CURRENT MONETARY AND FISCAL POLICY

Submitted to: Ms. Jagriti Mishra

Submitted by: Gaurav Kapoor
Pawan Keswani
Ankit Raj
Rangoli Goel
Ajeeta Chandra
Pawan Kumar
Harender Kumar
Neha Snehil
Lovely

CURRENT
MONETARY AND
FISCAL POLICY
OF INDIA

MONETARY POLICY

MONETARY POLICY

FISCAL POLICY

TAX POLICY
GOVERNMENT
REVENUES AND DEBT
GOVERNMENT
SPENDING
BUDGET DEFICIT AND
SURPLUS

MONEY SUPPLY
GOLD STANDARD
FIAT CURRENCY
CENTRAL BANK

 Monetary policy is the process by which the monetary

authority of a country controls the supply of money, often
targeting a rate of interest to attain a set of objectives
oriented towards the growth and stability of
the economy. These goals usually include stable prices
and low unemployment.
Monetary policy is policy by which the amount of money
and credit available aims to affect the economy.
For instance, when you read that the Government has
decided to lower or raise the interest rate, you are
reading about an example of monetary policy.

 Monetary policy is the process by which the government,

central bank, or monetary authority of a country controls
(i) the supply of money,
(ii) availability of money,
(iii) cost of money or rate of interest to attain a set of
objectives oriented towards the growth and stability of the
economy
Monetary policy rests on the relationship between the
rates of interest in an economy, that is the price at which
money can be borrowed, and the total supply of money.
Monetary policy uses a variety of tools to control one or
both of these, to influence outcomes like economic
growth, inflation, exchange rates with other currencies
and unemployment.

 Monetary policy is referred to as either being an expansionary

policy, or a contractionary policy.

Expansionary policy

Contractionary policy

expansionary policy
increases the total
supply of money in the
economy rapidly
. Expansionary policy is
traditionally used to
combat unemployment in
a recession by
lowering interest rates

a contractionary policy
decreases the total
money supply, or
increases it slowly
contractionary policy
involves raising interest
rates to combat inflation.

 The main objective of monetary policy is

macroeconomics stability.
Full employment
Price stability
Exchange stability
maximum output
Balance of external payment

 Bank Rate is the rate at which central bank of the country (in
India it is RBI) allows finance to commercial banks.
Bank Rate is a tool, which central bank uses for short-term
purposes. Any upward revision in Bank Rate by central bank is
an indication that banks should also increase deposit rates as
well as Prime Lending Rate. Thus any revision in the Bank
rate indicates could mean more or less interest on your
deposits.
CRR means Cash Reserve Ratio. Banks in India are
required to hold a certain proportion of their deposits in the
form of cash. However, actually Banks dont hold these as
cash with themselves, but deposit such case with Reserve
Bank of India (RBI) / currency chests, which is considered
as equivalent to holding cash with themselves.. This minimum
ratio (that is the part of the total deposits to be held as cash)
is stipulated by the RBI and is known as the CRR or Cash
Reserve Ratio.

 SLR stands for Statutory Liquidity Ratio. This term is used

by bankers and indicates the minimum percentage of deposits
that the bank has to maintain in form of gold, cash or other
approved securities. Thus, we can say that it is ratio of cash
and some other approved to liabilities (deposits) It regulates
the credit growth in India.
Inflation is a rise in the general level of prices of goods and
services in an economy over a period of time. When the
general price level rises, each unit of currency buys fewer
goods and services.
Fiscal Deficit :When a government's total expenditures
exceed the revenue that it generates (excluding money from
borrowings). Deficit differs from debt, which is an accumulation
of yearly deficits.

 Repo (Repurchase) rate is the rate at which the RBI lends shot-term
money to the banks. When the repo rate increases borrowing from RBI
becomes more expensive. Therefore, we can say that in case, RBI wants to
make it more expensive for the banks to borrow money, it increases the repo
rate; similarly, if it wants to make it cheaper for banks to borrow money, it
reduces the repo rate
Reverse Repo rate is the rate at which banks park their short-term excess
liquidity with the RBI. The RBI uses this tool when it feels there is too
much money floating in the banking system. An increase in the reverse
repo rate means that the RBI will borrow money from the banks at a higher
rate of interest. As a result, banks would prefer to keep their money with
the RBI

Thus, we can conclude that Repo Rate signifies

the rate at which liquidity is injected in the
banking system by RBI, whereas Reverse repo
rate signifies the rate at which the central bank
absorbs liquidity from the banks

 Short term lending rate (repo) hiked by 50 bps to 7.25

per cent.
Reverse repo to be fixed 100 basis points lower than the
repo rate, gets fixed at 6.25 per cent.
Banks to get a new overnight borrowing window under
Marginal Standing Facility at 8.25 percent.
Cash reserve ratio and bank rate left unchanged at 6
per cent each.
Interest rates on savings bank deposits hiked to 4 per
cent from 3.5 per cent.
Economic growth projected at 8 % for 2011-12,lower
than 8.6% estimated for 2010- 11.

