2. Rahul nadarajan
Santosh Singh
Sagar sawant
Prasanna Nair
Rajesh Mudaliyar

3. 1. Inflation
2. Unemployment and Poverty
3. Maintaining High Rate of Economic
Growth
4. Preventing Business Cycle
5. Budgetary Deficit

5. Unemployment Is enforced Idleness of the workforce who are able and
willing to work but cannot find jobs
Unemployment is often used as a measure of the health of the economy.
The most frequently cited measure of unemployment is the unemployment
rate.
This is the number of unemployed persons divided by the number of people
in the labor force.

6. 1) In a slow or diminishing economy, consumers begin
reducing their consumption, causing businesses to
lay off workers
2) Employers expenses start rising, so to cut costs they
lay off workers
3) Hazardous, discriminatory practices, domestic
violence victimization, or toxic working conditions
cause people to leave
4) Spouses get re-located causing a working spouse to
quit their job to follow the spouse, etc.
5) Companies out-source their work to other locations
(even out of the country)
6) Natural attrition, without hiring to fill the
vacancies, etc.

9. 1) There aren’t enough jobs.
2) Fewer new jobs & Youth Unemployment In India
3) Shifting Industry Priorities Have Exacerbated the Problem of
Unemployment in India
4) Unemployment Problems in India as a result of the commoditization of
the green revolution
5) Educated Unemployment in India – Can read and write but unable to
find a stable job
6) Rural-Urban Migration And Figuring Out why Indian Agriculture
Can Solve India’s Unemployment

10. In the set up of a modern market economy, there are many factors, which
contribute to unemployment. Causes of unemployment are varied and
it may be due to the following factors:
Rapid changes in technology
Recessions
Inflation
Disability
Undulating business cycles
Changes in tastes as well as alterations in the climatic conditions. This
may in turn lead to decline in demand for certain services as well as
products.
Attitude towards employers
Willingness to work
Perception of employees
Employee values
Discriminating factors in the place of work (may include discrimination
on the basis of age, class, ethnicity, color and race).
Ability to look for employment

11. The factors discussed may be categorized into the following:
Cyclical Unemployment
Structural Unemployment
Agricultural Activities
Hard Core Unemployment
Disguised Unemployment
Seasonal Unemployment

12. Stabilization Policy
A macroeconomic strategy enacted
by governments and central banks to
keep economic growth stable, along
with price levels and unemployment.
Ongoing stabilization policy includes
monitoring the business cycle and
adjusting benchmark interest rates to
control aggregate demand in the
economy. The goal is to avoid erratic
changes in total output, as measured
by Gross Domestic Product (GDP)
and large changes in inflation;
stabilization of these factors
generally leads to moderate changes
in the employment rate as well.

13. Adoption of Labour Intensive Techniques
Population Control Rapid Industrialization
Re-orientation of Education System
Guiding Centers and More Employment
Exchanges
Rural Development Schemes
Extension of Social Services
Encouragement to Small Enterprises
Decentralization

14. Economic or Social factor Units China India
Total Area (out of which water) millions of sq km 9.60 (2.8%) 3.29 (9.5%)
Arable Land millions of sq km 1.48 1.79
Irrigated Land millions of sq km 0.53 0.61
Railways - length in km '000 71.9 63.23
Roadways - paved - length in km '000 1447 2411
Waterways - length in km '000 123 14.5
Natural Gas - Proved Reserves in billion cu m 2530 854
Oil - Proved Reserves billion bbl 18.6 5.7
Coastline in km 14500 7000
Steel Production million tons/year 280 45
Food grain production million tons/year 418 210
Cement Production million tons/year 650 150
Crude Oil production million tons/year 180 40
Coal Production million tons/year 1300 300
Electricity generated Billions of Kilowatts 2190 557
Transmission & distribution losses as % of total power 6.8 23.4
Electricity tariff US$ / 100 KW 4 to 5 8 to 10
Cost of commercial borrowing as % interest/ year 41096 42583
Telephone lines connected millions 311 67
TV sets in households millions 500 85
Mobile/cellular phones millions 400 100
Internet users millions 111 51
Foreign trade (China+HongKong) US$ billions/year 1038+923=1961 260
External debt (China+Hong Kong) US$ billions 242+416= 658 120

