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On Trade-off and the Impossibility

On Trade-off and the Impossibility. The “ Trilemma ” of Exchange Rate Management and Autonomous Monetary Policy under CAC. The trilemma. CAC ERM . Some Definitions.

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On Trade-off and the Impossibility

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  1. On Trade-off and the Impossibility The “Trilemma” of Exchange Rate Management and Autonomous Monetary Policy under CAC

  2. The trilemma CAC ERM

  3. Some Definitions Fiscal Deficit = Total Expenditure – Total Receipts = [Revenue Expenditure +Capital Expenditure] = [interest payments +subsidies + defence expenditure + Capital Expenditure] – Total Receipts Primary Deficit = Fiscal Deficit – interest payments = [subsidies + defence expenditure + Capital Expenditure] – Total Receipts

  4. CAC Capital Imports ER Appreciation Reserve Accumulation Rise in Mo Interest payments Rise in M3 Cut in PD Rise in FD Rise in prices Cut in public investment OMO Cut in subsidies

  5. Forex Inflows and Monetary Sterilization in India (Rs. Crore) Source: GOI, Economic Survey 2007-08

  6. . Priority sector lending as percentage of NBCs Source: Basic statistical returns, RBI, various issues.

  7. Loans to SSI sector in priority sector (in %)

  8. Composition of gross banking credit of SCBs (FY2001-FY2004) Source: RBI Report on Trends & Progress of Banking in India, various issues. Note: Only the important items have been listed under others. Source: RBI Report on Trends & Progress of Banking in India, various issues.

  9. Retail portfolio of banks 2004-05 Source: RBI Report on trends and progress, of Banks 2004

  10. Profitability of loans (%) Source: As discussed with banks. * The interest rate on cash balances with RBI is 3.5%.

  11. On Profit ranges: Number of industrial units as at end of March 2005 Source: CMIE, Prowess Online data

  12. Corporate Investments (Rs Crores) *Debentures include privately placed debentures with financial institutions. Figures in brackets indicate percentages. Source: Reserve Bank of India Bulletin September 2006

  13. Selected Financial Ratios of Public Limited Companies (percentages) 2004-05 . *Quick assets comprise of (a) sundry debtors (b) book value of quoted investments and (c) cash and bank balances Source: Reserve Bank of India Bulletin September 2006

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