was around 1$=39 rupees.
We have seen that in 2007 the rupees was appreciating and demand for dollar was weakening, reason being that supply of dollar was increased in India because India was a favourite destination for the foreign investors, export sector was flourishing , we had huge supply of dollars that made Indian Rs strong. we were getting dollar from various corner like NRI, economic commercial borrowing (ECB), foreign inventors(FDI and FII) and export sectors.
When Rs appreciates, import sector has positive impact, the importer appreciates.The explanation is for instance $1 moves from 45 to 40 Rs then import becomes cheaper. for importing the goods worth 100 dollar India will pay 4500 Rs (if $1 =45Rs), and in second case(if $1=40Rs) for the same transaction India will pay 4000 Rs.
In contrast when Rs depreciates the exporter appreciates-The explanation is for instance $1 moves from 40 to 45 Rs for exporting the goods worth $100 ,exporter will will get 4000 Rs (if $1 =40Rs), and in second case(if $1=45Rs) for the same transaction exporter will get 4500 Rs.
so fluctuation in currency impacts
Export sector
Import sector
That results changes in Indian economy .
But how fluctuations in dollar has huge impact in the Indian economy?
Fluctuations in currency occurs due to demand and supply mismatches of the currency, if supply of currency exceeds the demand then it value depreciates, on the other hand if demand exceeds supply then its value appreciates. In the recent global meltdown we had seen that US was facing economic crunch, the demand in the US had fell down, drop in demand had badly hurt Indian export sectors, our supply exceeds the demand in US therefore Indian currency rupees in 2008-09 touched the $1=50Rs and in 2007 when our economy was booming, foreign investors had huge appetite in our country, export sector had huge demand, the rupees appreciated w.r.t dollar. and was around 1$=39 rupees.
We have seen that in 2007 the rupees was appreciating and demand for dollar was weakening, reason being that supply of dollar was increased in India because India was a favourite destination for the foreign investors, export sector was flourishing , we had huge supply of dollars that made Indian Rs strong. we were getting dollar from various corner like NRI, economic commercial borrowing (ECB), foreign inventors(FDI and FII) and export sectors.
When Rs appreciates, import sector has positive impact, the importer appreciates.The explanation is for instance $1 moves from 45 to 40 Rs then import becomes cheaper. for importing the goods worth 100 dollar India will pay 4500 Rs (if $1 =45Rs), and in second case(if $1=40Rs) for the same transaction India will pay 4000 Rs.
In contrast when Rs depreciates the exporter appreciates-The explanation is for instance $1 moves from 40 to 45 Rs for exporting the goods worth $100 ,exporter will will get 4000 Rs (if $1 =40Rs), and in second case(if $1=45Rs) for the same transaction exporter will get 4500 Rs.
so fluctuation in currency impacts
Export sector
Import sector
That results changes in Indian economy .
Monday, March 1, 2010
Did budget meet the expectations of common people?
The budget that was announced by Finance Minister Pranab mukherjee on 26 feb,2010 was drafted by keeping in mind the common masses.The govt has taken the measurement steps for the fiscal deficit that is 6.8 % of GDP, which is a severe problem for country like India, FM promised it to bring down at 5.5 % till FY11. The Govt has also tried to lower the burden of tax on people. The increase in income tax slab is a welcome step.The income tax rate upto 1.6 lac is exempted.The taxable income above 3 to 5 lacs will fetch 10% tax, which was earlier 20 % in that way the people will save10% , similarly above 5 lacs now only 20% tax has to pay, and above 8 lacs it is 30%.
No change in corporate tax and education cess but surchage has decreased from 10 % to7.5%.
We have seen the positive GDP number 7.9% for the quarter 2 was really astonishing indicates that we were able to manage the good growth rate despite crisis but the entire credit goes to the contribution of stimulus pakages so rolling back the entire stimulus at one go wil not be a prudent decision so FM has tried to exiting the stimulus in partial manner ,step by step by raising the excise duty from 8 to 10% so now we are having unified service and cenvat tax at 10 %.
The rising excise duty will add pressure on middle income people, hiking the prices of crude oil, petroleum deisel will make the transport of food item costlier which will increase the inflationary pressure so it was very disappointing on the inflation front, which was against the expectation of public because they were expecting that prices of essential commodities will go down , nobody had thought even prices will hike.
The increase in MAT was also disappointing for corporates , lowering the surcharge was balanced by increase in MAT.
So surplus is going to left among salaried people which is good news for everybody.
Some bad always comes with good so if we ignore the short tem inflationary pressure then in long term this budget will benifit. so overall it was very balanced budget and pranab babu done a great job to satisfy maximum number of people.
No change in corporate tax and education cess but surchage has decreased from 10 % to7.5%.
We have seen the positive GDP number 7.9% for the quarter 2 was really astonishing indicates that we were able to manage the good growth rate despite crisis but the entire credit goes to the contribution of stimulus pakages so rolling back the entire stimulus at one go wil not be a prudent decision so FM has tried to exiting the stimulus in partial manner ,step by step by raising the excise duty from 8 to 10% so now we are having unified service and cenvat tax at 10 %.
The rising excise duty will add pressure on middle income people, hiking the prices of crude oil, petroleum deisel will make the transport of food item costlier which will increase the inflationary pressure so it was very disappointing on the inflation front, which was against the expectation of public because they were expecting that prices of essential commodities will go down , nobody had thought even prices will hike.
The increase in MAT was also disappointing for corporates , lowering the surcharge was balanced by increase in MAT.
The income tax rate/slab:
| assesment year 2011-12(FY2010-11) | |
|
upto 2.4 lacs for (senier citizen) | Nill |
|
| 10% 20% 30% |
So surplus is going to left among salaried people which is good news for everybody.
Some bad always comes with good so if we ignore the short tem inflationary pressure then in long term this budget will benifit. so overall it was very balanced budget and pranab babu done a great job to satisfy maximum number of people.
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