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.
http://www.slideshare.net/BharathiRaj3/monetary-and-fiscal-policy-of-india
1. Monetary and Fiscal Policy of IndiaS.BharathiB.S ABM
2. Agenda Introduction Monetary Policy Role & Objectives Instruments Inflation Fiscal Policy
Role & Objectives Budget -> Revenue and Expenditure Taxation -> Structure Fiscal Deficit Reviews
Conclusion
3. INTRODUCTION
4. Monetary Policy
5. Monetary Policy Meaning.Reserve Bank of India states that, Monetary policy refers to the use of
instruments under thecontrol of the central bank to regulate the availability, cost anduse of money and
credit.
6. Objectives Maintaining price stability Ensuring adequate flow of credit to the productive Sectorsof
the economy to support economic growth Rapid economic growth Balance of payment equilibrium
Full employment Equal income distribution
7. Methods The RBI aims to achieve its objectives of economic growthand control of inflation through
various methods.These methods can be grouped as: General/ quantitative methods Selective/
qualitative methods
8. General/ Quantitative methods These methods maintain and control the total quantity orvolume of
credit or money supply in the economy. Open Market Operations Open market operations indicate
the buying/ selling of govt. securities in the openmarket to balance the money supply in the economy
Deployment of Credit The RBI has taken various measures to deploy credit in different sector of
theeconomy. The certain %age of the bank credit has been fixed for various sectors likeagriculture,
export etc.
It is the ratio of a banks time and demand
to invest a certain percentage of its time and demand liabilities in govt.approved securities.
reduction in SLR enhances the liquidity of commercial banks.
Consists of daily infusion or absorption of
liquidity on a repurchase basis,through repo (liquidity injection) and reverse repo (liquidity
absorption)auction operations, using government securities as collateral.i. Repo Rate: Repo rate is the
rate at which the RBI lends shot-term money to the banksagainst securities. When the repo rate
increases borrowing from RBI becomesmore expensive.ii. Reverse Repo Rate: The rate at which RBI
borrows from commercial banks.
over night at their discretion upto one per cent of their respective NDTL at 100basis points above the

Rate is a tool, which central bank uses forshortcentral bankis an indication that banks should also increasedeposit rates as well as Base Rate /
y of a more enduring
nature arising fromlarge capital flows is absorbed through sale ofshort-dated government securities and
12. SELECTIVE/ QUALITATIVE MEASURES The RBI directs commercial banks to meet their social
obligations through selective/ qualitativemeasures. These measures control the distribution and
DISCRIMINATORY RATES OF INTEREST
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coordination
14. INFLATION Inflation is broadly understood as the general rise in theprices of goods and services
year on year, inflation is a morecomplex phenomena associated with the money supply andcurrency
values.
15. Problems caused by Inflation High and persistent inflation imposes significant socioeconomiccosts. High inflation distorts economic incentives by diverting resourcesaway from productive
investment to speculative activities. Inflation reduces households saving as they try to maintain the
realvalue of their consumption. If domestic inflation remains persistently higher than those of
thetrading partners, it affects external competitiveness throughappreciation of the real exchange
rate.The Reserve Banks current assessment suggests that the thresholdlevel of inflation for India is in
the range of 46 per cent.
16. How does monetary policy affect inflation andother problems?raisesdecreases
17. FISCAL POLICY
18. Meaning Fiscal policy deals with the taxation and expendituredecisions of the government. These
include, tax policy,expenditure policy, investment or disinvestment strategiesand debt or surplus
management.- Kaushik Basu ( Former Chief Economic Adviser )
19. OBJECTIVES OF FISCAL POLICY Increase in capital formation. Degree of Growth. To achieve
desirable price level. To achieve desirable consumption level. To achieve desirable employment
level. To achieve desirable income distribution.
20. Fiscal Policy there are three possiblepositions A Neutral position applies when the budget outcome
hasneutral effect on the level of economic activity where thegovt. spending is fully funded by the
revenue collected fromthe tax. An Expansionary position is when there is a higherbudget deficit where
the govt. spending is higher than therevenue collected from the tax. An Contractionary position is
when there is a lowerbudget deficit where the govt. spending is lower than therevenue collected from
the tax.

