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Why Bank s nationalization

Fiscal Vs Monetary policy..

Fiscal Policy vs. Monetary Policy

Diffen › Economics

Economic policy-makers are said to have two kinds of tools to influence a country's economy: fiscal and monetary.

Fiscal policy relates to government spending and revenue collection. For example, when demand is low in the economy, the government can step in and increase its spending to stimulate demand. Or it can lower taxes to increase disposable income for people as well as corporations.

Monetary policy relates to the supply of money, which is controlled via factors such as interest rates and reserve requirements (CRR) for banks. For example, to control high inflation, policy-makers (usually an independent central bank) can raise interest rates thereby reducing money supply.

These methods are applicable in a market economy, but not in a fascist, communist or socialist economy. John Maynard Keynes was a key proponent of government action or intervention using these policy tools to stimulate an economy during a recession.

Comparison chart

Fiscal Policy versus Monetary Policy comparison chartFiscal PolicyMonetary Policy

Definition

Fiscal policy is the use of government expenditure and revenue collection to influence the economy.

Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest to attain a set of objectives oriented towards the growth and stability of the economy.

Principle

Manipulating the level of aggregate demand in the economy to achieve economic objectives of price stability, full employment, and economic growth.

Manipulating the supply of money to influence outcomes like economic growth, inflation, exchange rates with other currencies and unemployment.

Policy-maker

Government (e.g. U.S. Congress, Treasury Secretary)

Central Bank (e.g. U.S. Federal Reserve or European Central Bank)

Policy Tools

Taxes; amount of government spending

Interest rates; reserve requirements; currency peg; discount window; quantitative easing; open market operations; signalling

Contents

1 Policy Tools1.1 Fiscal policy1.2 Monetary policy2 Videos Comparing Fiscal and Monetary Policy3 Responsibility4 Criticism5 References

Policy Tools

Both fiscal and monetary policy can be either expansionary or contractionary. Policy measures taken to increase GDPand economic growth are called expansionary. Measures taken to rein in an "overheated" economy (usually when inflation is too high) are called contractionary measures.

Fiscal policy

The legislative and executive branches of government control fiscal policy. In the United States, this is the President's administration (mainly the Treasury Secretary) and the Congress that passes laws.

Policy-makers use fiscal tools to manipulate demand in the economy. For example:

Taxes: If demand is low, the government can decrease taxes. This increases disposable income, thereby stimulating demand.Spending: If inflation is high, the government can reduce its spending thereby removing itself from competing for resources in the market (both goods and services). This is a contractionary policy that would lower prices. Conversely, when there is a recession and aggregate demand is flagging, increased government spending in infrastructure projects would lead to higher demand and employment.

Both tools affect the fiscal position of the government i.e. the budget deficit goes up whether the government increases spending or lowers taxes. This deficit is financed by debt; the government borrows money to cover the shortfall in its budget.

Procyclical and Countercyclical Fiscal Policy

In an article for VOX on the tax cuts vs. stimulus debate, Jeffrey Frankel, Economics professor at Harvard University has said that sensible fiscal policy is countercyclical.

When an economy is in a boom, the government should run a surplus; other times, when in recession, it should run a deficit.

[There is] no reason to follow a pro-cyclical fiscal policy. A procyclical fiscal policy piles on the spending and tax cuts on top of booms, but reduces spending and raises taxes in response to downturns. Budgetary profligacy during expansion; austerity in recessions. Procyclical fiscal policy is destabilising, because it worsens the dangers of overheating, inflation, and asset bubbles during the booms and exacerbates the losses in output and employment during the recessions. In other words, a procyclical fiscal policy magnifies the severity of the business cycle.

Monetary policy

Monetary policy is controlled by the Central Bank. In the U.S., this is the Federal Reserve. The Fed chairman is appointed by the government and there is an oversight committee in Congress for the Fed. But the organization is largely independent and is free to take any measures to meet its dual mandate: stable prices and low unemployment.

