Académique Documents
Professionnel Documents
Culture Documents
companies expansion plans, future acquisition etc then its worth to invest in
such companies for long term.
E) Inflation Rate Inflation rate is prices of consumer goods. This rate is declared by
Government for every week at Friday (weekend) 12.00 pm. The inflation rate
indicates what the wholesale price was for that week. If it is low As compared
to previous week, then it is positive news and you may see stock prices
going up and if the rate is higher as compared to previous week, then it is
negative and this may affect stock prices negatively and stock prices may
come down. So keep a watch. Inflation rate declare by Indian Government at
every Friday 12.00 pm and trade accordingly.Indian stock market reacts to
inflation rate.
Relationship between economy and stock market
Often share price movements are reflections of what is happening in the economy. E.g. a fear of
a recession and global slowdown could cause share prices to fall. The stock market itself can
affect consumer confidence. Bad headlines of falling share prices are another factor which
discourage people from spending. On its own it may not have much effect, but combined with
falling house prices, share prices can be a discouraging factor.
If we talk about incestment Falling share prices can hamper firms ability to raise finance on the
stock market. Firms who are expanding and wish to borrow often do so by issuing more shares
it provides a low cost way of borrowing more money. However, with falling share prices it
becomes much more difficult.
The finance minister also submits thee annual final statement which consists of estimated
reciptsan spending, which are operated through three separate accounts:
Consolidated Fund : All revenues and loans raised and recovered from part of consolidated
fund, of which no amount can be spent without the approval of parliament.
Contingency Fund : It is an imprest that is available to president of India to meet unforeseen
expenditures, such as, expenditure to tackle natural disasters or accidents.
Post-facto approval of such expenditure is sought from parliament, and an equivalent amount is
drawn from the consolidated fund.
The current corpus of this Contingency fund is Rs 500 Crore. (not sure if it is still the same)
Public Account : It holds amounts which are held by the government in trust. These include
items such as Employees Provident Fund and Small savings.
No parliamentary approval needed for such payments, except when the amounts are withdrawn
from consolidated funds and kept in public account for specific expenditures (for example, road
construction)
One popular and useful measure of size of an economy is called GDP. When we express the size
of economy, that tells us how big or small government participation is in the economy.
TYPES OF EXPENDITURES AND REVENUES
Revenue Expenditure: All the expenditures incurred on the functioning of the judiciary,
maintaining law and order , routine administration, salaries, subsidies, pension for administrative
stff and payments on past debts are classified as revenue expenditure.
Capital Expenditures: These include asset creating expenditures for providing public goods
such as, dams, bridges & roads, and plants & machineries built for use in Govt. sector.
Revenue Receipts: These include tax receipts and non-tax receipts, such as, stamp duties, fees,
÷nds , if any, from public sector undertakings.
Capital Receipts: include grants received and loans recovered by the Govt. and occasional
disinvestment proceeds earned by selling PSUs. These are called non-debt capital receipts.
Generally the non-debt capital receipts are low, and this means that the Govt. has to borrow to
cover the deficit amount. Therefore, borrowing is a capital receipt, albeit a debt creating capital
receipt.
The Govt. has three choices for generating debt capital receipts: Borrowing domestically from
the public; borrowing from external financial institutions; or , under extreme conditions,
borrowing from Central Bank of the country.
TYPE OF DEFICIT:
Revenue Deficit : It measure the difference between revenue expenditure and revenue receipts.
It shows that the Govt. has to borrow money to finance administrative activities which do not
lead to the creation of any assets.
Fiscal deficit: It is the difference between Governmentstotal expenditure and the total non-debt
receipts. It shows the total debt generated by the Govt. to finance the total budget expenditure.
Such a deficit is justified as long as the expenditures are being incurred to finance activities
leading to the creation of National Assets.
Primary deficit: The difference between the fiscal deficit and the interest payment on debts
incurred in earlier years. The incumbent Govt. uses this static to show that the interest payments
on previous debt are not of its making. If resultant deficit turns out to be very small, it proves the
prudent management of the budget by incumbent Govt.
International Monetary Fund has been recommending that the fiscal deficit should not be more
than 3% of GDP.
The revenue deficit as a percentage of fiscal deficit has been extremely high in the recent past
averaging about 75% . Such a high percentage is worrisome, for it tells us that most of the debt
that the Govt. is incurring is being used for routine administrative expenses and will not lead to
any asset creation.
When the Governments fiscal deficit is large, it implies that the Govt. has to borrow heavily.
This means that the demand for loans will rise in the market, causing interest rates to go up. As
interest rates rise, the cost of borrowing for private firms goes up. As the cost of borrowing rises,
firms find that fewer and fewer investment projects are economically viable. Therefore, private
firms borrow less and do not invest in new projects. The fall in private investments naturally has
an adverse impact on employment generation and income.