21. The Two Main instruments of fiscal policy Revenue Budget Expenditure Budget
22. Direct Tax Individual Income Tax &Corporate Tax. Wealth Tax @ 1% Tax deducted at
sourceIndirect Tax central excise (a tax onmanufactured goods) VAT @ 12.5% service tax @ 12%
customs duty Educational cess @ 3%
23. Expenditure Budget The central government is responsible for issues that usually concern the
country as awhole like national defence, foreign policy, railways, national highways, shipping,airways,
post and telegraphs, foreign trade and banking. The state governments are responsible for other items
including, law and order,agriculture, fisheries, water supply and irrigation, and public health. Some
items for which responsibility vests in both the Centre and the states includeforests, economic and
social planning, education, trade unions and industrialdisputes, price control and electricity.
24. The Expenditure budget includes four main revenue expenditures Total expenditure is Rs.16,65,297
crores (11.5% increase)
25. Fiscal Deficit Fiscal Deficit = Total Expenditure (that is Revenue Expenditure +Capital Expenditure)
(Revenue Receipts + Recoveries of Loans +Other Capital Receipts) Currently the deficit is 5.3 % of GDP
26. Major Changes in Budget(2013-14) to curb Deficit One year surcharge of 10 % on the Superrich.
Increased Duties on Imported or domestic luxury vehiclessuch as SUVs, Mobiles (>Rs.2000), set top
boxes, A/crestaurants and Cigarettes.( bring in Rs.18,000 crores) Disinvestment Proceedings to be
around Rs.55,000 Crore forthis fiscal. No additional subsidy for fuel, food and fertilizer prices. Buyers
of immovable property other than agriculture landwill have to pay a tax of 1% of the sale where the
valueexceeds Rs.50 lakh.
27. Conclusion Fiscal deficit Current account deficit Currency depreciation Lower growth Supply
side gap in Food (inflation) ????? Only 42800 earn more than 1 crore and 1.9 lakh people earnmore
than 10 lakhs!!!!!!
28. ReviewsSubbarao, RBI Governor (2012) explained that, India is unique in the sensethat we are one of
the economies in the world that is supply constrained. There isshortage of infrastructure both in
quantum and quality. We need to improve that sothat corporates become more competitive, so that
economic production becomes morecompetitive. First on infrastructure, second, we need to improve
supply of food,especially of protein foods. Third, is skilled labour. It is one thing to have a huge
labourforce but another to have a labour force that is not adequately skilled. The skill shortageis going
to be a big threat.Bhatt (2012) suggested that the need of today is not just the pumping ofliquidity in to
the Indian economy but also in addition the injection of demand. Thiscan occur only through direct fiscal
action by government. In India, larger governmentexpenditure has to be oriented towards agriculture,
rural development, health, humanresources and infrastructure to make inclusive and balanced growth.
29. REFERENCES:[1] Dr. Rajiv Kumar Bhatt: Associate Professor of Economics at Banaras Hindu University
Recent Global Recession andIndian Economy: An Analysis International Journal of Trade, Economics
and Finance, Vol. 2, No. 3, June 2011[2] Dr. Kausik Basu: Former Chief Economic Advisor Fiscal Policy in
India: Trends and Trajectory Supriyo DeJanuary, 2012[3] Dr. Sunita Mishra Has our monetary policy
been successful in checking inflation? International Journal ofResearch in Finance & Marketing,
http://www.mairec.org May 2012[4] Reserve Bank of India www.rbi.org.in[5] Project on Monetary
Policy of Reserve Bank of India[6] Shweta Punj Who will blink first? Chidambaram-Subbarao differences

erupt into the open after monetarypolicy review November, 2012[7] Sharanarthy Jaswanth Inflation
Vs Growth, Business line, 2011[8] Jagdish Bhagwati RBI overplaying inflation; must focus on growth
now, PTI Nov 21, 2012[9] Venky Vembu Inflation vs growth: Stiglitz is wandering in the wrong
continent, Oct 18, 2012[10] Indias Reserve Bank and Government Lock Horns in Growth vs. Inflation
Debate, November 1, 2012[11] D H Pai Panandiker The growth versus inflation dilemma, July 19,
2012[12] Should policy focus on growth or inflation? DEBATE Business Standard / May 16, 2012[13]
RBI Governor Duvvuri Subbarao People are making too much of the finance ministers response
30. Thank UBe Good Do Good

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