Examples of monetary policy tools include:

Interest Rates: Interest rate is the cost of borrowing or, essentially, the price of money. By manipulating interest rates, the central bank can make it easier or harder to borrow money. When money is cheap, there is more borrowing and more economic activity. For example, businesses find that projects that are not viable if they have to borrow money at 5% are viable when the rate is only 2%. Lower rates also disincentivize saving and induce people to spend their money rather than save it because they get so little return on their savings.Reserve requirement: Banks are required to hold a certain percentage (cash reserve ratio, or CRR) of their deposits in reserve in order to ensure that they always have enough cash to meet withdrawal requests of their depositors. Not all depositors are likely to withdraw their money simultaneously. So the CRR is usually around 10%, which means banks are free to lend the remaining 90%. By changing the CRR requirement for banks, the Fed can control the amount of lending in the economy, and therefore the money supply.Currency peg: Weak economies can decide to peg their currency against a stronger currency. This tool is usually used in cases of runaway inflation when other means to control it are not working.Open market operations: The Fed can create money out of thin air and inject it into the economy by buying government bonds (e.g. treasuries). This raises the level of government debt, increases the money supply and devalues the currency causing inflation. However, the resulting inflation supports asset prices such as real estate and stocks.

Videos Comparing Fiscal and Monetary Policy

For a general overview, see this Khan Academy video.

To learn about the different monetary and fiscal policy tools, watch the video below.

For a more in-depth technical discussion watch this video, which explains the effects of fiscal and monetary policy measures using the IS/LM model.

Responsibility

Fiscal policy is managed by the government, both at the state and federal levels. Monetary policy is the domain of the central bank. In many developed Western countries — including the U.S. and UK — central banks are independent from (albeit with some oversight from) the government.

In September 2016, The Economist made a case for shifting reliance from monetary to fiscal policy given the low interest rate environment in the developed world:

To live safely in a low-rate world, it is time to move beyond a reliance on central banks. Structural reforms to increase underlying growth rates have a vital role. But their effects materialise only slowly and economies need succour now. The most urgent priority is to enlist fiscal policy. The main tool for fighting recessions has to shift from central banks to governments.

To anyone who remembers the 1960s and 1970s, that idea will seem both familiar and worrying. Back then governments took it for granted that it was their responsibility to pep up demand. The problem was that politicians were good at cutting taxes and increasing spending to boost the economy, but hopeless at reversing course when such a boost was no longer needed. Fiscal stimulus became synonymous with an ever-bigger state. The task today is to find a form of fiscal policy that can revive the economy in the bad times without entrenching government in the good.

Criticism

Libertarian economists believe that government action leads to inefficient outcomes for the economy because the government ends up picking winners and losers, whether intentionally or through unintended consequences. For example, after the 9/11 attacks the Federal Reserve cut interest rates and kept them artificially low for too long. This led to the housing bubble and the subsequent financial crisis in 2008.

Economists and politicians rarely agree on the best policy tools even if they agree on the desired outcome. For example, after the 2008 recession, Republicans and Democrats in Congress had different prescriptions for stimulating the economy. Republicans wanted to lower taxes but not increase government spending while Democrats wanted to use both policy measures.

As noted in the excerpt above, one criticism of fiscal policy is that politicians find it hard to reverse course when the policy measures, e.g. lower taxes or higher spending, are no longer necessary for the economy. This can lead to an ever-larger state.

References

Fiscal Policy vs Monetary Policy - Dr. F. Steb Hipple, East Tennessee State UniversityHow to live in a low-interest-rate world - The EconomistFiscal policy - WikipediaMonetary policy - Wikipedia

Related Comparisons

Gross Domestic Product (GDP) vsGross National Product (GNP)Real vs Nominal GDPRecession vs DepressionGrowth vs Development in EconomicsEconomics vs Finance

Disinvestment Defn & Objective

Definition of Disinvestment

At the very basic level, disinvestment can be explained as follows:

“Investment refers to the conversion of money or cash into securities, debentures, bonds or any other claims on money. As follows, disinvestment involves the conversion of money claims or securities into money or cash.” 

Disinvestment can also be defined as the action of an organisation (or government) selling or liquidating an asset or subsidiary. It is also referred to as ‘divestment’ or ‘divestiture.’

In most contexts, disinvestment typically refers to sale from the government, partly or fully, of a government-owned enterprise.

A company or a government organisation will typically disinvest an asset either as a strategic move for the company, or for raising resources to meet general/specific needs.

Objectives of Disinvestment

The new economic policy initiated in July 1991 clearly indicated that PSUs had shown a very negative rate of return on capital employed. Inefficient PSUs had become and were continuing to be a drag on the Government’s resources turning to be more of liabilities to the Government than being assets. Many undertakings traditionally established as pillars of growth had become a burden on the economy. The national gross domestic product and gross national savings were also getting adversely affected by low returns from PSUs. About 10 to 15 % of the total gross domestic savings were getting reduced on account of low savings from PSUs. In relation to the capital employed, the levels of profits were too low. Of the various factors responsible for low profits in the PSUs, the following were identified as particularly important: 

Price policy of public sector undertakings
Under–utilisation of capacity
Problems related to planning and construction of projects
Problems of labour, personnel and management
Lack of autonomy 

Hence, the need for the Government to get rid of these units and to concentrate on core activities was identified. The Government also took a view that it should move out of non-core businesses, especially the ones where the private sector had now entered in a significant way. Finally, disinvestment was also seen by the Government to raise funds for meeting general/specific needs.

