Planning Commission of India

Planning Commission of India was established in accordance with article 39 of the constitution which is a part of directive principles of state policy.

Rudimentary economic planning, deriving the sovereign authority of the state, first initiated in India in 1938 by Netaji Subhash Chandra Bose when he was the Congress president and drafted by Meghnad Saha.

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Statutory Liquidity Ratio and Cash Reserve Ratio

Statutory liquidity ratio (SLR) refers amount that the commercial banks require to maintain in the form of gold or Government approved securities before providing credit to the customers. Statutory Liquidity Ratio is determined and maintained by the Reserve Bank of India in order to control the expansion of bank credit.

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What is Marginal Standing Facility

Marginal Standing Facility, MSF is the rate at which banks can borrow overnight from RBI.This was introduced in the monetary policy of RBI for the year 2011-2012. The MSF is pegged 100bps or a % above the repo rate.Banks can borrow funds through MSF when there is a considerable shortfall of liquidity. This measure has been introduced by RBI to regulate short-term asset liability mismatches more effectively.

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What is Qualified institutional placement

Qualified institutional placement (QIP) is a capital-raising tool, primarily used in India and other parts of southern Asia, whereby a listed company can issue equity shares, fully and partly convertible debentures, or any securities other than warrants which are convertible to equity shares to a qualified institutional buyer (QIB).

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Reasons for Rupee Depreciation

Rupee Depreciation is one of the buzz words in Indian and world economy nowadays. We have already written a few posts regarding the impact of rupee depreciation and the devaluation history of Indian rupee. Here I am trying to list out the possible reasons for Rupee depreciation, which includes both domestic and international factors. After the peak recession time of 2008-09, Indian Rupee was hovering around 44-46 per dollar mark for almost 2 years, till mid of 2011. It then started to slide and breached the 50 per dollar mark in late 2011, mainly due to economic crisis in Europe. 

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Double taxation and Double Taxation Relief

For international business firms, Double Taxation Relief is one of the key factors which determines the profitability and scalability of operations. Understanding the concept of Double taxation and Double Taxation Relief is very much important for business enterprises and especially students of Economics and International business. In this post, the concept of Double taxation and Double Taxation Relief are explained.

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Social Security for Unorganised Sector in India

India has around 430 million workers in various unorganized sectors.The unorganised sector workers contribute close to 60 percent of the country's gross domestic product but remain amongst the poorest and most vulnerable sections of society. With a view to providing social security to unorganised workers, including landless agricultural labourers, the Government enacted the “Unorganised Workers’ Social Security Act, 2008”. The Act provides for constitution of National Social Security Board to recommend social security schemes, namely, life and disability cover, health and maternity benefits, old age protection and any other benefit as may be determined by the Government for unorganised workers.

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Fiscal Responsibility and Budget Management (FRBM) Act | Effective Revenue Deficit

Fiscal Responsibility and Budget Management (FRBM) Bill was proposed in Parliament in 2001 to ensure that the government keeps its expenses in check. However, the Act came into force in July 2004, when the the UPA government, under the prime ministership of Manmohan Singh, presented the budget. It had said that the fiscal deficit should be brought down to 3% of the gross domestic product (GDP) and revenue deficit should drop down to nil, both by March 2009. Fiscal deficit is the excess of government’s total expenditure over its total income. The government incurs revenue and capital expenses and receives income on the revenue and capital account. Further, the excess of revenue expenses over revenue income leads to a revenue deficit. The FRBM Act wants the revenue deficit to be nil as the revenue expenditure is day-to-day expenses and does not create a capital asset. Usually, the liabilities should not be carried forward, else the government ends up borrowing to repay its current liabilities.

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Foreign Direct investment in India | FDI - Procedure | Prohibited Sectors


Foreign direct investment (FDI) in India has played an important role in the development of the Indian economy. FDI in India has enabled India to achieve a certain degree of financial stability, growth and development. This money has allowed India to focus on the areas that needed a boost and economic attention, and address the various problems that continue to challenge the country. India has among the most liberal and transparent policies on Foreign direct investment among the emerging economies. India received Foreign direct investment inflows of $14.54 billion during April-July this fiscal, showing a jump of 92 per cent despite global economic uncertainties. 

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Market Borrowing Programme of India | Reasons and Impact


In October, 2011 Union government’s announced its plan to borrow Rs53,000 crore more this year—roughly 0.6% of the gross domestic product (GDP). The government said it will borrow an additional Rs. 52,872 crore from the market in the second half, raising its borrowing programme for the fiscal to Rs. 4.7 trillion, the highest ever, and at least 12.5% higher than what was originally envisaged in the budget. 

Reasons for high borrowing
Deficit is the small savings scheme : One of the main sources of financing the deficit is the small savings scheme. The government had expected the corpus to be around Rs35,000 crore. Instead, there has been an outflow. This is due to the fact that interest on small savings hovers around 8%, while bank deposits—after successive rounds of interest rate increases—are more attractive now. It need not be reiterated that the Reserve Bank of India had to undertake this painful therapy as the wave of government spending and entitlement programmes unleashed inflationary pressures. In effect, attempts at reining in one problem—of government creation—have led to another. 
Lower cash balances : The surplus in the beginning of the year was Rs. 17,000 crore less than expected, and a dip in the available sources of funds prompted the government to lift market borrowings. 

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General Studies Online | Corporate Social Responsibility in India


Corporate Social Responsibility (CSR) is defined as the way companies integrate social, environmental, and economic concerns into their values and operations in a transparent and accountable manner.  The goal of CSR is to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere. In recent years CSR is increasingly becoming a part of a large number of companies. It is becoming an important activity for businesses throughout the globe. Basically, CSR means that a company's business model should be socially responsible and environmentally sustainable. By socially responsible it means that the company's activities should benefit the society and by environmentally sustainable it means that the activities of the company should not harm the environment. 