15. Economic or Social factor Units China India
Exports (China+HongKong) US$ billions/year 752+286= 1038 120
Imports (China + HongKong) US$ billions/year 632+291= 923 138
Tourist Arrivals millions/year 87 4
TV broadcast stations numbers 3240 562
FDI inflow (China + Hong Kong) US$ billions/year 106 8
Forex Reserves (China+Hong Kong) US$ billions 1017+122= 1,139 175
GDP (China+Hong Kong) US$ billions 2102+179= 2,281 750
GDP Growth (2006) in % rate over last year 9.3 7.9
Labour Composition Agriculture %/Industry %/ Services % 49/22/29 60/17/23
Population millions 1314 1095
Population increase per year millions 7.2 15.3
Birth rate Numbers per 1000 13 22
Per Capita income US$ per year/person 1498 658
Life expectancy Years 74 64
Investment % of GDP 44 25
Poverty line - numbers %/Numbers in millions 10/131 25/273
Inflation Rate % 1.9 4.6
Median age Numbar of years 33 25
Population Growth Rate % of population 0.59 1.38
GDP (PPP) US$ billions 8182 3699
GDP (PPP) per person US$ per person/year 6300 3400
Fertility Rate children born/woman 1.73 2.73
Literacy Rate - Definied as age 15 and over can read & write - % of Pop 91 60
Death Rate Rate per 1,000 pop 6.97 8.18
Public Debt % of GDP 29 82
Unemployment rate % of workforce 20 30
Labour force in millions 797 496

16. What is Inflation?
Inflation is when the prices of most goods and services continue to creep
upward. When this happens, your standard of living falls. That's
because each dollar buys less, so you have to spend more to get the same
goods and services
States of Inflation :
 Deflation
 Hyperinflation
 Stagflation
 Disinflation

17. Causes for Inflation
 Factors Causing an Increase in Demand
 Factors Causing a Decrease in Supply
Factors Causing an Increase in
Demand
 Increase In Public Expenditure
 Increase In Private Expenditure
 Increase in Money supply
 Rise in disposable income
 Increase in consumer spending
 Deficit Financing
 Black Money
 Increase in Exports
 Repayment of Public Debt

18. Causes for Inflation
 Factors Causing an Increase in Demand
 Factors Causing a Decrease in Supply
Factors Causing a Decrease in
Supply
 Shortage supply of FOP
 Industrial Disputes
 Natural Calamities
 Hoarding by Traders
 Hoarding by Consumers
 Increase in Exports
 International Factors
 Lop-sided production

19. Effects of Inflation
 Poor Educational standards
 Poor Infrastructure
 Balance of Payment deterioration
 High levels of debt
 Demand for pay hikes and wage increases
 Social tensions
 Exchange rate falls
 Interest may rise

21. MEASURES TO SOLVE
INFLATION
MONETARY FISCAL
OTHER MEASURES
MEASURES
MEASURES
 Credit control  Decrease in Public
expenditure
 Increase in production  Increase in Savings
 Price Control  Increase in taxes
 Rationing  Surplus Budgets
 Public Debt

23. Achieving and Maintaining high rate of economic
growth
 Economic growth- An increase in the capacity of an economy
to produce goods and services, compared from one period of
time to another.
 Measured in 2 ways:
i) conventionally – percent rate
of increase in GDP,
ii) real terms – adjusted inflation.
A measure of economic
growth from one period to
another in percentage terms
is rate of economic growth.

24. Factors affecting economic growth in India
1) Capital flows and the stock market
2) Global currency trends
3) RBI Intervention
4) Political factors
5) Oil factors

25. Achieving high rate of economic growth
1) Accountable governments
2) Open and effective markets
3) Infrastructure
4) Capable human capital
5) Equality of opportunity
6) Sound environmental
management

26. Maintaining high rate of economic growth
 Identifying viable opportunities and key challenges limiting
economic growth
 Effective policies and institutions, political stability, transparent
and adequate enforced laws, sound public financial systems and
reduction of corruption.
 Good infrastructure- Adequate transport systems, availability
of reliable energy and communication technologies.
 A skilled workforce with good education
to men and women both.
 Investments in all the facets of agriculture.
 Environmental management.