In this direction, the Government adopted the 'Disinvestment Policy'. This was identified as an active tool to reduce the burden of financing the PSUs. The following main objectives of disinvestment were outlined: 

To reduce the financial burden on the Government
To improve public finances
To introduce, competition and market discipline
To fund growth
To encourage wider share of ownership
To depoliticise non-essential services

Importance of Disinvestment

Presently, the Government has about Rs. 2 lakh crore locked up in PSUs. Disinvestment of the Government stake is, thus, far too significant. The importance of disinvestment lies in utilisation of funds for:

Financing the increasing fiscal deficit
Financing large-scale infrastructure development
For investing in the economy to encourage spending
For retiring Government debt- Almost 40-45% of the Centre’s revenue receipts go towards repaying public
debt/interest
For social programs like health and education

Disinvestment also assumes significance due to the prevalence of an increasingly competitive environment, which makes it difficult for many PSUs to operate profitably. This leads to a rapid erosion of value of the public assets making it critical to disinvest early to realize a high value.

Article 21 incl Right to Privacy

Supreme Court rights old judicial wrongs in landmark Right to Privacy verdict, shows State its rightful place

IndiaAjay Kumar
Aug, 29 2017 07:09:01 IST

First Post

The Supreme Court of India in Justice KS Puttaswamy (RETD) vs Union of India and Ors WP (C) 494/2012 has declared that Article 21 of the Indian Constitution includes within it a Right to Privacy.

This nine-judge unanimous decision came after the question was referred to it by a three-judge bench hearing the AADHAR matter. The Union Government had taken the stance that Right to Privacy was a common law right protected by statute, and, earlier judgments of the court hadn't recognised it as a Fundamental Right.

But this judgment now clearly settles that position of law and clarifies that the Right to Privacy can only be infringed where there is a compelling state interest to do so: Just as is the case with other fundamental rights.

But some background may be helpful in understanding how this came amount.

Article 21 of India's Constitution says:
No person shall be deprived of his life or personal liberty except according to procedure established by law.

The original debate begins with the word "procedure according to law".

In the first major Article 21 case AK Gopalan vs The State Of Madras (AIR 1950 SC 27), Gopalan was detained under a preventive detention law.

He moved the court saying that his detention was unlawful as it violated his right to personal liberty. The court held that the word used in Article 21 just meant procedural due process and since the preventive detention law under which Gopalan was detained was a valid law, Gopalan's detention was lawful even though that law may have violated some of his other Fundamental Rights such has his Right to Freedom of Movement under Article 19, or, the detention was arbitrary under Article 14.

The reasoning that came out of the case was that Fundamental Rights were silos in themselves and were not interconnected, and constituted independent articles. This doctrine is commonly known as "procedural due process".

This was the doctrine that was in vogue when the famous case of Additional District Magistrate,Jabalpur vs SS Shukla (1976 AIR SC 1,207) was decided as well. That case will be discussed in detail further below. However, in 1977 Maneka Gandhi had her passport impounded.

She wrote to the regional passport officer (RPO) asking for reasons why her passport was impounded and the RPO declined to give her those reasons citing public interest. She filed a writ petition in the Supreme Court saying this breached her Fundamental Rights.

In Maneka Gandhi vs the Union of India (1978 AIR SC 597), the apex court held that the "procedure" under Article 21 had to be fair, just and reasonable, and would have to be also tested with Article 14 (equality) and 19 (the freedoms) thereby ushering in the era of "substantive due process".

With substantive due process, Article 21 began expanding and by incorporation, the term "personal liberty" began to include a wide variety of things such as the right to health, the right to compensation, the right to a hearing, the right to a speedy trial and other such rights having been pronounced by Indian courts over the years.

Last weeks' privacy decision finally allowed for a nine-judge bench to have a clear discussion on how the law has evolved over the years concerning the interpretation of Article 21 especially, and, in doing so, allowed the Supreme Court to finally formally overrule a gross stain on the history of the court.

The case of Additional District Magistrate,Jabalpur vs SS Shukla (1976 AIR SC 1,207).

