Transcript The gross fiscal deficit

The Origin of Economic Crisis-1991
Unsustainable fiscal deficit of the
government caused the crisis
Internal imbalances in the fiscal
situation and external imbalance in
balance of payment situation was
responsible for the crisis of 1991
Gulf crisis of the late 80s worsened the
fiscal deficit and current account deficit
dituation of India
The fiscal imbalance
Main indivcators of fiscal desicit are
The budgetory deficit
The revenue Deficit
Gross Fiscal Deficit GFD
Revenue Deficit denotes the difference
between revenue receipts and revenue
expenditure. The conventional deficit
(budgetary deficit) is the difference
between all receipts and expenditure, both
revenue and capital. The gross fiscal
deficit (GFD) is the excess of total
expenditure including loans net of recovery
over revenue receipts (including external
grants) and non-debt capital receipts.
Indications of Crisis-1991
Budgetary deficit was 2.1% of GDP as
against 0.9% in 80-91
Revenue deficit was 3.3% from 0.2 % in
!980-81
Most alarming rise in GFD which rose up to
6.6 %
Internal debt was 49.8%of GDP
Interest payment was 3.8 % of GDP and
39.1 % of total government expediture
The Balance of Payment
Situation
The Current Account
The current account is the difference
between a nation's exports of goods
and services and its imports of goods
and services, if all financial transfers
and investments and the like are
ignored. A nation is said to have a
current account deficit if it is importing
more than it exports.
I
The Capital Account
The capital account records all transactions
between a domestic and foreign resident
that involves a change of ownership of an
asset. It is the net result of public and private
international investment flowing in and out of
a country. This includes foreign direct
investment,
Balance of Payment Situation-1991
Current Account Deficit- 2.1 Billiollon $ or 1.25 %
of GDP
External Debt- 23 % of GDP
23% of Current Account Receipts were being used
for debt servicing
Foriegn Exchange to finance 10 days of inport
The Economic Reforms
Macr economic Stabilisation
Structural Reforms
Macroeconomic Stabilisation
Fiscal readjustment
programme were started by the government
under which fiscal deficit was to be reduced
to 5.37 % of GDP but the problem has not
really been solved and fiscal deficit remains
at 7% of GDP. If fiscal deficit is to be
redused government expenditure should be
at at 25% but in 2005-06 38 % of GDP
To solve this problem resourse mobilisation
is important
Fiscal Adjustments
Macroeconomic Stabilisation
Balance of Payment Adjostment The balance of
payment adjustment programme has been
satisfactory. current accont deficit is around
0.4% of GDP and foruegn exchange reserve
is more than 200 bn $
Structural Reforms
Trade and Capital Flows Reforms
Devaluation of Rupee
Current Account Convertibility of Rupee
Libralisation of Import Regime
Lowering of Tariff and custom rates
Rupee was devalued by 18% in 1991
Peak rate of import duty was gradually reduced
from 300% to 10%
Imports have been decentralised
Capital flows have libralised in form of foriegn
direct investment
FERA has been replaced by FEMA
Structurel Flow Reforms
Industrial Deregulation Limits on size of the
companies have been removed. Scrapping of
MRTP act
Core industries reduced from 17 to 3
Private sector allowed in core sectors like iron,
steel, Air transport, Ship building,
Telecommunication, electricity etc
Structural Reforms
Public Sector Reforms and Disinvestment
Equitu amounting to Rs 4921403cror was
disinvested to Public Sector Financial Institutes,
Mutual funds and General Public.
Policy was to sell of burdainsome psu's but
gob=vernment seems to be blindly selling prime
PSU's with a one sided aim of bridging gaps in
gbudgetory deficit.
Structural Reforms
Financial Sector Reforms
Commision on financial system was set
under chairmenshio of M Narsimah to
examine to examine the country's financial
system and its various components.
The commision was to make recommendation
with respest to
Improving the efficiency and effectiveness of the
financial system
To infuse greater compitiion
Means of Better Supervision
The report of CFS was placed before the
parliament in December 1991 and has sib=nce
than become ab=n important document
toundertake reforms in the financial sector
Major reforms suggested by CFS were
SLR reduced to 25 %
The CRR to be brought down to 3% ( it was 7.5 %
in November 2007)
CRAR ( capital to risk weight asset ratio)
minimum fixed at 9%
Revision of balance sheet provisions of banks
banks allowed to go public
Commercial banks compling with capital
adequecy norms allowed to ppen new branches
Supervisory aspects of Rbi has been
strengthened