Bank Note

Bank Note

Bank Note

Ages of Currency…

Early currency

The origin of currency is the creation of a circulating medium of exchange based on a unit of account which quickly becomes a store of value.

Currency was basically evolved from two innovations: the use of counters to assure that shipments arrived with the same goods that were shipped, and later with the use of silver ingots(a metal casting that is shaped, typically in an oblong, for easy working or for recasting) to represent stored value in the form of grain.

Both of these developments had occurred by 2000 BC. Originally money was a form of receipting grain stored in temple granaries in ancient Egypt and Mesopotamia.

This first stage of currency, where metals were used to represent stored value, and symbols to represent commodities, formed the basis of trade over 1500 years.

However, the collapse of the Near Eastern trading system pointed to a flaw: in an era where there was no place that was safe to store value, the value of a circulating medium could only be as sound as the forces that defended that store.

Bank Note

Bank Note

Bank Note

Coinage

At first silver, then both silver and gold were used. Metals were mined, weighed, and stamped into coins. Coins could be counterfeited, but they also created a new unit of account, which helped lead to banking.

In most major economies using coinage, copper, silver and gold formed three tiers of coins.
Gold coins were used for large purchases, payment of the military and backing up of state activities.

Silver coins were used for large, but common, transactions, and as a unit of account for taxes, dues, contracts and fealty, while copper coins represented the coinage of common transaction. This system had been used in ancient India since the time of the Mahajanapadas.

In Europe, this system worked through the medieval period because there was virtually no new gold, silver or copper introduced through mining or conquest.

Bank Note

Bank Note

Bank Note

Era of hard and credit money

In pre modern China, the need for credit and for circulating a medium that was less of a burden than exchanging thousands of copper coins led to the introduction of paper money, commonly known today as banknotes.

It began as a means for merchants to exchange heavy coinage for receipts of deposit issued as promissory notes from shops of wholesalers, notes that were valid for temporary use in a small regional territory.

Innovations introduced by Muslim economists, traders and merchants include the earliest uses of credit, cheques, promissory notes, savings accounts, transactional accounts, loaning, trusts, exchange rates, the transfer of credit and debt, and banking institutions for loans and deposits.

In Europe paper money was first introduced in Sweden in 1661. Sweden was rich in copper, thus, because of copper’s low value, extraordinarily big coins (often weighing several kilograms) had to be made. Because the coin was so big, it was probably more convenient to carry a note stating your possession of such a coin than to carry the coin itself.

Bank Note

Bank Note

The advantages of paper currency were numerous: it reduced transport of gold and silver, and thus lowered the risks; it made loaning gold or silver at interest easier.

However, these advantages held within them the disadvantages too. First, since a note has no intrinsic (initial) value, there was nothing to stop issuing authorities from printing more of it. Second, because it created money that did not exist, it increased inflationary pressures.

Legal era

At this time both silver and gold were considered legal tender, and accepted by governments for taxes.

By 1900, most of the industrializing nations were on some form of gold standard, with paper notes and silver coins constituting the circulating medium. Governments then followed this following rule: keeping gold and silver paid, but paying out in notes.

Bank Note

Bank Note

Paper money era

Then finally came the paper money era which is still in use.

Some other bank notes of the World are:-

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• Debt Waiver: Total estimate Rs 60,000cr; Overdue loans to be waived will be Rs 50,000 crore. One-time settlement estimated at Rs 10,000 crore; all agriculture loans by RRBs (Railway Retirement Board), co-operatives, SCBs (State Controlling Body) overdue taken before March 2007 and outstanding on December 2007 are covered. Loans waived for marginal farmers holding up to 1 hectare and small farmers up to 2 hectare..

Union Budget 2008-09

• Excise on two-wheelers reduced from 16% to 12%
• Hikes tax-free income from Rs 1,10,000 to Rs 1,50,000
• 10% tax on income from Rs 1,50,000 to Rs 3,00,000
• 20% tax on income from Rs 3,00,000 to Rs 5,00,000
• 30% tax on income over Rs 5,00,000
• Women exemption increases from Rs 1,45,000 to Rs 1,80,000
• Senior citizen exemption increases from Rs 1,95,000 to Rs 2,25,000
• Banking cash transaction tax to be removed
• Tax on short term capital gains increased to 15% from 10%
• Service tax limited hiked to Rs 10 lakh.
• Reduced general CENVAT (Central Value Added Tax) from 16% to 14%
• Duties on iron ore exports increased to Rs 3,000 per tonne.

