Objectives of fiscal policy

1. Achieve and maintain full employment: The main objective of fiscal policy in a
developing economy is to achieve and maintain full employment in an economy. To
generate employments and increase productive efficiency of the economy, government
must increase spending on social amenities and capital projects.
2. Price Stability
3. Accelerate rate of economic growth
4. Adequate resource allocation: Resource allocation refers to assigning the available
resources of the economy to specific uses chosen among many possible and competing
alternatives. Good Fiscal Policy ensures optimum allocation of the resources.
5. Increase in Savings: In the developing countries rich class spends a lot of money on
luxuries. The government can impose taxes on them and can provide the basic necessities
of life to the poor class on low rate. In this way by providing incentives, savings can be
increased.
6. Equal Distribution of income and Wealth
7. Economic stability
8. Fiscal Policy is used to check Increase in Consumption

Primary and secondary functions of money

I. Primary Functions
(a) Medium of Exchange.
(b) Measure of Value.
II. Secondary Functions
(a) Store of value.
(b) Standard of deferred payments.
(c) Transfer of money.
III. Contingent Functions
(a) Measurement and distribution of national income.
(b) Money equalizes marginal utilities/productivities.
(c) Basis of credit.
(d) Liquidity

1. Primary functions:
The primary functions of money are really the technical and important
functions of money. They are of two types:
(a) Medium of Exchange: Money serves as a medium of exchange. Money facilitates
exchange of commodities without double coincidence of wants. Any commodity can
be exchanged for money. People can exchange goods and services through the
medium of money.
(b) Measure of Value: The value of each commodity is expressed in the units of
money. We call it the price. In view of this function of money, the values of different
commodities can be compared and the ratios between the prices of different
commodities can be determined easily.
2. Secondary functions:
Money has the following secondary functions:
(a) Store of value: The value of commodities and services can be stored in the form
of money. Certain commodities are perishable. If they are exchanged for money
before they perish, their value can be preserved in the form of money.
(b) Standard of deferred payments: Money serves as a standard of deferred
payments. In the modern economies most of the business transactions take place on
 the basis of credit. An individual consumer or a business man may now purchase a
commodity and pay for it in future. Similarly one can borrow certain amount of
money now and repay it in future.
(c) Transfer of money: Money can be transferred from one person to another at any
time and at any place
3. Contingent functions:
Besides the primary and secondary functions, money has certain contingent functions
also. They may be stated as follows:
(a) Measurements and distribution of national income. Nations income of a country
can be measured in money by aggregating the value of all commodities. Similarly
national income can be distributed to different factors of production by making
payments to them in money.
(b) Money equalizes marginal utilities/productivities: The consumers can equalize
the marginal utilities of different commodities purchased by them with the help of
money. They can thus maximize their satisfaction. Similarly the firms can also
equalize the marginal productivities of different factors of production and maximize
their profits.
(c) Basis of credit: Credit is created by banks from out of the primary deposits of
money. The supply of credit in an economy is dependent on the supply of nominal
money. It is not possible to create credit if there is no reserve money.
(d) Liquidity: Money is the most important liquid asset. In terms of liquidity it
is superior to all other assets.

Note on deficit financing.

