MONETARY POLICY

Establishes a system or provides

guidelines to regulate cost and

availability of credit in the country.

MEASURES OF MONEY STOCK
M1 : currency with public ( Notes in circulation, coins) and

deposits at bank (Described as money supply)

M2 : M1 + Post office savings

M3 : M1 + Time deposits with banks (Money supply +

fixed deposits with bank)
M4 : M3 + Total post office deposits
 INSTRUMENTS 0F MONETARY
POLICY
(CREDIT CONTROL )

1- General (quantitative controls) : To regulate total

credit

2- Selective (qualitative controls) : To regulate specific

form of credit
1- General (quantitative controls)
BANK RATE : the minimum rate at which central bank provides
financial accommodation (i.e. loans) to commercial banks. It effects
other interest rates.
OPEN MARKET OPERATIONS : the purchase and sale by the central
bank of a variety of assets like foreign exchange, gold, govt.
securities, company shares.
By this operation RBI works to assists govt. of India in its borrowing
conditions and to maintain orderly condition of the market.
Purchase of securities from commercial banks > increase in money
supply
VARIABLE RESERVE RATIO : An amount

deposited at central bank in the form of balance by

commercial banks.
STATUTORY LIQUID RATIO : According to Bank

Regulation Act, all banks have to maintain an amount

of liquid assets which shall not be less than a certain
specified percentage of their demand and time
liabilities exclusive of cash balances.
 2- SELECTIVE METHODS

SELECTIVE CREDIT REGULATION : Refers to

regulation of credit for specific purpose or branches

of economic activity.

MORAL SUASION : Sometime suggestions are being

given to banks or discussions held with them to

control credit.
FISCAL POLICY
Policy of the government that governs expenditures and

raise revenues by different means.

It is done with the help of a tool called budget.

 BUDGET

It is an estimate of revenue and expenditure for the

financial year.
It includes two sides
(a) Revenues
(b) Expenditure.
CLASSIFICATION OF BUDGET
 1- SURPLUS BUDGET : when revenues are higher than the

expenditures

 2- DEFICIT BUDGET : when expenditures are higher than the

revenues.

 3- BALANCED BUDGET : when revenues and expenditures

comes closer and no such deviation is found.

SOURCES OF REVENUE FOR UNION AND STATE

1- sources of revenues for union

2- sources of revenues for state

3- concurrent list

 STRUCTURE OF BUDGET
Vertically two sides
1- revenue
2- expenditure
Horizontally two parts
1- revenue account
2- capital account
So it creates :-
1- revenue receipts : revenues from taxes
2- capital receipts : market loans, income from public undertakings,
repayments etc.
3- revenue expenditure : current expenditures of govt. on administration
4- capital expenditure : capital transactions of govt.
 IMPORTANCE OF
BUDGET

1- Achieve economic stabilization

2- import substitution and export promotion
3- stimulates economic development
4- regulate expenditures
5- provide guidelines for expenditures in different
sectors.