Mr.P.Chidambaram

• Project import customs duty reduced from 7.5% to 5%; Steel melting scrap and aluminum scrap made nil; Life saving drugs customs duty from 10% to 5%;
• No change in peak rate of customs duty;
• Revenue deficit at 1.4% against budget estimate of 1.5%; To eliminate revenue deficit in Fiscal Year 2010; Fiscal deficit at 3.1% against budget estimate of 3.3%; Plan expenditure Rs 2,43,386 crore;
• Defence allocation increased from Rs 96,000cr to Rs 1,05,600 crore; Food subsidies at Rs 32,667 crore;
• Exchange-traded currencies; interest rate derivatives to be introduced;
• TUF (Technology Up gradation Fund) to increase to Rs 1,090 crore; Rural Infrastructure Development Fund increased to Rs 14,000 crore;
• Saving rate at 35.6%, investment rate at 36.3 %;
• Rs 1,000cr to be placed with LIC for covering an additional 1 cr landless households; PAN to be extended for all transactions in financial markets
• Coal regulator to be set up; GQ (Golden Quadrilateral) completed 96.48%
• Government to interconnect all national institutions on a knowledge network; Government to establish 16 central universities; 3 IITs in Bihar, Andhra Pradesh and Rajasthan;
• To continue with fertilizer subsidies, may move to nutrient-based subsidies; Rs 20,000 crore allocated for irrigation; Agricultural credit at Rs 2,80,000 crore; To mobilse Rs 10,000cr for plan capital expenditure;
• ·Rs 16,202cr scheme that will cover at least 33% women.

Budget 2008-09

• Chennai desalination plant to get Rs 300 cr in 08-09;
• JNURM (Jawaharlal Nehru Urban Renewal Mission) to get Rs 6,866cr in 2008-09 from Rs 5,482cr in 07-08;
• Anganwadi workers remuneration to be increased to Rs 1,500 per month.
• Rs 30,000 cover for unorganized sector; Center to share Rs 200 cr premium; Health allocation increased by 15%
• Mid-day meal scheme extended in government and government aided schools in upper primary classes. Total coverage of 13.9 crore children; Education allocation increased by 20%
• 2008-09 should be a year of consolidation; We can; The government will manage capital inflows along with RBI (Reserve Bank of India);
• Total agricultural output 219.32 million tone. Agriculture growth rate at 2.6% in 2007
• The next Union Budget will be a vote-on-account because of general elections.

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Highlights…

The general Highlights of the railway budget presented by Mr.Lalu Prasad Yadav on 26th February are as follows:-

• AC I class fares reduced by 7%

• AC II class fares reduced by 4%

• Re1 discount on fares up to Rs 50 in non-suburban II class

• 5% discount on 2nd class fares in Mail/Exp.

• 2% cut in fares of new – look sleeper class

Railway Budget

• 5% cut in freight rate for petrol and diesel

• 14% reduction in freight rate for fly ash

• 6% freight concession on traffic to North – East states

• Special train for Commonwealth Youth Games

• Mumbai Suburban to get 300 more services…

• Termination of queues at ticket counters targeted in two years

Mr. Laallu Prasad Yadav Presenting the Budget

Annual plan stands at Rs 37500 Crore

• New lines to cost Rs 1730 cr

• New gauge conversion cost at Rs 2489 cr

• Electrification cost Rs 626 cr

• Outlay for amenities at Rs 852 cr

• Revenues from freight Rs 21682 crore, passenger Rs 2420 cr

Railway Minister

• Public private partnership (PPP) mulled for attracting investment

• Rs 100000 cr worth PPP projects in next 5 years

• Earnings from coaching and sundry Rs 5000 cr.

• PPP projects include developing world-class stations, multi-modal logistics parks and running container trains etc.

Apart from all these in passenger services also, it was announced about the introduction of 10 new garib Raths (poor man’s air-conditioned trains), 53 pairs of new trains, extension of 16 pairs of trains and increase in frequency of 11 pairs.

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How India’s Budget is prepared..

Here goes the second part that is: 2) Expenditure side

Parallel to all this, the Planning Commission goes into stock-taking mode. It starts meeting with individual ministries in the month of September-October and reviews ongoing schemes of the ministries, considers allocation for them, etc.

It may decide to stop some ongoing scheme or merge two similar schemes.
Thus, an estimate of Plan Budget is prepared.

