Monetary Policy

&
Fiscal Policy
Gopal Maliwal
 Introduction

Macro Economics

Fiscal Policy Monetary Policy

Monetary Policy

 Monetary policy refers to the use of instruments under the control of

the central bank (RBI) to regulate the availability, cost and use of
money and credit.
 According to Johnson, "Monetary policy is defined as policy
employing central bank’s control of the supply of money as an
instrument for achieving the objectives of general economic policy”.
Objectives

 Ensuring adequate flow of credit to the production sectors of the

economy to support economic growth.
 Maintaining price stability
 Rapid economic growth
 Balance of payment equilibrium
 Full employment
 Equal income distribution
Instruments of Monetary Policy

Bank rate

Cash Reserve Ratio (CRR)

Statutory Liquidity Ratio

Repo Rate & Reserve Repo
Rate
Open Market operations
Full Name User ActionTimestamp
Ankita Srivastava
Joined 2/18/2021, 9:23:39 AM
AnushkaJog Joined before
2/18/2021, 9:23:39 AM
BrindaKansara
Joined before
2/18/2021, 9:23:39 AM
KritiSingh Joined before
2/18/2021, 9:23:39 AM
VidhiThakarJoined before
2/18/2021, 9:23:39 AM
SoumyaKumarJoined before
2/18/2021, 9:23:39 AM

Bank Rate
PalakRajputJoined before
2/18/2021, 9:23:39 AM
VaishnaviPatel
Joined before
2/18/2021, 9:23:39 AM
KoshaVasavada
Joined before
2/18/2021, 9:23:39 AM
AryaaDhavseJoined before
2/18/2021, 9:23:39 AM
MeshveeKanani
Joined before
2/18/2021, 9:23:39 AM
ArchieJoshiJoined before
2/18/2021, 9:23:39 AM
SapathikaLahari
Joined before
2/18/2021, 9:23:39 AM
SwathiBaskaran
Joined before
2/18/2021, 9:23:39 AM
AnoushkaKrishnan
Joined before
2/18/2021, 9:23:39 AM
SukritiKumar
Joined before
2/18/2021, 9:23:39 AM
SanyaMehra Joined before
2/18/2021, 9:23:39 AM
DwijaModiJoined before
2/18/2021, 9:23:39 AM
AkshatGulati
Joined before
2/18/2021, 9:23:39 AM
MuskanSayyad
Joined before
2/18/2021, 9:23:39 AM
MuskanSayyad
Left 2/18/2021, 9:24:21 AM
MuskanSayyad
Joined 2/18/2021, 9:24:26 AM
MuskanSayyad
Left 2/18/2021, 10:28:40 AM
ChirasviDesai
Joined before
2/18/2021, 9:23:39 AM
RoshniLakhani
Joined before
2/18/2021, 9:23:39 AM
BhaveshVasnani
Joined before
2/18/2021, 9:23:39 AM

 Bank Rate is the rate at which RBI allows finance to commercial

StutiJ Joined before
2/18/2021, 9:23:39 AM
AnikaDadhich
Joined before
2/18/2021, 9:23:39 AM
BhavikaChandak
Joined before
2/18/2021, 9:23:39 AM
KhushiTeliJoined before
2/18/2021, 9:23:39 AM
PriyadarshiniMugunthan
Joined before
2/18/2021, 9:23:39 AM

banks.
AumTrivediJoined before
2/18/2021, 9:23:39 AM
DhanvinSoodJoined before
2/18/2021, 9:23:39 AM
ShailjaNimavat
Joined before
2/18/2021, 9:23:39 AM
VidhuSharmaJoined before
2/18/2021, 9:23:39 AM
MadhavVaid Joined before
2/18/2021, 9:23:39 AM
NatashaKureekat
Joined before
2/18/2021, 9:23:39 AM

 Any upward revision in Bank Rate by central bank is an indication

AakanshaCherian
Joined before
2/18/2021, 9:23:39 AM
AsthaBarchha
Joined before
2/18/2021, 9:23:39 AM
DiyaNarayanan
Joined 2/18/2021, 9:24:04 AM
DiyaNarayanan
Left 2/18/2021, 9:33:02 AM
MuskanSharma
Joined 2/18/2021, 9:24:32 AM

that commercial banks should also increase deposit rates as well as

MuskanSharma
Left 2/18/2021, 10:31:28 AM
AtmanJoshiJoined 2/18/2021, 9:26:18 AM
ChiragChaudhary
Joined 2/18/2021, 9:30:04 AM
TanishaDesai
Joined 2/18/2021, 9:31:36 AM
TanishaDesai
Left 2/18/2021, 9:31:57 AM

Prime Lending Rates.