The Emergency in India had resulted in not a suspension of Fundamental Rights. At least as far as the law was concerned, the Constitution doesn't allow for a suspension of Fundamental Rights. Only for a suspension of the right to move the court for their enforcement.

The President of India, during the Emergency, made such a proclamation and many people were detained under various laws. Some of them moved high courts seeking a writ of habeas corpus. The Government said, since the right to move courts for the enforcement of Article 21 is suspended, the petitions were not maintainable.

Three high courts upheld the preliminary objection. A few others did not. They said that while that was the case, it was still open to the petitioners to challenge the validity of the order suspending their right to move court and admitted the petitions. These cases went on appeal before the Supreme Court in Additional District Magistrate, Jabalpur. The petitioners in this case also made one important contention.

They said that while the enforcement of Article 21 rights may be suspended, their right to personal liberty, didn't just flow from Article 21, they had it anyway by virtue of being human beings and even if Article 21 didn't exist, the State couldn't just take it away.

The court reasoned that there could be no review of the presidential orders without reviewing the detention as that was the nature of a writ of habeas corpus.

It also reasoned that when the Constitution was enacted, there was an implicit surrender, whereby all pre-existing rights had been surrendered and incorporated into the Constitution, and apart from the Fundamental Rights, there weren't any other rights. Since the petitioners couldn't review their detention without the enforcement of these Fundamental Rights, they remained locked up.

Justice Khanna famously dissented and since, as a result, he was passed over for Chief Justice of India, the judgment has been viewed as a stain on the legacy of the court for many years. The ratio discendi (rationale behind the judgment) that all rights under our Constitution are a positive creation of law rather than merely recognised greatly increases the power of the State to do what it likes with them.

After the Emergency, thanks to Maneka Gandhi's case, the ratio in Additional District Magistrate, Jabalpur was one that was weaker over the years, at least with respect to the main issue of the right to move court during an Emergency-like situation.

But in last weeks Right to Privacy case, the judgment of Additional District Magistrate, Jabalpur was finally overruled on doctrinal grounds so far as it concerns rights. The court holding at Paragraph 119 (majority opinion), said:

"The judgments rendered by all the four judges constituting the majority in Additional District Magistrate, Jabalpur are seriously flawed. Life and personal liberty are inalienable to human existence. These rights are, as recognised in Kesavananda Bharati, primordial rights. They constitute rights under natural law.

The human element in the life of the individual is integrally founded on the sanctity of life. Dignity is associated with liberty and freedom. No civilised state can contemplate an encroachment upon life and personal liberty without the authority of law.

"Neither life nor liberty are bounties conferred by the State nor does the Constitution create these rights.

"The right to life has existed even before the advent of the Constitution. In recognising the right, the Constitution does not become the sole repository of the right. It would be preposterous to suggest that a democratic Constitution without a Bill of Rights would leave individuals governed by the State without either the existence of the right to live or the means of enforcement of the right. The right to life being inalienable to each individual, it existed prior to the Constitution and continued in force under Article of the Constitution.

"Justice Khanna was clearly right in holding that the recognition of the right to life and personal liberty under the Constitution does not denude the existence of that right, apart from it nor can there be a fatuous assumption that in adopting the Constitution the people of India surrendered the most precious aspect of the human persona, namely, life, liberty and freedom to the State on whose mercy these rights would depend. Such a construct is contrary to the basic foundation of the rule of law which imposes restraints upon the powers vested in the modern state when it deals with the liberties of the individual.

"The power of the Court to issue a writ of habeas corpus is a precious and undeniable feature of the rule of law."

Going on to hold at Paragraph 122 (Majority Opinion), the court added:

"In IR Coelho vs State of Tamil Nadu (214), this court took the view that Additional District Magistrate, Jabalpur has been impliedly overruled by various subsequent decisions:

“During Emergency, the Fundamental Rights were read even more restrictively as interpreted by the majority in Additional District Magistrate, Jabalpur vs Shivakant Shukla [(1976) 2 SCC 521]. The decision in Additional District Magistrate, Jabalpur [(1976) 2 SCC 521] about the restrictive reading of right to life and liberty stood impliedly overruled by various subsequent decisions."

"We now expressly do so."