The Planning Commission conveys to the ministry of finance that it requires so and so amount to run planned schemes for the next financial year(lst April to 31st March).

Budget 2008

The finance minister and the Deputy Chairman of Planning Commission discuss the demand in detail. This way Plan Expenditure is ready. Different ministries are also asked to tell about their fund requirement, which forms a part of budget estimate.

Side by side, Department of Economic Affairs meets representatives of trade unions, industry chambers, economists and other groups. In the Budget-making exercise, suggestions of different stakeholders(a party who affects, or can be affected by, an organization’s actions) are kept in mind.

Finance Minister has to decide with his team

By this time, the finance minister is in a position to estimate as to how much it will get through taxes and how much it has to spend in coming financial year.
The finance minister has other constraints also. He has to abide by FRBM Act and cut fiscal deficit [the difference between the government’s total expenditure and its total receipts (excluding borrowing)].

Keeping in mind all these, the finance minister - with his team - decides whether some new taxes should be changed to collect more tax, how to widen tax net in order to earn more revenue. While doing so the suggestions from various interest groups are duly taken into account.

GDP assessment

GDP is gross domestic product and it is one of the ways of measuring the size of its economy. The GDP of a country is defined as the total market value of all final goods and services produced within a country in a given period of time (usually a calendar year)

The Department of Expenditure and the Department of Economic Affairs sit to decide GDP assessment for next year. Generally, a nominal growth in GDP is projected. Actual growth in GDP is - nominal growth of GDP reduced by inflation figure.

Budget 2008

The Budget Speech of the Financial Minister

Now comes the Budget Speech. It is fine-tuned to the last minute. Around February 15, some of the Budget documents are almost ready and goes for printing to a press located in North Block (Secretariat Building, a set of two buildings on the opposite side of Raj path: the North Block and the South Block) itself.

Security agencies ring off the press and entry is almost prohibited.

The D-Day

The finance minister delivers the Budget Speech in Parliament. Normally, on February 28, the finance minister delivers the Budget Speech in Lok Sabha. After which Budget documents are made available.

These are also put on the Web site Click Here to visit the site.
However, 2008 being a leap year, this time the Budget would be presented to Parliament on February 29.

Mr.Lalu Prasad Yadav(Railway Minister)

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The Budget process is a gigantic exercise. The exercise has different stages and each stage kicks off at a different stage of Budget making process.
The two sides of the Budget.

Like everyone’s family the nation’s budget too had two sides or we major parts : Revenue(incomes,profits,gains) n Expenditure(expenses)..
Assessing the incomes n profits from various department heads is primarily the function of The departments of revenues on the other hand The expenditure departments takes into accounts all expenses of the current as well as estimates of the next year.

Budget

The Department of Expenditure also assesses the resources of the public sector undertakings (PSUs). The Budget division is a part of the Department of Economic Affairs.

The Finance Secretary coordinates the overall Budget-making process. All of them keep the finance minister informed and seek directions from time to time. The Chief Economic Advisor assists the concerned departmental officer in this process.

1. Let’s see the Revenue side

Leaving all the tax receipts, the other sources of revenue which goes into the budget are the dividends which are paid by PSUs on the government shareholding, , including the interim(short term) dividends and the capital receipts on account of the divestment(reduction of some kind of asset for either financial goals or ethical objectives) of the government share holdings.

• What else??

Besides the external receipts it also takes into account all the borrowings from international agencies like World Bank, ADB, etc. these all are included in the assessment gross budgetary resources of various programmes under various ministries.

Resources of the public sector undertakings, including their operating surplus (A component of value added and referred to as "mixed income") and the borrowings by them; also constitute an important component of the gross budgetary resources and goes to fund their plan.

The basic policy of PSU for getting funds for its plans is from its own resources but in some strategic and economically vital areas where the budgetary support is needede based on the recommendations of the Planning Commission.

This assessment of the Internal and External Budgetary Resources (IEBR) conducted by the Department of Expenditure forms part of the total plan resources and is also reflected in the budget documents.

Budget

• 10 things to do before March 31

To estimate the earnings of PSUs, the government invites the finance directors of the PSUs . A joint secretary level officer of the ministry of finance holds one-on-one meeting with the PSU chairmen to estimate the revenues.

He passes on the information to Expenditure Secretary, who in turn, passes on the information to Finance Secretary. This exercise starts usually in the month of August/September. This revenue forms a part of plan expenditure.

