Monetary and fiscal policies are two important instruments that can be put to use by government in order to achieve stability in the economy.While monetary policy is implemented by RBI, the fiscal policy is implemented by the government.

1. CURRENT FISCAL &MONETARY POLICY
IN INDIA
BY
Dr.S.Subbalakshmi,MA,MPhil,PhD
Chair, Business & Economics
FBS Business School
Vijayawada & Bangalore

2. Current Fiscal and Monetary Policy in
India
• What is fiscal policy?
• It is government’s policy of expenditure and
revenue.
• What is monetary policy ?
• It refers to the use of instruments under the
control of Reserve Bank Of India to regulate
the availability cost and use of credit.

3. Objectives of Fiscal policy in India
1. Resource mobilization and their efficient
allocation.
2. To control inflation.
3. To reduce income inequalities through
progressive taxation.
4. To facilitate balanced regional development.
5. Employment generation.
6. Capital formation and growth in National
Income.

4. Continue….
7.Allocation of resources to social and
developmental objectives.
8.Reduction of balance of payments deficits
TOOLS OF FISCAL POLICY.
• Public expenditure
• Government borrowings ( 1.from RBI , by selling
bonds and securities to public ,2. from
international financial institutions)
• Income of the government(Revenue of the
government)

5. Public expenditure
• Plan expenditure Non plan expenditure
• Incurred by centralIncurred by central
government on programmes
and projects(roads, bridges
, canals ,railways ,energy
generation, irrigation and
rural development, science
and technology. It includes
both capital and revenue
expenditure
Interest payments ,
subsidies, salaries to
government employees ,
grants to states &union
territories , pensions ,
defense, police,
maintenance of law &
order

6. Revenue of the Government
Revenue receipts Capital Receipts
TAX REVENUE
1) DIRECT TAXES
2) INDIRECT TAXES
NON TAX REVENUE
PROFITS FROM GOVT FINANCIAL
INSTITUTIONS &PSU
PAYMENTS OF INTERESTS
PAID BY STATE GOVTS &
LOCALBODIES ON LOANS
TAKEN FROM GOVT.
2) BORROWINGS FROM
VARIOUS SOURCES
1)

7. Government borrowing
1. Borrowing from market by issuing bonds and
selling it to public.
2. Borrowing from Reserve Bank India.
3. Borrowings from international finance
institutions like World Bank and IMF.
4. Borrows by selling treasury bills through
Reserve Bank of India
5. Raising funds from public such as national
savings schemes , post office saving deposits
provident fund collections etc.

8. BUDGET DEFICIT&FISCAL DEFICIT
• Budget deficit is the difference between total
receipts (Revenue + Capital) and total
expenditure( including borrowings and
liabilities in revenue receipts)
• Fiscal deficit is budget deficit plus borrowings
and other liabilities.
• Fiscal deficit is more comprehensive measure
to know the resource gap.
• Fiscal deficit is estimated to be 3.2% of GDP in
the current budget 2017-2018.

9. Fiscal consolidation
• Fiscal consolidation is reducing the fiscal deficit.
• It can be done either by reducing public
expenditure or by increasing public revenue.
• It does not mean to increase the tax rates
indiscriminately.
• By increasing the tax base and controlling the
parallel economy ,using progressive taxation
methods public revenue can be increased .
• Promote public expenditure towards
investments in key sectors like infrastructure
that will generate income to the government.

10. Important data - current fiscal policy
2017-2018
• Current fiscal deficit – 3.2% of GDP.
• Revenue deficit -- 1.9%
• Tax revenue as % of GDP –18%
• Direct tax revenue to GDP – 11.3%
• Direct tax revenue in total tax collections –
60%

11. Current Monetary policy
As on 19-5-2017
Bank rate --- 7.75%
Cash reserve ratio --- 4%
Statutory liquidity ratio --- 20 %
Repo rate ---- 6.25%
Reverse repo rate ---- 6%

12. Curative measures
• Curative measures – Quantitative credit
control measures
• Monetary policy – Quantitative measures are
• Bank Rate: Bank rate is the rate at which
central bank discounts the bills of commercial
banks. Undue expansion is prevented by
increase in the bank rate – credit made dearer.
During depression bank rate is decreased –
stimulates business activity – help recovery.

