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Monetary And Fiscal Policies Of India

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Agenda• Introduction• Monetary policy

Role And Objectives Instruments

• Fiscal Policy Role And Objectives Instruments

• Conclusion

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Monetary policy – Meaning.......

Reserve Bank Of India states that........ Monetary policy is the process by

which monetary authority of a country, generally a central bank controls the supply of money in the economy by its control over interest rates in order to maintain price stability and achieve high economic growth.

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Objectives or Goals of Monetary Policy:.......... The following are the principal objectives of monetary policy: 1. Full Employment: The objective of monetary policy is to check rising unemployment during depression

period. It is an important goal because unemployment leads to wastage of potential output, to attain this objectives it is necessary to increase production and demand.

2. Price Stability: One of the policy objectives of monetary policy is to stabilise the price level. Stable

prices improves public confidence, promote business activity& equal distribution of income and wealth.

3. Economic Growth: Economic growth is defined as “the process where the real per capita income of a

country increases over a long period of time.” As a result of economic development, there will be proper utilization of natural & human resources more capital formation , more employment, increase in national income as well as per capita income of a country.

.

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Instruments of Monetary Policy: The instruments of monetary policy are of two types:

i. Quantitative, General or Indirectii. Qualitative, Selective or Direct

They affect the level of aggregate demand through the supply of

money, cost of money and availability of credit.

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Open market operations• open market operations indicate the buying/selling of govt.

securities in the open market to balance the supply of money in the economy.

Deployment of credit• The R.B.I has taken various measures to deploy credit in the

different sectors of the economy. The certain %age of the bank credit has been fixed for various sectors like agriculture, export etc.

Change in reserve ratio • Every bank is required by law to keep a certain percentage

of its total deposits in the form of a reserve fund in its vaults and also a certain percentage with the central bank.

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Meaning.....

• Fiscal policy deals with the taxation and expenditure decisions of the government. These include tax policy, expenditure

policy, investment or disinvestment strategies and debt or surplus management

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Objectives of fiscal policy.......

The following are the objectives of fiscal policy:

• 1. To maintain and achieve full employment.• 2. To stabilise the price level.• 3. To stabilise the growth rate of the economy.• 4. To maintain equilibrium in the balance of payments.• 5. To promote the economic development of underdeveloped

countries.

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Instruments of fiscal policy...... Some of the major instruments of fiscal policy are as follows:

i. Budget- The budget of a nation is a useful instrument to assess the fluctuations in an economy.

ii. Taxation- Taxation is a powerful instrument of fiscal policy in the hands of public authorities which greatly effect the changes in disposable income, consumption and investment.

iii. Public works- They include expenditures on public works as roads, rail tracks, parks, airports, post offices, irrigation canals etc. Transfer payments are the payments such like interest on public debt, subsidy, pension, relief payment, unemployment, insurance and social security benefits etc..

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• The primary role of monetary and fiscal policies is to influence final demand for goods and services.

• Monetary and fiscal policies can prevent severe swings in economic activity.

• For an effective anti-cyclical monetary policy, bank rate, open market operations, reserve ratio and selective control measures are required to be adopted simultaneously.

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Submitted byRishav vermaAnmol singhAamir hussaine

Submitted to Respected DR. Kushbhoo

Agnihotri