27. Benefits
 Higher living standards
 Employment effects
 Fiscal dividend
 The investment accelerator effect
 Growth and business confidences

28. India today
Two years ago, the global boom, the IT
revolution, and all round optimisms led many to believe that
India can gain a rate of 9 to 10% growth..but India’s current
rate of economic growth is 6.5%

29. Case study
17 % of the national income of India comes through the
agricultural sector
In 1980’s the Green Revolution had gained momentum
enabling 3.77% annual growth in agricultural production but it
gradually degraded to 2.72% in 1990’s owing to reduction in
public investment in agriculture and agricultural research. India
needs to sustain a growth rate of 4 to 4.5% for achieving and
maintaining high rate of economic growth.
Such an achievement is well within reach, provided there is
2.7
requisite commitment in areas such as greater public investments
in research and development and
commercialization, infrastructure like transport facilities and
markets, improved farmer education etc.

30. Meaning
Business Cycles are the recurring, but irregular, expansions and
contractions of economic activity in the macro economy. While
business cycles are frequently measured by real gross domestic
product, they show up in many aggregate measures of economic
activity, including the unemployment rate, the inflation
rate, consumption expenditures, and tax collections, to name just a few.
A cycle consists of:
• Expansions
• Contractions
• Recessions
• Revivals which merge into the
expansion phase of the next cycle.

31.  Economics Causes:
Change in Government Policies such as:
 Tax Rates
 Interest Rates effecting Capital Investment
 High in military expenditure by Govt. especially
during war-time
 Change in Foreign trade due to trade barriers
 Non-economic Causes:
 Natural Disasters like Drought, Weather
conditions
 Man-made Disasters like shock of 09/11 at
U.S., War, Structural Changes
(technology), etc.
 Political Elections

32. • Economic Policies are undertaken by governments to counteract
business-cycle fluctuations and prevent high rates of unemployment and
inflation.
1) The two most common stabilization policies are:
• Monetary Policy
• Fiscal Policy
2) The other policies include:
• Physical Controls
• Miscellaneous measures

33. • Monetary Policy is employed by the Government as an effective
tool to promote the economic stability and achieve certain
predetermined objectives.
• It deals with the total money supply and its management in an
economy.
• Monetary Policy is an action undertaken by the monetary
authorities generally the Central Bank to control and regulate the
supply of money with the public and the flow of credit with a view
to achieving economic stability.

34. The general objectives of Monetary Policy are as under:
• Price Stability
• Exchange Rate Stability
• Control of Trade Cycles
• Full Employment
• Inducement to Savings
• Equilibrium in the Balance of Payments
• Rapid Economic Growth
• Creation and Expansion of Financial Institutions
• Debt Management
• Long Term loan for Industrial Development

35. • Reduce the aggregate spending. Monetary policy can help in reducing
the pressure on demand.
• During Inflation, raise the cost of borrowing and reduce credit
creation capacity of the banks, thus making them more cautious in
their lending policies.
• Rise the Bank rate, raising the interest rates, not only makes the
borrowing costly but will also have an adverse psychological effect on
business confidence.

36. • Deflation is a matter of falling prices.
• It arise when the total expenditure of the community is not equal to
the value of the output at existing prices.
• Consequently the value of money goes up and prices fall down.
• Deflation has an adverse effect on the level of production, business
activity and employment.
• The monetary Authority can only encourage the business enterprises
and the lower interest rate may only improve the state of liquidity in
the economy.

37. • Fiscal Policy is represented by the executive and legislative
branches of government and captures changes in Taxes and
Government spending.
• If the economy is in a recession, a combination of tax cuts and
increases in government spending can stimulate economic activity.