13. Open market operations
• Open market operations - Deliberate direct
sale and purchase of government securities
and bills .
• During depression – purchase of securities –
cash reserves with commercial banks
strengthens, credit expansion takes place.
During Boom – RBI sells securities – cash
reserves with banks decrease – credit becomes
dearer – investment options decrease.

14. Variable reserve ratio
• Cash reserve ratio – refers to that portion
of total deposits which commercial
bank has to keep with RBI in the form
cash reserves.
.
• Boom : CRR is increased
• Depression : CRR is decreased

15. Statutory Liquidity Ratio
• Statutory Liquidity Ratio: SLR is that
portion of total deposits which the
commercial bank is required to keep with
itself in the form of liquid assts ie., cash,
gold or government securities.
• Boom : SLR is increased
• Depression: SLR is decreased

16. continued
• Reporate: The rate at which
commercial banks borrow from RBI
• Boom: Repo rate is increased –
borrowing becomes costlier.
• Depression – Repo rate is reduced –
borrowings from RBI becomes
cheaper.

17. Reverse Repo rate
• Reverse Repo rate: The rate at which RBI
borrows money from banks.
• Boom: Reverse repo rate is increased.
Commercial banks transfer more funds to RBI
• Reserves with banks reduced – loans become
costlier
• Depression: Reverse repo rate is decreased –
funds remain with banks – credit becomes
cheaper.

18. Qualitative credit control measures
• Fixation of margin requirements
• Consumer credit regulation for speculation
• Issue of directives ( appeals or warnings
written or oral)
• Rationing of credit- based on purpose wise
• Moral suasion – asking for cooperation from
commercial banks to monetary policy
• Direct action – Charging penal rate of interest.

19. New Industrial Policy
• Aim --- To promote and develop frontier
technologies innovations and enhancing
competitiveness of domestic products.
• NEED TO REVAMP 1991 INDUSTRIAL POLICY
• It is an improvement over 1991 policy
because
• new policy is focussing more on easing of
permits and controls rather than just on mere
industrial development

20. Features of new policy
1. Ease of doing business for industrial licensing.
2. World Bank’s doing business Survey –Ease of
Doing Business – India’s rank-138 out of 189
countries – 2016-17. Aim of Dept of Industrial
Policy and Promotion – 90th rank in 2017-18.
3. Increasing initial validity period of the licences.
4. Simplification of application forms.
5. Introduction of new technologies , innovations .

21. Continuation
6 ) Support of Artificial Intelligence.
7 ) Support of Research & Development.
• New Industrial policy will be aligned with the
Government flagship programmes such as
Make India, Skill India, Start Up India and
Foreign Investment Policy in the form of FDI
and Foreign Portfolio Investment

22. Fiscal policy
• What is fiscal policy?
• It refers to the government policy
of changing its taxation and
public expenditure programs to
achieve certain predetermined
objectives.

23. Public expenditure
• Public expenditure: Public expenditure
increases the funds into the economy. Public
expenditure increases private incomes and
thereby increases private expenditure. This
policy is used during depression. Keynes is the
proponent who suggested government role of
pump priming during great depressions of
1930’s

24. Taxation Policy
• Taxation policy : It is withdrawal
of funds from the private use.
Taxation reduces private
disposable income and thereby
increases public expenditure. In
order to retain boom and stop
recession taxation policy is used.

25. Tax Revenue and Government
expenditure
• Tax revenue and government
expenditure form the two sides of
government budget.
• These two policies together are
jointly called budgetary policies.

26. THANK YOU