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MONETARY POLICY OF INDIA

Monetary policy refers to the steps taken by the RBI to regulate the cost & supply of money
& credit in order to achieve the socio-economic objectives of the economy. Monetary policy
influences the supply of money the cost of money or the rate of interest and the availability of
money. In general terms it is input to source the market & keep the market liquidity in check.
The Monetary Policy aims to maintain price stability, full employment and economic growth.
The Monetary Policy is different from Fiscal Policy as the former brings about a change in
the economy by changing money supply and interest rate, whereas fiscal policy is a broader
tool with the government.
Three top drivers that Impact the Monetary Policy in the Country:1. Bank Rate of Interest
2. Cash Reserve Ratio
3. Statutory Liquidity Ratio.
4. Repo Rate.
5. Reverse repo rate.

Bank Rate of Interest: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.

BANK RATE OF INTEREST


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BANK RATE OF
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Any hike in repo rate will cause a corresponding hike in the bank rate. This is the reason why any
increase in the repo rate affects the common man as it means loans will become costlier. After the
mid-quarter policy review, bank rate now stands at 9.5%.The graph clearly showcases the

lacking in the lending priority of RBI. Its basically more than evident that with the inflation
rates peaking at an all time high, RBI has assured to squeeze out liquidity from the market
thus impacting the spending.

Cash Reserve Ratio: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.

CRR

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CRR

The graph clearly portrays that apart from the 2007-2010 phases during the economic crisis,
the Central bank managed to keep the cash reserves fairly constant. However, the RBI
regularly changes the CRR to regulate liquidity levels in the system. Higher the CRR, lower
the liquidity in the system. With lesser money in their pockets, banks can only lend so much.
This helps curb demand, and thereby puts downward pressure on inflation. The RBI has kept
CRR unchanged at 4% in the mid-quarter policy review.

Statutory Liquidity Ratio:Statutory Liquidity Ratio refers to the amount that the commercial banks require to
maintain in the form of cash, or gold or govt. approved securities before providing credit to
the customers. Here by approved securities we mean, bond and shares of different
companies.
Statutory Liquidity Ratio is determined and maintained by the Reserve Bank of India in order

to control the expansion of bank credit. It is determined as percentage of total demand and
percentage of time liabilities.

SLR
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SLR

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Time Liabilities refer to the liabilities, which the commercial banks are liable to pay to the
customers on their anytime demand.
The liabilities that the banks are liable to pay within one month's time, due to completion of
maturity period, are also considered as time liabilities. The maximum limit of SLR is 40%
and minimum limit of SLR is 24%.In India, Reserve Bank of India always determines the
percentage of Statutory Liquidity Ratio.
There are some statutory requirements for temporarily placing the money in Government
Bonds. Following this requirement, Reserve Bank of India fixes the level of Statutory
Liquidity Ratio. At present, the minimum limit of Statutory Liquidity Ratio that can be set by
the Reserve Bank is 25%.

Repo & Reverse Repo rate:-

Repo Rate

Reverse Repo Rate

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Repo Rate

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Reverse Repo
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Repo Rate discount rate at which a central bank repurchases government securities from
the commercial banks, depending on the level of money supply it decides to maintain in
the country's monetary system.
To temporarily expand the money supply, the central bank decreases repo rates (so
that banks can swap their holdings of government securities for cash). To contract the money
supply it increases the repo rates. Alternatively, the central bank decides on a desired level of
money supply and lets the market determine the appropriate repo rate. Repo is short
for repossession.
Reverse repo rate is the rate at which the central bank of a country (RBI in case of India)
borrows money from commercial banks within the country. Reverse repo rate is the rate at
which the central bank of a country (Reserve Bank of India in case of India) borrows money
from commercial banks within the country. It is a monetary policy instrument which can be
used to control the money supply in the country.

FISCAL POLICY OF INDIA


In economics, fiscal policy is the use of government expenditure and revenue collection to
influence the economy. Fiscal policy can be contrasted with the other main type of
macroeconomic policy, monetary policy, which attempts to stabilize the economy by
controlling interest rates and the money supply. The two main instruments of fiscal policy are
government expenditure and taxation. Changes in the level and composition of taxation and
government spending can impact on the following variables in the economy
Aggregate demand and the level of economic activity; the pattern of resource allocation;
the distribution of income & stances of fiscal policy.
A contractionary fiscal policy occurs when government spending is lower than tax revenue.
However, these definitions can be misleading because, even with no changes in spending
or tax laws at all, cyclical fluctuations of the economy cause cyclical fluctuations of tax
revenues and of some types of government spending, altering the deficit situation; these are
not considered to be policy changes. Therefore, for purposes of the above definitions,
government spends and "tax revenue" are normally replaced by "cyclically adjusted
government spending" and "cyclically adjusted tax revenue". Thus, for example, a
government budget that is balanced over the course of the business cycle is considered to
represent a neutral fiscal policy stance. Fiscal policy is the means by which a government
adjusts its spending levels and tax rates to monitor
and influence a nation's economy. It is the sister strategy to monetary policy through which a
central bank influences a nation's money supply. These two policies are used in various
combinations to direct a country's economic goals.
Balancing Act
The idea, however, is to find a balance between changing tax rates and public spending. For
example, stimulating a stagnant economy by increasing spending or lowering taxes runs the
risk of causing inflation to rise. This is because an increase in the amount of money in the
economy, followed by an increase in consumer demand, can result in a decrease in the value
of money - meaning that it would take more money to buy something that has not changed in
value.

Let's say that an economy has slowed down. Unemployment levels are up, consumer
spending is down and businesses are not making substantial profits. A government thus
decides to fuel the economy's engine by decreasing taxation, which gives consumers more
spending money, while increasing government spending in the form of buying services from
the market (such as building roads or schools). By paying for such services, the government
creates jobs and wages that are in turn pumped into the economy. In the meantime, overall
unemployment levels will fall.
With more money in the economy and fewer taxes to pay, consumer demand for goods and
services increases. This, in turn, rekindles businesses and turns the cycle around from
stagnant to active.

REAL ESTATE IN INDIA


Real estate developers play a leading role in the industry, bridging the gap between
construction ability and the customers need. Developers offer value in terms of design,
cost, functionality and location. They work hard to absorb international trends, analyse
the customers expectations and deliver quality realty products based on their experience.
In India, real estate developers fulfill a critical need for infrastructure to serve a growing
economy in areas like housing, office space, retail and entertainment, among others.
Real estate developers play a leading role in the industry, bridging the gap between
construction ability and the customers need. Developers offer value in terms of design,
cost, functionality and location. They work hard to absorb international trends, analyse
the customers expectations and deliver quality realty products based on their experience.
In India, real estate developers fulfill a critical need for infrastructure to serve a growing
economy in areas like housing, office space, retail and entertainment, among others.

WHATS ITS FUTURE ?


Responding to an increasingly well-informed consumer and keeping in mind the
globalization of the Indian business outlook, real estate developers have also shifted
gears and accepted fresh challenges.
The most marked change has been the shift from family owned businesses to
professionally managed ones. Developers, in meeting the growing need for managing
multiple projects across cities, are investing in centralized processes to source material
and organize manpower and hiring qualified professionals in areas like project
management, architecture and engineering.
The growing flow of foreign direct investment (FDI) into Indian real estate is
encouraging increased transparency. Developers, in order to attract funding, have
revamped their accounting and management systems to meet due diligence standards.
Customers have also benefited from a hassle-free accounting system.
The modern real estate developer is keenly informed about market trends, basing his
information on market research and rich experience. Young business leaders, armed with

management degrees and international exposure, have also added value to this positive
trend.