Deficit financing is the budgetary situation where expenditure is higher than the
revenue. It is a practice adopted for financing the excess expenditure with outside
resources. The expenditure revenue gap is financed by either printing of currency or
through borrowing.
Nowadays most governments both in the developed and developing world are
having deficit budgets and these deficits are often financed through borrowing. Hence
the fiscal deficit is the ideal indicator of deficit financing. Various indicators of deficit in
the budget are:
• Budget deficit = total expenditure – total receipts
• Revenue deficit = revenue expenditure – revenue receipts
• Fiscal Deficit = total expenditure – total receipts except borrowings
• Primary Deficit = Fiscal deficit- interest payments
• Effective revenue Deficit-= Revenue Deficit – grants for the creation of capital
assets
• Monetized Fiscal Deficit = that part of the fiscal deficit covered by borrowing
fromthe RBI.
Simply budget deficit is printing money to finance a part of the budget. In India, there
is no budget deficit at present. Hence one there is no budget deficit entry in
Government’s budget. Another absent deficit identity is monetized fiscal deficit. This is
borrowing by the government from RBI to finance the budget. Such a borrowing
 practice is not adopted in India from 1997 onwards. Hence the monetized fiscal deficit
is also not there.
The leading deficit indicator and also the best one to measure the health of the budget
in the Indian context is fiscal deficit. The fiscal deficit represents borrowing by the
government. This borrowing is made by the government mostly from the domestic
financial market by issuing bonds or treasury bills.
The root factor that cause deficit in the budget is the revenue deficit. Revenue
deficit is the difference between revenue receipts and revenue expenditure in an
accounting sense. Actually, revenue expenditure indicates expenditure to finance day
to day functions of the government. They are not productive. But according to the
government some revenue expenditure creates assets and hence is productive. This
revenue expenditure which creates assets is deducted to get Effective Revenue Deficit.
There are some situations when deficit financing becomes absolutely essential. In
other words, there are various purposes of deficit financing. These are:
• To finance defence expenditures during war;
• To lift the economy out of depression so that incomes, employment,
investment, etc., all rise;
• To activate idle resources as well as divert resources from unproductive
sectors to productive sectors with the objective of increasing national
income and, hence, higher economic growth;
• To raise capital formation by mobilizing forced savings made through
deficit financing;
• To mobilize resources to finance massive plan expenditure.

Credit control measures adopted By RBI

Quantitative Method:
o Bank Rate: The bank rate, also known as the discount rate, is the rate payable
by commercial banks on the loans from or rediscounts of the Central Bank. A
change in bank rate affects other market rates of interest. An increase in bank
rate leads to an increase in other rates of interest and conversely, a decrease in
bank rate results in a fall in other rates of interest.
An increase in bank rate results in an increase in the cost of credit; this
is expected to lead to a contraction in demand for credit. In as much as bank
credit is an important component of aggregate money supply in the economy, a
contraction in demand for credit consequent on an increase in the cost of credit
restricts the total availability of money in the economy, and hence may prove
an anti-inflationary measure of control.
Likewise, a fall in the bank rate causes other rates of interest to come
down. The cost of credit falls, i. e., and credit becomes cheaper. Cheap credit
may induce a higher demand both for investment and consumption purposes.
More money, through increased flow of credit, comes into circulation.
o Open Market Operations:Open market operations refer to the sale and purchase
of securities by the Central bank to the commercial banks. A sale of securities
by the Central Bank, i.e., the purchase of securities by the commercial banks,
results in a fall in the total cash reserves of the latter.
 A fall in the total cash reserves is leads to a cut in the credit creation
power of the commercial banks. With reduced cash reserves at their command
the commercial banks can only create lower volume of credit. Thus, a sale of
securities by the Central Bank serves as an anti-inflationary measure of control.
Likewise, a purchase of securities by the Central Bank results in more
cash flowing to the commercials banks. With increased cash in their hands, the
commercial banks can create more credit, and make more finance available.
Thus, purchase of securities may work as an anti-deflationary measure of
control.
The Reserve Bank of India has frequently resorted to the sale of
government securities to which the commercial banks have been generously
contributing. Thus, open market operations in India have served, on the one
hand as an instrument to make available more budgetary resources and on the
other as an instrument to siphon off the excess liquidity in the system.
o Variable Reserve Ratios:Variable reserve ratios refer to that proportion of bank
deposits that the commercial banks are required to keep in the form of cash to
ensure liquidity for the credit created by them.
A rise in the cash reserve ratio results in a fall in the value of the deposit
multiplier. Conversely, a fall in the cash reserve ratio leads to a rise in the value
of the deposit multiplier.A fall in the value of deposit multiplier amounts to a
contraction in the availability of credit, and, thus, it may serve as an anti-
inflationary measure.
A rise in the value of deposit multiplier, on the other hand, amounts to
the fact that the commercial banks can create more credit, and make available
more finance for consumption and investment expenditure. A fall in the reserve
ratios may, thus, work as anti-deflationary method of monetary control.
Qualitative Method:
✓ Margin Requirements:Changes in margin requirements are designed to influence the
flow of credit against specific commodities. The commercial banks generally advance
loans to their customers against some security or securities offered by the borrower and
acceptable to banks.
A rise in the margin requirement results in a contraction in the borrowing value
of the security and similarly, a fall in the margin requirement results in expansion in the
borrowing value of the security.
✓ Credit Rationing:Rationing of credit is a method by which the Central Bank seeks to
limit the maximum amount of loans and advances and, also in certain cases, fix ceiling
for specific categories of loans and advances.
✓ Regulation of Consumer Credit:Regulation of consumer credit is designed to check the
flow of credit for consumer durable goods. This can be done by regulating the total
volume of credit that may be extended for purchasing specific durable goods and
regulating the number of instalments through which such loan can be spread. Central
Bank uses this method to restrict or liberalise loan conditions accordingly to stabilise
the economy.
✓ Moral Suasion:Moral suasion and credit monitoring arrangement are other methods of
credit control. The policy of moral suasion will succeed only if the Central Bank is
strong enough to influence the commercial banks.
Need and importance of management.