38. The general objectives of Fiscal Policy are as under:
• Helps to formulate a rational consumption policy
• Raise the rate of Savings
• Break the vicious circle of poverty
• Raise the volume of investment
• Reduce economic inequalities
• To control the operations of the Business Cycle
• To control Inflation and Deflation
• To create more job opportunities
• To Raise living standard

39. • Unessential and unproductive expenses of the Government should
be cut down
• Taxation as an anti-inflationary measure should be used carefully
• Public borrowing from Non Banking lenders
• Reduction in Personal Income tax and corporate tax
• Increase in Public expenditure
• Encouraging Investment in public work programs, social and
economic overheads
• Social Security Schemes, unemployment
insurance, pension, subsidies should be provided.

40. • When monetary and fiscal measures are inadequate to control
prices government resorts to direct control.
• During wars etc. when inflationary force are strong, price control
involve imposing ceilings in respect of certain prices and prices are
to be stopped from rising too high
• Price control is done by control of distribution of commodities
through rationing.
• Under certain circumstances government may even resort to dual
pricing.

41. • Direct controls are imposed by govt. to ensure proper allocation of scarce
resources like food, raw materials, consumer goods, capital goods etc.
• Govt. can strictly forbid or restrict certain kinds of investments or economic
activity.
• During the period of inflation govt. can directly exercise control over prices
and wages.
• Monetary and fiscal controls will have a general impact on the economy
while physical controls can be employed to affect specific scarcity areas.

42.  Control over consumption and distribution through price control and
rationing.
 Control over investment and production through licensing and fixing of
quotas etc.
 Control over Foreign Trade through import control, import
quotas, export control, etc.
 Dual Pricing – Wherein two prices prevail in the market at the same time
for the same product, out of which one is the controlled price for the lower
income group and the other is a free market price determined by the
conditions of demand and supply.
 Administered Prices - Fixed by the Government for a few goods which
serve as raw materials for other industries.

43. Meaning
When the government expenditure exceeds revenues, the government
is having a budget deficit. Thus the budget deficit is the excess of
government expenditures over government receipts (income). When
the government is running a deficit, it is spending more than it's
receipts The government finances its deficit mainly by borrowing from
the public, through selling bonds, it is also financed by borrowing
from the Central Bank.

44. Revenue Deficit
Fiscal Deficit
Primary Deficit
Budgetary Deficit
Monetised Deficit

45. Meaning
Revenue Deficit takes place when the revenue expenditure is more than
revenue receipts. The revenue receipts come from direct & indirect
taxes and also by way of non-tax revenue. The revenue expenditure
takes place on account of administrative expenses, interest
payment, defence expenditure & subsidies.

47. Less
Revenue
Borrowing
Leads to Loan from
Revenue World Bank
Expenditure and IMF
Interest
Payment is High Rate
a part of
Revenue of Interest
Expenditure

48. Financial Year % of GDP
2004-2005 2.4
2009-2010 4.6
2010-2011 4.3

49. Meaning
Fiscal Deficit is a difference between total expenditure (both revenue and
capital) and revenue receipts plus certain non-debt capital receipts like
recovery of loans, proceeds from disinvestment.
In 1980, the growing burden of non-development expenditure caused
deterioration in the fiscal situation of India. Later this resulted in a fiscal
crisis at the beginning of 1991-1992.

50. 1. Increase in Subsidies
2. Payment of Interest
3. Defence Expenditure
4. Poor Performance of Public Sector
5. Excessive Government borrowings
6. Tax Evasion
7. Weak Revenue Mobilization
8. Huge Borrowings

51. 1. Debt Trap
2. Cut in Capital Expenditure
3. No Increase in Expenditure on Education and
4. Health
5. High Interest Rates
6. Slow Economic Growth
7. Other Consequences
o Inflation
o Discourage Foreign Investment

52. Financial Year % of GDP
2001-2002 6.2
2009-2010 6.5
2010-2011 5.7
From the above table, it is clear that fiscal deficit is about 4.1% of GDP.
Overall the revenue deficit has declined from 3.3% in 1990-91 to 2.7% of GDP in
2005-06.