FISCAL & MONETARY

POLICY IN INDIA
Presentation by-

1. Jagpreet Grover 4. Vaibhav

2. Shubham Batra 5. Aashish Madan
3. Mehul Dalvi 6. Pranav
2
Goal of the macroeconomic policy
Employment- Current unemployment rate is 3.52%, expected to
decline to 3.5% by end of 2018.

Output- GDP growth in Q1 2018-19 grew by 8.2% from Q4 2017-18, fell

by 7.2% in Q2.

Price Stability- Annual consumer inflation in India fell to 3.31 percent

in October of 2018.

Balance of Payments Stability- Although CAD was expected to be a

21- quarter high by 2019, future looks bright.
Control and co-
Monetary Fiscal
ordination Policy Policy

RBI Government

Credit control/ Government

Supply of money revenue and
expenditure
5
INSTRUMENTS OF
MONETORY POLICY

❖ BANK RATE
❖ CASH RESERVE RATIO
❖ STATUTORY LIQUIDITY RATIO
❖ REPO RATE
❖ REVERSE REPO RATE
6 BANK RATE

• Bank Rate is the rate charged by the central

bank for lending funds to commercial
banks.
• Current Rate – 6.75%

INFLATION BANK RATE

DEFLATION BANK RATE

7 CASH RESERVE RATIO

• A Certain percentage of the total bank

deposits needs to be kept in the
current account with RBI
• Current CRR – 4%

CRR LIQUIDITY
 SLR
The Statutory Liquidity Ratio (SLR) refers to
the proportion of deposits the
commercial bank is required to maintain
with them in the form of liquid assets.

Current SLR – 19.5%

 Repo and Reverse Repo Rate
9

Repo Rate is the rate at which banks borrow money

from the RBI against the pledge of government
securities whenever the banks are in need of funds
to meet their day-to-day obligations.
Current Repo Rate – 6.25%
Reverse repo rate is the rate of interest offered by RBI
on loan
taken by it for a short period from the banks.

Current Reverse Repo Rate – 6%

 Open Market Operations
10

The Open Market Operations refers

to the sale and purchase of
government securities and treasury
bills by the central bank of the
country with a view to regulate the
supply of money in the economy.
 Types of Monetary
Policy

EXPANSIONARY CONTRACTIONARY
MONETARY POLICY MONETARY POLICY

Lowering interest rate Raising Interest Rate

Money Supply Increases Money Supply Decreases

To Stimulate Growth To Reduce Inflation

12 FISCAL POLICY

Fiscal policy refers to a

government's spending and
taxation policies intended to
maintain economic stability,
which is indicated by levels of
unemployment, interest rates,
prices and economic growth.
 ROLE OF FISCAL POLICY
13

 Development by effective allocation of Resources

 Expenditure of Financial Resources
 Reduction of Income and Wealth inequalities
 Price Stability and Control of Inflation
 Employment Generation
 Balanced Regional Development
 Reducing the Deficit in the Balance of Payment
 Capital Formation
 Increasing National Income
 Development of Infrastructure
 FISCAL TRENDS IN INDIA
14
PARAMETER TARGET/TREND
Fiscal Deficit 3.5%

Non-Tax Revenues Up 39.1%

Revenue Spending Lower 6.6%

Capital Spending Up 27%

Disinvestment Rs 8,760 crore

Receipts (against Rs 7,690
crore a year ago)
16 INSTRUMENTS

DEFICIT POLICY
PUBLIC EXPENDITURE
TAXATION POLICY
PUBLIC DEBT
 DEFICIT POLICY
17
• 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 by 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 in price level. So deficit financing should be
kept low asit leads toprice rise in economy.
• Thus due to deficit financing necessary funds are made available for
economic Growth and on the other inflation of country increases.
• India’s fiscal deficit goal i.e. 3.3% of the GDP for the year 2018-19 faces
risk from high crude oil prices and pressure on the government to spend
more before next elections. Fiscal deficit target of 3.5% was met in the
year 2017-18.
 PUBLIC EXPENDITUTRE
18

• Public expenditure influences the economic 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 requires substantial increase in public expenditure.
• Public expenditure may be made in many ways such as:-
i. Development of state enterprises,
ii. Support to private sector &
iii. Social Welfare.
19
TAXATION POLICY
• Government levies both direct and indirect taxes in India.
• Direct taxes are those which are directly paid by the assesses to the government
i.e. income tax, wealth tax etc. Indirect tax are paid indirectly by the public to the
government i.e. excise duty, custom duty, GSTetc.
• Direct tax are progressive in nature. Indirect tax are not progressive.
• These change from all the segments of society at same rate.
• The main objectives of taxation policy are:
i. Mobilization of resources
i. To promote saving
ii. To bring Equality of income and wealth
• In the Year 2018-19, the Govt. of India’s optimism to meet fiscal targets is due
to high tax collection in indirect taxes @ of 22% in the first quarter compared
to 2017-18.
20
 PUBLIC DEBT
21

Borrowing Union Government

 Market Loans 2017 2018

 Special Bearer Bonds Internal Debt 1751 billion$ 1916 billion$

 Treasury Bills External Debt 471.3 billion$ 529.7 billion$

 Securities Issued By RBI
 Types Of Fiscal
22
Policy

EXPANSIONARY FISCAL
FISCAL POLICY CONSOLIDATION

Government Expenditure Increases Raising Taxes

OR OR
Taxes may remain Reducing Govt. Expenditure
unchanged or cut back
on tax collection
Budget Deficit Reduction

Stimulates Output and Employment

Controls Inflation
23 CONCLUSION

 Both Monetary and Fiscal Policy of India play a

crucial role in stabilising the Economy
 Effective flow of money in India
 Leads to Economic Growth