 Objective is to contain inflation by curbing demand-side

pressures.
WPI inflation projection lowered to 6 per cent.
Aligning of fuel prices with international crude prices to
prevent widening of fiscal deficit favoured.
Malegam Committee recommendations on MFI sector
broadly accepted.
Likelihood of oil prices moderating significantly is low.
Bank loan to MFIs on or after April 1, 2011, being treated
as priority sector loans.

GROWTH

RBIs revised growth rate is 8-9% with an upward

bias as the Indian economy is on recovery path.
Growth in Industrial sector and services are
expected to continue. The export and import
sector has also registered a strong growth.
INFLATION
Inflation was projected to be at 5.5% for FY
2011-12. However, the actual is above 6 %.
As per RBI, inflation is no longer driven by supply
side factors alone.
Overall demand pressures on inflation are also
beginning to show signs, pushing RBI to
increase rates even before the official policy of
2010.

FISCAL POLICY

 Fiscal policy is the use of government

expenditure and revenue collection to influence
the economy.
It attempts to make better tax system and
manage public loans and expenditures to
stabilize the economy.
Fiscal policy is great equipment in the hand of
any countrys government to make better tax
system and to manage the public loan and
expenditure.

 The three possible stances of fiscal policy are neutral,

expansionary and contractionary. The simplest
definitions of these stances are as follows:
A neutral stance of fiscal policy implies a balanced
economy. This results in a large tax revenue.
Government spending is fully funded by tax revenue and
overall the budget outcome has a neutral effect on the
level of economic activity.
An expansionary stance of fiscal policy involves
government spending exceeding tax revenue.
A contractionary fiscal policy occurs when government
spending is lower than tax revenue

 TAXATION POLICY: government has full power to make new

taxation policy according to the current Indian economic
situation.
PUBLIC EXPENDITURE POLICY: . Government divides total
expenditures into two major categories one is development
expenditure and other is non development expenditure.
DEFICIT FINANCING POLICY: Government can get loan
from central bank to adjust deficiency or deficit. For this RBI
has to issue new currency notes.
PUBLIC DEPT POLICY: Public debt means, loan is taken by
government to fulfill government expenditures .

To achieve desirable price level

To achieve desirable consumption level
To achieve desirable employment level
To achieve desirable income distribution
Increase in capital formation
To control degree of inflation

TAX POLICY

DIRECT TAXES: Direct Tax is a tax which is

directly paid to the Central government.
1. Tax on Corporate Income
2. Capital Gains Tax
3. Personal Income Tax
4. Tax Incentives
5. Double Taxation Avoidance Treaty

The last decade has witnessed a

substantial growth in direct taxes.
The direct tax has gone up from 2.97% in
1999-2000 to 6.36% in 2008-2009.
The tax henceforth collected has
increased from 33.8% to 55.5% during the
same period.
The above has been done by maintaining
moderate tax rates but by expanding the
tax base.

Indirect Tax: Indirect Tax or the tax that is levied

on goods or services rather than on persons or
organizations
1. CentralExcise Duty
2. Customs Duty
3. Service Tax
4. Securities Transaction Tax

CENTRAL EXCISE DUTY

After 2 successive reductions in December 2008
and Feb 2009, the standard rate if excise duty of
8% was increased to 10% last year. It is still the
same.
Duty on petrol & diesel has been increased from re.
1 per litre.
Duty on automobiles has been increased from 20%
to 22%.
Duty on cement has been increased from 8% to
10%.
Full or partial excise duty exemptions have been
removed and now suffer either 4% or 10% of duty.

Custom duty continued:

Agricultural items still remain at 10%.
Custom duty on serially numbered bullion has been
increased from RS. 200 per 10 gm. To Rs. 300 per
10 gm.
On some form of golds, duty per 10 gms. Have been
increased from Rs. 500 to Rs. 750. Whereas in case
of silver, duty has been increased from Rs. 1000 to
Rs. 1500 per kg.
Also in petroleum sector, duty on crude has been
increased from nil to 5%, in petrol & diesel 2.5% to
7.5% and some other specified products from 5% to
10%.

 Securities Transaction Tax (STT) is a tax being levied on

all transactions done on the stock exchanges. Securities
Transaction Tax is applicable on purchase or sale
of equity shares, derivatives, equity oriented funds and
equity oriented Mutual Funds.
Current STT on purchase or sell of an equity share is
0.075%.

 The government charges Service Tax in India on the

gross amount which the service providers charge from
their clients. By bringing more and more services within
the scope of Service Tax, the government intends to
enhance its revenue earnings manifold.
The Service Tax amount used to be 5% when the
government first launched Service Tax in India. In 2003,
this was hiked to 8%. Currently, the rate of Service Tax in
India is 10.2%.

THANK YOU