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    Indian Economic Environment

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    nileshsen
    This document provides an overview of the Indian economic environment. It discusses key concepts in economics including what economics is, the objectives of economic policies, and the different phases of the Indian economy. It also defines important economic terms and indicators such as inflation, consumer price index, wholesale price index, fiscal policy, monetary policy, and business cycles. Instruments of monetary and fiscal policy are explained. Macroeconomic concepts like the multiplier model and factors that impact gross national product are covered as well. International trade, balance of payments, foreign exchange markets, capital markets, and money markets are also summarized.

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    Indian Economic Environment

    Uploaded by

    nileshsen
    16 views26 pages
    This document provides an overview of the Indian economic environment. It discusses key concepts in economics including what economics is, the objectives of economic policies, and the different phases of the Indian economy. It also defines important economic terms and indicators such as inflation, consumer price index, wholesale price index, fiscal policy, monetary policy, and business cycles. Instruments of monetary and fiscal policy are explained. Macroeconomic concepts like the multiplier model and factors that impact gross national product are covered as well. International trade, balance of payments, foreign exchange markets, capital markets, and money markets are also summarized.

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    This document provides an overview of the Indian economic environment. It discusses key concepts in economics including what economics is, the objectives of economic policies, and the different phases of the Indian economy. It also defines important economic terms and indicators such as inflation, consumer price index, wholesale price index, fiscal policy, monetary policy, and business cycles. Instruments of monetary and fiscal policy are explained. Macroeconomic concepts like the multiplier model and factors that impact gross national product are covered as well. International trade, balance of payments, foreign exchange markets, capital markets, and money markets are also summarized.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    16 views26 pages

    Indian Economic Environment

    Uploaded by

    nileshsen
    This document provides an overview of the Indian economic environment. It discusses key concepts in economics including what economics is, the objectives of economic policies, and the different phases of the Indian economy. It also defines important economic terms and indicators such as inflation, consumer price index, wholesale price index, fiscal policy, monetary policy, and business cycles. Instruments of monetary and fiscal policy are explained. Macroeconomic concepts like the multiplier model and factors that impact gross national product are covered as well. International trade, balance of payments, foreign exchange markets, capital markets, and money markets are also summarized.

    Copyright:

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    Download as pptx, pdf, or txt
    of 26

    INDIAN ECONOMIC ENVIRONMENT

    Prepared By
    Nilesh Sen Purvi Dakalia

    Submitted to Prof. Neelam Mam

    What is Economics?
    Economics is a social science, its basic function is to study how individuals, households, firms and nations maximize their gains from their limited resources. There are two types of economy Free enterprise economy and Planned economy.

    Objectives of Economic Policies


    Guide growth while controlling Inflation Achieve full employment Steady growth of national income as measured by output of goods and services Improve balance of payments by guiding foreign trade and investment Reduce regional imbalances Reduce economic imbalance in society

    Indian Economy today


    Indian economic era since independence can be divided in two parts Pre 1991 (pre reform period) Post 1991 (reform period which led to liberalization of Indian economy)

    Inflation
    Inflation is a rise in the general level of prices of goods and services in an economy over a period of time.

    Effects of Inflation

    Positive

    Negative

    Consumer price index


    A consumer price index (CPI) measures changes in the price level of consumer goods and services purchased by households. Measures changes

    Weights for CPI


    Po x qo Wi = ------------- x 100 Po x qo
    Example: 1. Total Expenditure: Rs. 3000, 2. Expenditure on Wheat Flour:- Rs. 100 3. % of Expenditure on Wheat flour = (100/3000)*100 = 3.33 Weight of Wheat flour = 3.33%

    FORMULA USED FOR COMPUTATION OF CPI


    The formula as given below is being used for the computation of CPI. (Pn/Po) x wi Index = --------------------x 100 wi Where In = CPI for the nth period Pn = price of an item in the in the nth period Po = price of an item in the base period wi = weight of the ith item in the base period wi = Total weight of all items.

    EXAMPLE FOR COMPUTATION OF CPI


    ITEM UNIT BASE PRICE (Po) 29.91 45.01 36.23 28.99 PRICE IN MAR, 12 (Pn) 47.61 52.72 44.03 31.50 WEIGH T (Wi) 0.2230 0.2017 0.2214 0.4272 1.0733 Pn / Po Po / Pn x Wi 0.3550 0.2363 0.2691 0.4642 1.3246

    Moong Pulse Mash Pulse Masoor Pulse Gram Pulse

    Kg Kg Kg Kg

    1.5918 1.1713 1.2153 1.0866

    ( Pn/Po) x Wi
    Index = -------------------------------- x 100 Wi 1.3246 I = -------------------------- x 100 = 123.41 1.0733

    Wholesale Price Index


    The Wholesale Price Index (WPI) is the price of a representative basket of wholesale goods. Some countries (like India and The Philippines) use WPI changes as a central measure of inflation.