1. Optimum utilisation of resources: Management brings all the available resources together. All these
available resources are important for achieving the objective of the organization.
2. Expansion and diversification: Management helps the organization to achieve its objectives
efficiently, systematically, easily and quickly. It helps the organization to face the cut-throat
competition to grow, expand and diversify.
3. Reduction of employers absenteeism and turnover: Management motivates people. It provides
different incentives to the employees. This includes positive, negative, monetary and non financial
incentives. These incentives increase the willingness and efficiency of the employees. This increases
the productivity and profitability of the organization.
4. Utilises the benefits of science and technology: Man has made rapid progress within the field of
Science and Technology. Management utilizes the benefits of this progress. It provides industries with
the latest machines. It provides the consumers with the newest products.
5. Encourages initiative and innovation: Management spurs initiative. This means it initiative the
employees to make their own plans and to execute these plans. It inspires the employees to give their
suggestions. Initiative gives satisfaction to the laborers and success to the organization.
6. Minimises wastages: Management minimizes the wastages of human, waste materials and
monetary resources. Work is done through arrangement, proper manufacturing and Control.
Managers motivate subordinate to reduce wastages. Reduction in wastage's brings a higher return to
firm.
7. Team work: Management always builds a team spirit in the organization. The combine effort of
work and unity lead to the prosperity within the organization. Team work plays an important part in
the success of organization.
8. Motivation: Management motivates employees by sharing their profits by the mean of bonus. They
also give a good amount of incentives to the employees. This motivation zeal the employee to work
harder, which results in higher efficiency in production.
9. Reduction in labour turnover: Management helps to reduce labor turnover in the organization.
Employee turnover takes place when some employees leave the organization, and others join in their
place. Frequent labor turnover increases selection and training cost.
10. Higher efficiency: Management always wants that his employees should produce higher efficiency.
Productivity is the relationship between returns and costs. Higher returns at minimum investment
then the organization is said to be more proficient.
11. Improves the quality of life of the workers: Management provides bonus and incentive to the
employees for their work. It gives a healthy work environment to the workers. It also provides medical
and insurance faculties to worker and their families. It provides a financial stability which helps in
boosting life of the workers.
12. Cordial industrial relations: Management ensures industrial peace. It gives more importance to the
‘Human Element’ in business. It applies positive motivation. All this improves the relations between
the employees and the employers.
13. Corporate image: Efficient and effective management maintains a good image and goodwill of
organization. This is because of quality of products and services offered by the organization and also
due to the social responsibility of organization towards society.
14. Promotes national development: Management is regarded as a key to the economic development
of nation. It puts resources to the optimum use. It leads to capital formation and tech advancement.
It generates handsome revenue for government. It increases national income and standard of living
of people. Thus, it leads to development across all sectors, and significant growth throughout the
nation.
15. It helps society: In management, profit is not only the objective of business. Today, the managers
are combining profit objective with social purposes. They are providing society with a regular supply
of good quality goods and services at reasonable prices. They are also providing employment
opportunities to people. They in addition pay high taxes to the government. These taxes are used for
improving nations. Nowadays, managers are using part of their profits to build hospitals, schools,
colleges, etc. for civilization. So it is helping humanity in many ways.