Page 149 - DMGT401Business Environment

Business Environment

Notes
capital flows. Business and consumer confidence are yet to show definitive signs of revival
but the financial sector appears to be stabilising in response to concerted actions taken by
governments and central banks across the world, economic recession in the real sector
persists. According to the latest assessment by the International Monetary Fund (IMF), the
global economy is projected to shrink by 1.4 per cent in 2009 before recovering and
expanding by 2.5 per cent in 2010. The IMF, however, upgraded the growth outlook for
developing Asia citing improved prospects in China and India.
The Crisis and India

The Indian economy experienced a significant slowdown in 2008-09, in comparison with
the robust growth performance in the preceding five years, largely due to the knock-on
effect of the global financial crisis. India's exports contracted during eight straight months
which, in turn, impacted the industrial sector and the services sector. The financial sector,
however, remained relatively unaffected despite the severe stress created by the global
deleveraging process, which triggered capital outflows in the second half of 2008-09.
Quick and aggressive policy responses both by the Government and the Reserve Bank
mitigated the impact of the global financial crisis. The large domestic demand bolstered
by the government consumption, provision of forex and rupee liquidity coupled with
sharp cuts in policy rates, a sound banking sector and well-functioning financial markets
helped cushion the economy from the worst impact of the crisis. There are now progressive
signs of recovery in India: food stocks have increased; industrial production has turned
positive; corporate performance has improved; business confidence surveys are optimistic;
leading indicators show an upturn; interest rates have declined; credit off-take has picked
up after May 2009; stock prices have rebounded; the primary capital market has witnessed
some activity; and external financing conditions have improved. On the other hand, there
are some negative signs: delayed and deficient monsoon; food price inflation; rebound in
global commodity prices; continuing weak external demand; and high fiscal deficit.
Questions
1. Comment on India's performance in the time of slowdown.

2. Compare the present performance with the performance of past few years.

Source: Excerpts from RBI Governor Dr. Subbarao's Speech, rbi.org.in
6.5 Summary

According to the RBI Act, 1935, every commercial bank has to keep certain minimum cash
reserve with the RBI. Initially, it was 5% against demand deposit and 2% against time
deposits.

It is through fiscal policy that the government tries to correct inequalities of income and
wealth, which increase with the development of a country.
Fiscal policy is the projected balance sheet of the country, prepared by the Chief Finance
Officer of the country i.e. the Finance Minister of the State. Public finance is the study of
generating resources for the development of the country and about the allocation of those
resources.
The budget includes revenue and expenditure. The two are divided into capital and revenue
accounts. Thus, receipts are broken into revenue receipts and capital receipts, and
disbursements are broken up into revenue expenditure and capital expenditure.

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