    WEIGHTS FOR WPI


    Production Self Consumption +Imports- Exports e.g.Wheat = (100 )-(20) + (10) (10) =80 Value of Marketing Surplus= 80 x 1000 = 80000 Total Value of all the Items included in WPI =100,0000 % of Wheat in Total Value = (80000/1000000) x 100 = 8%

    Economic Policies and tools


    Monetary Policy Fiscal Policy

    Monetary Policy
    The Monetary and Credit Policy is the policy statement through which the Reserve Bank of India seeks to ensure price stability for the economy.

    Objectives of the Monetary Policy


    Price stability Ensure adequate flow of credit to the productive sectors Stability for the national currency Growth in employment and income Growth in Output To control Inflation

    INSTRUMENTS OF MONETARY POLICY


    Bank Rate of Interest Cash Reserve Ratio Statutory Liquidity Ratio Open market Operations Deficit Financing

    Fiscal Policy
    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 government taxation and expenditure.

    MACROECONOMICS
    IT IS STUDY OF LARGE ECONOMIC AGGREGATES, THEIR RELATIONSHIP INCLUDING NATIONAL INCOME, INVESTMENTA AND SAVING , MARKET ,IMPORTS AND EXPORTS AND BALANCE OF PAYEMENTS. MULTIERPLIER MODEL IS A THEORY USED TO EXPLAIN HOW OUTPUT IS DETERMINED IN THE SHORT RUN. THE NAME MULTIPLIER COMES FROM THE FINDING THAT EACH RUPEE CHANGE IN CERTAIN EXPENDITURES LEADS TO MORE THAN A RUPEE CHANGE IN THE GNP. THE MULTIPLIER MODEL EXPLAIN HOW SHOCKS TO INVESTMENT , FOREIGN TRADE AND GOVERNMENT TAX AND EXPENDITURE POLICIES CAN AFFECT OUTPUT AND EMPLOYEMENT IN AN ECONOMY WITH UNUTILIZED RESOURCES.

    THE KEYNESIA MULTIPLIER MODEL SHOWS THAT AN INCREASE IN INVESTMENT WILL INCREASE GNP BY AN AMPLIFIED AMOUT BY AN AMOUT GREATER THAN ITSELF. EXAMPLEINVESTMENT INCREASE BY RS 50 CRORE AND THIS CAUSE AN INCREASE OF RS 100 CRORES IN THE CRORES IN THE GNP , THE MULTIPLER IS 2. THE SIZE OF THE MULTIPLIER (K) DEPENDS UPON THE MARGINAL PROPENSITY TO CONSUMER (MPC)Y AND THE MARGINAL PROPENSITY TO SAVE (MPS). K= 1 /1- MPC=1\MPS(MPS). IF THE MPC IS 80% MPS WILL BE 20% AND K WILL BE 5.

    Business Cycle
    Business cycle (or economic cycle) refers to economy-wide fluctuations in production or economic activity over several months or years.

    International Trade & BOP


    International trade is the exchange of capital, goods,and services across international borders or territories. BOP is the difference between the exports and imports of a nation for a given period. Trade deficit Trade surplus

    Foreign Exchange Market


    Foreign market is a market within which individuals, business firms, governments, banks and others purchase and sell foreign currencies. It performs as a clearing house. The foreign exchange rate refers to the price of one currency in terms of another currency.

    Capital Market
    Capital markets provide for the buying and selling of long term debt or equity backed securities. Examples of Capital market transactions 1. A company raising money on the primary markets 2. A government raising money on the primary markets 3. Trading on the secondary markets

    Money Market
    The Money market is a component of the financial markets for assets involved in shortterm borrowing, lending, buying and selling with original maturities of one year or less. Common money market instruments are Certificate of deposit, Repurchase agreements, Commercial paper, Treasury bills etc.

    Economic indicators and value of Investment


    Leading Indicator Consumer Sentiment Automobile sales Conumer purchase around Diwali Coincident indicator Job Advertisement Lagging indicator Unemployement rate Employement Growth

    THANK YOU

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