FISCAL AND MONETARY FISCAL AND MONETARY POLICIES OF INDIAPOLICIES OF INDIA

FISCAL POLICYFISCAL POLICY Fiscal policy refers to the overall effect of the budget outcome on

economic activity. It is concerned with the raising of government revenue and incurring of government expenditure.

The idea of using fiscal policy to combat recessions was introduced by John Maynard Keynes in the 1930s.

Three possible stances of fiscal policy are:- Neutral stance: it implies a balanced budget where government spending

is equal to tax revenue. (G=T) Expansionary stance: Government spending is greater than tax revenue.

(G>T) Contractionary stance: Government spending is lesser than tax revenue.

(G<T)

OBJECTIVES OF FISCAL OBJECTIVES OF FISCAL POLICYPOLICY Development by effective Mobilisation of Resources. Efficient allocation of Financial Resources Reduction in inequalities of Income and Wealth Price Stability and Control of Inflation Employment Generation Balanced Regional Development Capital Formation Increasing National Income Development of Infrastructure Foreign Exchange Earnings

TOOLS OF FISCAL POLICYTOOLS OF FISCAL POLICY Budgetary surplus and deficit Government expenditure Taxation- direct and indirect Public debt Deficit financing

LIMITATIONS OF FISCALLIMITATIONS OF FISCALPOLICYPOLICY Rapid increase in inflation results in failure of fiscal policy. Govt. fiscal policy has failed to reduce the black money. After taking loan from World Bank under the fiscal policy's debt

technique, govt. has to obey the rules and regulations of World Bank and IMF. These rules are more harmful for developing small domestic business of India.

After expending large amount for generating new employment under fiscal policy, rate of unemployment is increasing rapidly.

MONETARY POLICYMONETARY POLICY Monetary policy is the management of money supply and interest rates by

central banks to influence prices and employment. Monetary policy works through expansion or contraction of investment

and consumption expenditure. "A policy employing the central banks control of the supply of money as

an instrument for achieving the objectives of general economic policy is a monetary policy.” By:- Prof. Harry Johnson.

A policy which influences the public stock of money substitute of public demand for such assets of both that is policy which influences public liquidity position is known as a monetary policy.“ By:- A.G. Hart.

OBJECTIVES OF MONETARY OBJECTIVES OF MONETARY POLICYPOLICY Rapid Economic Growth Price Stability Exchange Rate Stability Balance of Payments (BOP) Equilibrium Full Employment Neutrality of Money Equal Income Distribution

TOOLS OF MONETARYTOOLS OF MONETARY POLICY POLICY

Bank rate Open market operations. Discount loans. Changes in reserve requirements. Regulation of consumer credit 

LIMITATIONS OF MONETARYLIMITATIONS OF MONETARYPOLICYPOLICY Non-Banking Financial Institutions do not come under the purview of

monetary policy and thus nullify its effect. Higher liquidity due to high deposit base hinders the monetary policy. The success of the monetary policy depends on timely implementation of

it so, time lag affects success of monetary policy. Monetary policy lacks coordination.

RELATIONSHIP BETWEEN RELATIONSHIP BETWEEN BOTH THE POLICIESBOTH THE POLICIES Both the policies are interdependent on each other. Fiscal policies pursued by the government determine the general

directions of monetary policy. The fiscal policies have to be devised depending upon the monetary

control exercised in the monetary policy. In Indian economy, the monetary policy is brought into play only to

correct the adverse effects of fiscal policy. 

EFFECTIVENESS OF THE EFFECTIVENESS OF THE POLICIESPOLICIES Monetary policies affect all sectors of the economy although in different

ways and with a variable impact. Fiscal policy changes can be targeted to affect certain groups only. When the economy is in a recession, monetary policy may be ineffective

in increasing current national spending and income but fiscal policy might be more effective in stimulating demand.

The biggest challenge facing the conduct of fiscal and monetary policy in India is to continue the accelerated growth process while maintaining price and financial stability.

THANK YOU !!THANK YOU !!Anand Rana

AnamikaAnkita Sharma