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The document discusses the seven main sources of financing for India's Five Year Plans:
1. Government savings from tax revenue and non-plan expenditures.
2. Market borrowings through government securities purchased by banks and institutions.
3. Individual household savings through small savings programs.
4. Contributions from profits of public enterprises like railways.
5. Proceeds from the partial or full sale of public sector units.
6. External assistance in the form of foreign aid and loans, after accounting for debt payments.
7. Deficit financing or borrowing from the Reserve Bank of India, though this has been replaced by regulated ways and means advances since 1997.
The document discusses the seven main sources of financing for India's Five Year Plans:
1. Government savings from tax revenue and non-plan expenditures.
2. Market borrowings through government securities purchased by banks and institutions.
3. Individual household savings through small savings programs.
4. Contributions from profits of public enterprises like railways.
5. Proceeds from the partial or full sale of public sector units.
6. External assistance in the form of foreign aid and loans, after accounting for debt payments.
7. Deficit financing or borrowing from the Reserve Bank of India, though this has been replaced by regulated ways and means advances since 1997.
The document discusses the seven main sources of financing for India's Five Year Plans:
1. Government savings from tax revenue and non-plan expenditures.
2. Market borrowings through government securities purchased by banks and institutions.
3. Individual household savings through small savings programs.
4. Contributions from profits of public enterprises like railways.
5. Proceeds from the partial or full sale of public sector units.
6. External assistance in the form of foreign aid and loans, after accounting for debt payments.
7. Deficit financing or borrowing from the Reserve Bank of India, though this has been replaced by regulated ways and means advances since 1997.
1. Government Savings (GS): GS= Current Income of GovernmentCurrent Non-Plan Expenditure Plan expenditure is the expenditure on the programmes and schemes included in the Central Plan. All other expenditures is Non Plan expenditure. Thus, Higher the Tax Revenue or lower the Non-Plan Expenditure like Defence, Interest Payments etc., higher is GS.
2. Market Borrowings by Government:
Government can borrow from the financial
markets by floating Government Securities. Size of market borrowings largely depends on Statutory Liquidity Ratio (SLR) of bank investments in the G Secs. SLR: It is the minimum proportion of Net Demand and Time Liabilities (NDTL) required to be maintained statutorily in the form of liquid assets like G secs. Apart from banks, LIC, and Provident Funds are important lenders to government.
3. Small Savings: Represents individual
households savings in the form of Post-Office
Savings and Time deposits, National Savings Certificates etc. 4. Contribution of Public Enterprises: Represents a share of profit earned by Public Enterprises like Railways & other PSUs that is used for development 5. Disinvestment Income or the income generated by the sale of partial or total stake of PSUs by government.
6. Deficit Financing (DF) or Monetised Deficit:
Refers to the governments extra expenditure over revenue which is financed through borrowings from RBI
Till 1991, it was used very frequently but
uncontrolled DF led to excess printing of currency increasing money supply leading to higher inflation. Under a Fiscal Reform, DF has been discontinued since April, 1997 and replaced by Ways and Means Advances (WMAs). Under WMAs, government borrows from RBI only to meet temporary mismatch of its revenue and expenditure.
WMA limits are decided in the beginning of the
financial year and higher interest rate is charged
on borrowings (Bank Rate) with 2% extra on overdrafts ensuring disciplined borrowings. 7. External Assistance : Includes Foreign Aid and other loans from abroad to finance planning after deducting the debt-servicing charges During 1st Phase of planning, foreign aid was an important source of plan financing while DF was used extensively during 2nd phase. After 1997, role of Market Borrowings &contribution of public enterprises have become more important.