FISCAL POLICY Def: As the govts programme of taxation expenditure and other financial operations to achieve certain in national

goals. Objectives: 1. Eco growth 2. Promotion of employment 3. Economic stability & higher priority 4. Eco justice or equity Two instruments used are taxation and public expenditure. I. Indias taxation policy 1950-1990: Was formulated to meet the financial needs of the country in the postindependence period. Role of RBI in Regulatory Banking Sector The structure of Indian Banking System evolved during the pre-independence period without any control and direction. The country had no Central Bank prior to establishment of RBI. The imperial Bank (SBI) of India though commercial bank, performed certain central banking functions such as acting as bankers bank and banker to the govt. the Central govt. had the sole authority to issue currency. But the result was unsatisfactory for the development of the money market and commercial bank. RBI was originally established as share holders bank in 1935 with the nationalization in the west central government on January 1, 1949 acquired entire capital and became a state owned institution. Functions of RBI I. General Central Banking Functions:

The model for RBI is the Bank of England and its Central banking functions are similar. 2. Issue of currency notes Originally provision was for issuing currency notes according to proportional reserve system but not elastic and did not suit the developmental planning. According to RBI (Amendment Act), Reserve system was introduced, a minimum reserve system of Rs. 515 CR (Rs. 400 Cr in foreign securities, Rs. 115 Cr in gold coins) was to be kept. The provisions regarding maintenance of reserves was again amended on October 31st 1957, which foreign exchange reserve to Rs. 200 G,. of this value of good was not to be at any time less than Rs. 115 Cr. 2. Bankers to Govt. It is bankers agent & advisor. The RBI has obligations to transact the banking business of the central and state govts. It accepts money and makes payment on the govt. behalf and carry out exchanges and remittances, manages the public debts and issues new loans. RBI [Govt] 1. Advices Govt. on quantum and terms of new loans 2. Sells treasury bills 3. Makes wages and means of advance short term loans, repayable within 90 days from the date of advance. 4. RBI is the sole agent for transacting govt. receipts and payments. 5. Advices on banking policies, financial matters and planning & resource mobilization. 3. Bankers Bank: Controls commercial banking system under the RBI Act, 1934 and Banking Regulation Act 1949. Assists scheduled commercial banks [Banks where affairs are not

conducted in a manner detrimental to depositors interest must maintain a cash reserve (as decided by RBI). With RBI against their demand and time liabilities RBI can also direct the bank to maintain 100% CR against all deposits received after a specified date; these banks should submit weekly statement of their transactions to the RBI] and state Co-op. Banks. RBI considers factors such as the financial its tending policy and securities offered. While making advances to it. It can deny residenting without any reason. The regulatory functions of RBI under Banks Regulatory Act 1949 are: 1. Licensing of Banks 2. Branch Expansion 3. Liquidity of assets of commercial bank 4. Management and methods of working 5. Amalgamation 6. Reconstruction and liquidation According to RBI (Amendment) Act, Reserve system was introduced, a minimum reserve system of Rs. 515 Cr (Rs. 400 cr in foreign securities Rs. 15 Cr in gold coins) was to be kept. The provisions regarding maintenance of reserves were again amended on October 31, 1957 which reduced. The amount of gold (coin and billion) and foreign exchange reserve to Rs. 200 Cr, of this value of gold was not take at any time less than Rs. 15 Cr. 2. Banker to the Govt. It is banker, agent and advisor. The RBI has the obligation to transact the banking business of the central and state government. It accepts money and makes payment on the govt. behalf and carry out exchange and remittance, manages public debt and issues loans. RBI Govt. 1. Advices govt. on quantum and term of new loans 2. Sells treasury bills

3. Makes ways and means of advance short term loans, repayable within 90 days from the date of advance. 4. SBI is the sole agent for transacting govt. receipts and payment 5. Advices on banking policies, financial matters. Developmental activities RBI established the deposit insurance corporation of India in 1962 with the 12% of period of security to deposits. Established UTI in 1969 to mobilize savings. To small investors, UTI offers the advantages of reduced risk, steady income, liquidity etc. Assisted development of short term coop credit for agri and also participated in establishing the agri refinance and development coop covers in 1963. Half of capital (Rs. 100 Cr) of NABARD has been provided by the RBI. Control of Credit by RBI RBI Act of 1934 & BR Act of 1949 RBI like any central bank resort sto bank rate manipulations, open market ops, reserve requirement changes, direct action, rationing of credit and moral suatium. It also influences commercial banks lending policy, rate of interest, form of securities against loans and portfolio distribution. Stabilises external value of Rupee and therefore its function is of an custodian of nations foreign exchange reserves. Its obligatory for the RBI to budget sell currencies of all IMF members. 5. Credit control Has all authority to use qualitative and quantitative methods of credit control, but are ineffective. 6. Agricultural Finance

Other integrated scheme of agriculture credit was implemented, RBI role from lender of last resort changed to that of an active agency for promotion of appropriate specialized agencies of agricultural, finance the setting up of NABARD in 1982. 7. Collection and publication of data The RBI has been entrusted which the task of collection of compilation of statistical into related to banking and other financial sectors of economy. RBI bulletin monthly presents was only above function but also provides results important studies and investigations conducted by RBI. Report on currency and finance is an annual publication which provides comprehensive review of various development of economic and financial importance.