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Faster, Sustainable and More Inclusive Growth | India's Twelfth Year Plan


In the last decade, the Indian economy moved to a higher growth path. Between 2005 and 2008, the economy grew at around 9.5 per cent per annum. This made India one of the fastest growing nations in the world. The global financial crisis brought the growth down to 6.8 per cent in 2008-09, though even then India remained a growth leader in the world. This was followed by a strong recovery and the Indian economy grew by 8 and 8.5 per cent in the subsequent two years. Data for the first quarter of 2011-12 indicate a growth rate of 7.7 per cent. While there may be some moderation in growth in the current fiscal, the fundamentals of the economy are intact and the medium-term growth prospects remain buoyant. But the renewed uncertainty in the global economy, due to sluggish US growth and worsening of the Euro-zone sovereign debt crisis and weak business sentiments and persisting high inflation at home, poses considerable challenges to our economic growth.

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Impact of Rupee depreciation in India

On 24 May 2012, Indian Rupee breached the Rs 55 per dollar mark and closed at 55.47 - its all time low against dollar. The rupee has depreciated by over 20 per cent to close to 55-a-dollar mark currently from its near 44-level against the US currency at the end of May 2012 due to sustained dollar demand from banks and importers in view of the firm dollar sentiment fueled by Euro zone crisis.The weakening of Indian rupee against other foreign currencies,especially dollar, is not a good news for Indian government and importers. A depreciating rupee may compound the macroeconomic problems as prices of imported goods will surge and worsen the current account deficit. India won't be able to take advantage even if commodity prices ease due to global slowdown. 

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Printing currency in India | Basis of printing currency in India


Recently I have read one of the most stupid comments about making people of India rich."Bring back the money from Swizz Bank and distribute the same to all Indians. Let them live happily forever!!" In one shot, it seems to a great idea to get rid off all sufferings of the people,but on detailed analysis, we can come to a conclusion that it could destroy the foundation of Indian Economy. It creates inflation,hyper-inflation in the country and makes its currency good for nothing. Let us see how printing money and distributing it can create macroeconomic problems in a country and on what basis a country prints money.

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Rupee Devaluation | History of Devaluation of Rupee in 1966 and 1991

Devaluation means officially lowering the value of currency in terms of foreign currencies. Devaluation is the result of official government action.There could be many motives of the devaluation. It stimulates exports of commodities. It restricts import demand for goods and services. It helps in creating a favourable balance of payments. Almost all the countries of the world have devalued their currencies at one time or the other with a view to achieving certain economic objectives. During the great depression of 1930 devaluation was carried by most countries of the world for the objecting of correcting over-valuation of currencies.

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Foreign exchange reserves of india | India's Foreign exchange reserves


Normal definition of Foreign exchange reserves says that it is the sum of foreign currency deposits and bonds held by the central bank of a country. But in popular terms it includes gold, Special Drawing Rights (SDRs) and Reserve Tranche Position of IMF also.Foreign exchange reserves enable nations to participate within the global marketplace and transact official business,to coordinate trade policy and improve their domestic economy.Foreign exchange reserves do not earn high rates of return as investments, and may even lose value when currency rates shift unfavorably. Domestic consumers are adversely affected by low exchange rates. Low exchange rates for the Indian Rupee are inflationary because imported goods become more expensive. RBI may then spend foreign exchange reserves to buy domestic currency and strengthen its value--when low exchange rates and inflation are concerns. Last week RBI sold dollars to arrest rupee's slide.

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Fixed Exchange Rate and Floating Exchange Rate


Exchange Rate systems are classified traditionally into 2 categories, namely: systems with a fixed exchange rate and systems with a flexible exchange rate. In the former system the exchange rate is usually a political decision, in the latter the prices are determined by the market forces, in accordance with demand and supply. These systems are often referred to as Fixed or hard Peg and Floating systems. But as usual, between these two extreme positions there exists also an intermediate range of different systems with limited flexibility, usually referred to as “soft pegs”.

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Capital account convertibility and Current account convertibility

Capital account convertibility
It means the freedom to convert local financial assets into foreign financial assets and vice versa at market determined rates of exchange.It refers to the removal of restraints on international flows on a country's capital account, enabling full currency convertibility and opening of the financial system. Capital account convertibility is considered to be one of the major features of a developed economy. It helps attract foreign investment.At the same time, capital account convertibility makes it easier for domestic companies to tap foreign markets. It is sometimes referred to as Capital Asset Liberation.

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Visible and Invisible Transactions of India


The transactions of a country can be broadly classified into two categories. Visible and Invisible transactions.

Invisible transactions 
These are transactions in services, transfers and income. Services are the most familiar of these categories, which includes software, management services, financial services etc. Transfers represent one-sided transactions, involving no quid pro quo, such as remittances by our compatriots abroad. Another category known as "income" is defined to include both payments and receipts — payments on account of non-residents employed in India, interest payments made to those who have deposited FCNR deposits and interest charges on loans made to India, besides dividends and profit share to investors in India. 

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Currency Convertability : Is Rupee a convertible currency?


Convertible currencies are defined as currencies that are readily bought, sold, and converted without the need for permission from a central bank or government entity. Most major currencies are fully convertible; that is, they can be traded freely without restriction and with no permission required. The easy convertibility of currency is a relatively recent development and is in part attributable to the growth of the international trading markets and the FOREX markets in particular. Indian Rupee is fully convertible in respect to current account of Balance of payment. Broadly, currencies can be classified into three major categories.

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