Based on the inputs of different ministries Revised Estimate (RE) is prepared.RE means revising once again as to how much is actually required by the ministry.

• Last Step in Revenue Side

As a part of the expenditure management, the government issues instructions to various ministries to adhere to the quarterly expenditure schedule and to avoid the bunching of expenditures that may occur in last quarter.

Additional funds are also provided in the RE stage because it is important for the non-plan requirement for the next year..
Plan allocations are to be provided by the Planning Commission later based on the total gross budgetary support (GBS) indicated by the ministry of finance. This exercise starts in the month of October-December.

As is known, the Department of Revenue, the ministry of finance has two boards — Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC). By mid-January, these boards give the figure of tax collection up to December 31. For remaining three months, tax collection is assumed on the basis of previous trends.

The boards also estimate the tax revenue expected in next financial year. The honesty of the budget making depends on the realistic nature of these estimates particularly in the face of the economic discipline imposed by the FRBM Act.

It is a happy development in the past two or three years the estimates are generally not very wide off the mark.

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An institution which accepts deposits, makes business loans, and offers related services.

Commercial banks also allow for a variety of deposit accounts, such as checking, savings, and time deposit.

HSBC Bank

These institutions are run to make a profit and owned by a group of individuals.

While commercial banks offer services to individuals, they are primarily concerned with receiving deposits and lending to businesses.

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In financial economics, a financial institution acts as an agent that provides financial services for its clients or members.

NABARD

Financial institutions generally fall under financial regulation from a government authority.

Financial institutions provide a service as intermediaries of the capital and debt markets.

They are responsible for transferring funds from investors to companies, in need of those funds.

The presence of financial institutions facilitates the flow of monies through the economy.

Some examples of financial institutions are – Export-Import Bank of India (Exim Bank), Industrial Development Bank of India (IDBI), Industrial Finance Corporation of India (IFCI), National Bank for Agriculture and Rural Development (NBARD), Reserve Bank of India, Small Industries Development Bank of India (SIDBI).

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A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective.

The mutual fund will have a fund manager who is also known as the portfolio manager and is responsible for investing the pooled money into specific securities (usually stocks or bonds) and collects the dividend or interest income.

The investment proceeds are then passed along to the individual investors.

Mutual Fund Companies

“A mutual fund is a professionally-managed form of collective investments that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities.”

When we invest in a mutual fund, we are actually buying shares (or portions) of the mutual fund and become a shareholder of the fund.
Mutual funds are one of the best investments ever created because they are very cost efficient and very easy to invest in (we don’t have to figure out which stocks or bonds to buy).

Common mutual fund companies are – Reliance Mutual Funds, LIC Mutual Fund, Fund Unit Trust of India, Tata Mutual Fund, SBI Mutual Funds and much more like these.

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The Reserve Bank of India is the central bank of India, and was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934.

It has been headquartered in Mumbai. Though originally privately owned, RBI has been fully owned by the Government of India since nationalization in 1949.

Reserve Bank of India

RBI is governed by a central board (headed by a Governor) appointed by the Central Government.

The current governor of RBI is Dr.Y.Venugopal Reddy. RBI has 22 regional offices across India.

Main objectives or functions that are performed by RBI are:-

a) Monetary Authority

Maintaining price stability and ensuring adequate flow of credit to productive sectors. Maintain optimum Liquidity in the economy.

b) Regulator and supervisor of the financial system

Maintain public confidence in the system, protect depositors’ interest and provide cost-effective banking services to the public.

c) Manager of Exchange Control

To facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.

Reserve Bank Of India

d) Issuer of currency

The main objective is to give the public adequate quantity of supplies of currency notes and coins and in good quality and even providing loan to commercial bank.

e) Developmental role

Performs a wide range of promotional functions to support national objectives.

f) Related Functions

Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.
Banker to banks: maintains banking accounts of all scheduled banks.

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Indian Currency

A currency is a unit of exchange, facilitating the transfer of goods and/or services.
It is one form of money, where money is anything that serves as a medium of exchange, a store of value, and a standard of value.

A currency is the dominant medium of exchange. To facilitate trade between currency zones, there are exchange rates, which are the prices at which currencies can be exchanged against each other.

Foreign Currency

Currencies can be classified as either floating currencies or fixed currencies based on their exchange rate regime.

In common usage, currency sometimes refers to only paper money, as in coins and currency.

Coins and paper money are both forms of currency.

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