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Fiscal monetary


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  • 1. Faculty of Management Studies, MDSU, Ajmer Presented By: Anubhav Jain Manish Sharma Rohit Jain Rohit Sharma A Presentation on “ Monetary & Fiscal Policy ” Presented in class of: Dr. Ashish Pareek
  • 2. Monetary Policy
    • The Monetary and Credit Policy is the policy statement, traditionally announced twice a year, through which the Reserve Bank of India seeks to ensure price stability for the economy.
    • This include - money supply, interest rates and the inflation. In banking and economic terms money supply is referred to as M1, M2, M3 and M4 - which indicates the level (stock) of legal currency in the economy.
    • Besides, the RBI also announces norms for the banking and financial sector and the institutions which are governed by it.
  • 3.
    • RBI employs 4 measures of money stock:-
    • M1: The measure of money stock designated by M1 is usually described as the money supply. As on 24 Dec. 2004, M1 was ` 6,07,825 crore.
    • M2: M1+Post office Savings Bank Deposits. As on March 23, 2001, M2 was ` 3,83,569 crore.
    • M3: M1+Time Deposits with Banks. As on 24 Dec, 2004, M3 was ` 21,51,538 crore.
    • M4: M3+total Post Office Deposits. As on 23 March, 2001, M4 was ` 13,32,060 crore.
    Continue… Measures of Money Stock
  • 4.
    • The objectives are to maintain price stability and ensure adequate flow of credit to the productive sectors of the economy.
    • Stability for the national currency (after looking at prevailing economic conditions)
    • growth in employment and income are also looked into.
    • The monetary policy affects the real sector through long and variable periods while the financial markets are also impacted through short-term implications.
    Continue… Objectives of Monetary Policy
  • 5.
    • Bank Rate of Interest
    • Cash Reserve Ratio
    • Statutory Liquidity Ratio
    • Open market Operations
    • Margin Requirements
    • Deficit Financing
    • Issue of New Currency
    • Credit Control
    Continue… Instruments of Monetary Policy
  • 6.
    • It is the interest rate which is fixed by the RBI to control the lending capacity of Commercial banks.
    • During Inflation , RBI increases the bank rate of interest due to which borrowing power of commercial banks reduces which thereby reduces the supply of money or credit in the economy.
    • When Money supply Reduces it reduces the purchasing power and thereby curtailing Consumption and lowering Prices.
    Continue… Bank Rate of Interest
  • 7.
    • CRR, or cash reserve ratio, refers to a portion of deposits (as cash) which banks have to keep/maintain with the RBI.
    • During Inflation RBI increases the CRR due to which commercial banks have to keep a greater portion of their deposits with the RBI .
    • This serves two purposes. It ensures that a portion of bank deposits is totally risk-free and secondly it enables that RBI control liquidity in the system, and thereby, inflation.
    Continue… Cash Reserve Ratio
  • 8.
    • Banks are required to invest a portion of their deposits in government securities as a part of their statutory liquidity ratio (SLR) requirements .
    • If SLR increases the lending capacity of commercial banks decreases thereby regulating the supply of money in the economy.
    Continue… Statutory Liquidity Ratio
  • 9.
    • It refers to the buying and selling of Govt. securities in the open market .
    • During inflation RBI sells securities in the open market which leads to transfer of money to RBI. Thus money supply is controlled in the economy.
    Continue… Open Market Operations
  • 10.
    • It means printing of new currency notes by Reserve Bank of India .If more new notes are printed it will increase the supply of money thereby increasing demand and prices.
    • Thus during Inflation, RBI will stop printing new currency notes thereby controlling inflation.
    Continue… Deficit Financing
  • 11.
    • During Inflation the RBI will issue new currency notes replacing many old notes.
    • This will reduce the supply of money in the economy.
    Continue… Issue of New Currency
  • 12.
    • Fiscal Policy is that part of Govt. policy which is concerned with raising revenue through taxation and other means and deciding on the level and pattern of expenditure.
    • The Fiscal Policy operates through the budget.
    • Budget is an estimate of govt. expenditure and revenue for the ensuing financial year.
    Fiscal Policy
  • 13.
    • Reduction of Govt. Expenditure
    • Increase in Taxation
    • Imposition of new Taxes
    • Wage Control
    • Public Debt
    • Increase in savings
    • Maintaining Surplus Budget
    Continue… Instruments of Fiscal Policy
  • 14.
    • The Fiscal policy decisions are set by the National Govt. where as Monetary Policy is being implemented by the central bank i.e. the RBI.
    • Fiscal policy deals in govt. spending and revenue collection by the way of tax. Whereas Monetary Policy is a process which controls the demand and supply of money.
    • Fiscal policy relates to the economic position of a nation. Monetary policy focuses on the strategy of banks.
    Difference Between Monetary Policy & Fiscal Policy
  • 15.
    • Fiscal policy administers the taxation structure of the nation. Monetary Policy helps to stabilize the economy of the country.
    • Fiscal policy speaks of the government’s economic program. Monetary policy sets the program of all commercial banks of the nation.
  • 16.