ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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The Financial Sector in Budget 2013

A discussion of the announcements pertaining to the financial sector in Budget 2013.

Inevitably there are several ways to look at budget proposals as different sections of society seek to evaluate it in terms of possible impact on their welfare. The union budget seeks to spur growth and investment climate through various tax and expenditure proposals. The impact of all such measures would implicitly depend on how smoothly the financial system performs its intended intermediation role. It may therefore be fruitful to assess the potential outcome of the budget in terms of its impact on the working of the financial sector, i e, banks, insurance companies, mutual funds and capital markets. At a time when the share of household saving held in financial savings is coming down with a corresponding increase in physical savings mainly in terms of real estate and precious metals like gold, financial intermediation is particularly important.

Governmental policies have manifold effects on different segments of the financial system. First, it owns several banks and insurance companies and hence has a more direct effect on the working of government-owned financial intermediaries. Second, it also influences significantly the overall stance of financial regulation as it coordinates among, if not presides over, different financial regulators such as the Reserve Bank of India (RBI), Securities and Exchange Board of India, Insurance Regulatory and Development Authority (IRDA) and Pension Fund Regulatory and Development Authority. Most importantly, the stance of the budget, particularly the level of the gross fiscal deficit, shapes the overall macroeconomic environment as signified in overall liquidity, interest rates, exchange rates, inflation, etc. All these variables are extremely important for the working of the financial system. In view of these multifarious channels through which government policies have an impact on the financial system, it may provide an useful pivot to assess the significance and effectiveness of income-expenditure policies of the union government.

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