TanishaDesai
Joined 2/18/2021, 9:32:47 AM
TanishaDesai
Left 2/18/2021, 9:33:43 AM
PrushtiMistry
Joined 2/18/2021, 9:32:00 AM
YashiSinghJoined 2/18/2021, 9:37:53 AM
BhavnaRoyJoined 2/18/2021, 9:38:14 AM
YashSindhiJoined 2/18/2021, 9:40:04 AM
SamyakShah Joined 2/18/2021, 9:43:12 AM

 This any revision in the Bank rate influence interest on your deposits
SamyakShah Left 2/18/2021, 10:45:50 AM
DewangiAgrawal
Joined 2/18/2021, 9:43:13 AM
GauriGuptaJoined 2/18/2021, 9:45:48 AM
JayPatel Joined 2/18/2021, 9:46:54 AM
AnshikaGupta
Joined 2/18/2021, 9:46:57 AM

and also an increase or decrease in your EMI.

AnshikaGupta
Left 2/18/2021, 10:39:30 AM
AnshikaGupta
Joined 2/18/2021, 10:39:38 AM

 At present Bank Rate: 4.25 %

 Repo Rate and Reverse Repo Rate

 Repo Rate is the rate at which RBI lends money to commercial banks.
 At present Repo Rate: 4.00%
 Reverse Repo Rate is the rate at which RBI borrows money from the
commercial banks.
 At present Reverse Repo Rate : 3 . 3 5 %
Cash Reserve Ratio

 Cash Reserve Ratio is the amount of funds that the banks

have to keep with the RBI.
 The CRR is basically to secure solvency of the banks.
 The present CRR: 3 %
 Statutory Liquidity Ratio

 Statutory Liquidity Ratio (SLR) is the Indian government term for

reserve requirement that the commercial banks in India require to
maintain in the form of gold, cash or government approved securities
before providing credit to the customers.
 SLR is maintained in order to control the expansion of bank credit.
 The present SLR: 18.50%
Open Market Operations

 It means that the bank controls the flow of credit through the sale and
purchase of securities in the open market.
 When securities are purchased by central bank, then RBI makes
payment to commercial banks and public. So, the public and
commercial banks now have more money with them.
 It increases money supply with commercial banks and public. This
will expand credit in the economy.
Fiscal Policy
 “It refers to a policy concerning the use of state treasury or the
government finances to achieve the Macro-economic goals”
 “Government policy of changing its taxation and public expenditure
programs intended to achieve its objective.”
 “Government uses its expenditure and revenue programme to produce
desirable effects on National Income, production and employment”.
Inflation
 Inflation is state in which the value of money falling and the prices
are rising.
Objectives of Fiscal Policy

 Development by effective mobilization of resources

 Effective allocation of Financial Resources
 Reduction in inequalities of Income and Wealth
 Employment Generation
 Capital Formation
 Development of Infrastructure
Instruments of Fiscal Policy

Deficit Policy
& Public Debt
Public
Expenditure
Taxation
Policy
 Deficit Policy & Public Debt

 Deficit financing refers to financing the budgetary deficit.

 Budgetary deficit here means excess of government expenditure over
Government income. It means “Taking loans from reserve bank of India
by the government to meet the budgetary deficit.
 Reserve bank gives loans buy issuing new currency notes. Increase in
money supply leads to fall in value of money. Fall in value of money in
turn leads to increase to price rise in economy.
 Thus due to deficit Financing necessary funds are made available for
economic growth and on the other inflation of country increases.
 Government needs lot of funds for economic development of the country. No
government can mobilize so much funds by way of tax alone.
 It is therefore ,becomes inevitable for the government to mobilize resources for
economic development by resorting the public debt.
 Public debt is obtained from two kinds:-
(1) Internal Debt
(2) External Debt
 Public Expenditure

 Public expenditure influences the economics activities of country very much.

 Public expenditure may be of two kinds i.e. developmental and non
developmental.
 Expenditure on developmental activities requires huge amount of capital. So
much capital cannot be made available by private sector alone. It require
substantial increase in public expenditure.
 Public expenditure may be made in many ways: (1) Development of state
enterprises, (2) Support to private sector, (3) Development of infrastructure
& (4) Social welfare.
 Taxation Policy

 Taxes are the main source of revenue of government.

 Govt. levies both direct and indirect taxes in India.
 Direct taxes are those which are directly paid by the assesses to the govt. i.e. income tax,
wealth tax etc. Indirect tax are paid indirectly by the public to the government i.e. excise
duty, custom duty, GST etc.
 Direct tax are progressive in nature. Indirect tax are not progressive.
 Under Expansionary fiscal policy, the tax rates are reduced and in contractionary fiscal
policy the tax rates are increased.
 The main objectives of taxation policy are: (1) Mobilization of resources, (2) To promote
saving, (3) To promote investment & (4) To bring equality of income and wealth
Thank You