Fiscal, monetary policy
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  • 1. Fiscal &monetary policy its trend since 1990s Presented by: Nou Sina
  • 2. SPIN INTERVIEW FRAMEWORK Learning Objectives 1.What is fiscal policy ? 2.Main objectives fiscal policy 3.Important instruments of fiscal policy 4.Fiscal Responsibility and Budget Management Act-2003 5.Trend in Indian fiscal policy since 1990s # 6.What is monetary policy ? 7.Objectives 8.Its instruments 9.Its major changes in monetary policy post 90 10.How is fiscal policy and monetary policy interact with with each other 11.Conclusion remark Fiscal Policy , Monetary Policy and its linkages
  • 3. 1. Let’s first understand what is fiscal policy ?The fiscal policy is concerned with the raising of government revenue andincurring of government expenditure. To generate revenue and to incurexpenditure, the government frames a policy called budgetary policy or fiscalpolicy.“It is a policy under which the government uses its expenditure and revenue #program to produce desirable effects and avoid undesirable effects on the nationalincome , production and employment” – Arthur Smithies Fiscal Policy , Monetary Policy and its linkages
  • 4. Main objectives fiscal policy1.Development by effective mobilization ofresources.2.Efficient allocation of financial resources3.Reduction in inequality # income and wealth of4.Price stability and control inflation5.Employment generation6.Capital formation7.Development of infrastructures Fiscal Policy , Monetary Policy and its linkages
  • 5. There are three main stances of fiscal policy1.Neutral stance : ( G=T) #2.Expansionary stance: (G> T)3.Contractionary Stance :( G< T) Fiscal Policy , Monetary Policy and its linkages
  • 6. There are four major of instruments of fiscal policyI. Budgetary surplus and deficit #II. Government expenditureIII. Taxation- direct and indirectIV. Public debt
  • 7. Fiscal Responsibility and Budget Management Act-2003(FRBM)The main purpose of FRBM was:1. To reduce deficit as a ratio of GDP should be brought down by 0.5 % every year2.# Fiscal deficit as a ratio of GDP should be reduced by 0.3% every year and brought down to 3 % by 2007-08.3. The total liabilities of the union gov’t should not rise by more than 9% per year.4. The union gov’t should not give guarantee to land raised by PSUs and state gov’t for more than 0.5% of GDP in the aggregate.
  • 8. Trend in Indian Fiscal Policy since 1990s The combined Receipts and expenditures of the state and central government as the % of GDP 1990-99 2000-01 2004-05 2007-08 2009-10 BE Total Receipts 26.0 28.5 28.2 27.8 31.4 # Rev. Receipts 18.1 17.5 19.5 22.2 21.6 Cap. Receipts 7.9 11.0 8.7 5.6 9.8 Total Exps 26.8 28.6 27.6 27.4 31.9 Revenue Exps 22.3 24.5 23.2 22.4 27.1 Capital Exps. 4.5 11.0 4.4 5.0 4.8Note: BE: budget estimatedSource: RBI, various Issues
  • 9. Revenue, Fiscal and Primary deficit as the % of GDP 1990- 2000-01 2004-05 2007- 2009-10 99 08 BE Revenue Deficit 4.2 7.0 3.6 0.2 5.5 #ff deficit Fical 7.7 9.9 7.5 4.2 10.2 Primary deficit 2.7 3.7 1.3 (-)1.3 4.6Note: BE: budget estimatedSource: RBI, various Issues
  • 10. The combined of state and central government debt as the % of GDP year Central and state public Debt 1990-99 63.2 2000-01 70.6 #ff 2004-05 81.4 2007-08 75.1 2009-20 BE 76.5 Note: BE: budget estimated Source: RBI, various Issues
  • 11. Monetary Policy
  • 12. What is Monetary Policy? It is the process by which the central bank or monetary authority of a country regulates 1. the supply of money 2. availability of money and#ff 3. cost of money or rate of interest in order to attain a set of objectives oriented towards the growth and stability of the economy.
  • 13. Objectives of Monetary Policy It is concerned with the changing the supply of moneystock and rate of interest for the purpose of stabilizing theeconomy by influencing the level of aggregate demand. At times of recession monetary policy involves theadoption of some monetary tools which tends to increase themoney supply and lower interest rate so as to stimulateaggregate demand in the economy. #ff At the time of inflation monetary policy seeks to contractaggregate spending by tightening the money supply orraising the rate of return
  • 14. Objectives of Monetary Policy To ensure the economic stability at full employment orpotential level of output. To achieve price stability by controlling inflation anddeflation. To promote and encourage economic growth in the #ffeconomy
  • 15. Monetary Policy InstrumentsOpen Market OperationsBank rateCash Reserve Ratio#ffStatutory Liquidity RatioRepo rateReverse Repo rate
  • 16. Conclusion RemarkHowever , in order to achieve social justice ,reduction in inequality of income and wealth etcgovernment has to use effective fiscal deficit andpublic debt and make fiscal policy and monetarypolicy in growth oriented one#ff
  • 17. Sources:1. Public finance- R.K Lekhi, first Edition, 19882. Monetary and fiscal actions in India- U.P. Sinah& K.D. Prasad, fisrt pbulished 20103. ADBI Institute Working Paper Series On Fiscal Policy Issues for India after the Global Financial Crisis (2008–2010)4. http://www.indiabudget.nic.in5. www.rbi.org.in6. #ff www.slideshared.com7. http://www.screbd.com
  • 18. Thank you#ff