Thus, finally wiping the stain from the otherwise liberal history of the court. In the same breath, the nine-judge bench proceeded to load the detergent to wash away another major stain on the history of the Supreme Court, the decision in Koushal vs Naz Foundation [(2014) 1 SCC 1] which upheld the constitutional validity of Section 377 of the Indian Penal Code of 1860. The court in Kaushal had reasoned that the reliance on the fact that LGBT persons constituted a "minuscule minority" and the reliance on "foreign judgments by the Delhi High Court" as reasons for setting aside the Delhi High Court's judgment was not sound. Going on to hold at Paragraph 126 (Majority Opinion), the nine-judge bench said:

"Sexual orientation is an essential attribute of privacy. Discrimination against an individual on the basis of sexual orientation is deeply offensive to the dignity and self-worth of the individual. Equality demands that the sexual orientation of each individual in society must be protected on an even platform. The right to privacy and the protection of sexual orientation lie at the core of the Fundamental Rights guaranteed by Articles 14, 15 and 21 of the Constitution"

And at 127 (Majority Opinion), it said:

"The view in Koushal (case) that the high court had erroneously relied upon international precedents 'in its anxiety to protect the so-called rights of LGBT persons' is similarly, in our view, unsustainable. The rights of the lesbian, gay, bisexual and transgender population cannot be construed to be 'so-called rights'. The expression 'so-called' seems to suggest the exercise of a liberty in the garb of a right which is illusory. This is an inappropriate construction of the privacy-based claims of the LGBT population. Their rights are not 'so-called' but are real rights founded on sound constitutional doctrine. They inhere in the right to life. They dwell in privacy and dignity. They constitute the essence of liberty and freedom. Sexual orientation is an essential component of identity. Equal protection demands protection of the identity of every individual without discrimination."

However, since Koushal is currently pending a challenge before a larger bench of the Supreme Court, the court left the Constitutionality to be decided by them, therefore Section 377 is still a good law in India till that bench formally delivers its verdict.

The biggest highlight of last week's judgment, however, would be the refutation of the government's reasoning that the Right to Privacy was an elitist right that would be used to destroy the welfare schemes for a majority of the population. The court has dealt with it and in the opinion of the author, showed the government the writing on the constitutional wall.

This is a nation that is about the individual and that individual includes the poor. The poor person, as well as the rich, have as much at stake when it comes to their constitutional rights. In the words of the Supreme Court at Paragraph 154 (Majority Opinion), it read:

"The Attorney-General argued before us that the Right to Privacy must be forsaken in the interest of welfare entitlements provided by the State. In our view, the submission that the Right to Privacy is an elitist construct which stands apart from the needs and aspirations of the large majority constituting the rest of society is unsustainable. This submission betrays a misunderstanding of the constitutional position. Our Constitution places the individual at the forefront of its focus, guaranteeing civil and political rights in Part III and embodying an aspiration for achieving socio- economic rights in Part IV. The refrain that the poor need no civil and political rights and are concerned only with economic well-being has been utilised through history to wreak the most egregious violations of human rights. Above all, it must be realised that it is the right to question, the right to scrutinise and the right to dissent which enables an informed citizenry to scrutinise the actions of government. Those who are governed are entitled to question those who govern, about the discharge of their constitutional duties including in the provision of socio-economic welfare benefits. The power to scrutinise and to reason enables the citizens of a democratic polity to make informed decisions on basic issues which govern their rights. The theory that civil and political rights are subservient to socio-economic rights has been urged in the past and has been categorically rejected in the course of constitutional adjudication by this court."

Also at 157 (Majority Opinion), it said:

"We need also emphasise the lack of substance in the submission that privacy is a privilege for the few. Every individual in society irrespective of social class or economic status is entitled to the intimacy and autonomy which privacy protects. It is privacy as an intrinsic and core feature of life and personal liberty which enables an individual to stand up against a programme of forced sterilisation. Then again, it is privacy which is a powerful guarantee if the State were to introduce compulsory drug trials of non-consenting men or women. The sanctity of marriage, the liberty of procreation, the choice of a family life and the dignity of being are matters which concern every individual irrespective of social strata or economic well-being. The pursuit of happiness is founded upon autonomy and dignity. Both are essential attributes of privacy which makes no distinction between the birth marks of individuals. "

Overall, last week's decision was a great leap forward in clarifying what has been India's constitutional jurisprudence for over the last few decades, its restatement by a nine-judge bench will allow for a well-guided disposal of other cases. It is a restatement of the liberties and values outlined in the Preamble. The Supreme Court by this decision has also unwritten some past judicial wrongs and has also set in motion the wheels to unwritten some future ones.

Courtesy: First Post
29.8.17
vsraju
YOUTH, INDIA