Monetary policy

Management of supply of money in a growing economy and managing the rate of growth of money supply per period.

Objectives
To attain higher level of output and employment To obtain Price Stability To achieve Exchange Stability To attain BOP equilibrium

Instruments of Monetary Policy

General affect the total quantity of credit and affect the economy generally Selective affect certain select sectors

General Credit Control

Bank rate policy/discount rate- rate at which central bank provides financial accommodation to commercial banks Affect the cost and availability of the credit Bring about contraction in the money supply and expansion by lowering it.

Open market operations

Sale and purchase of government securities by central bank Central bank buys securities from commercial banks and increase the money supply Central bank sell the securities to banks and decrease the supply of money

Variable Reserve Ratios

CRR- Cash reserve ratio certain %age of their deposits in the form of balances with the central bank. SLR- All banks are required to maintain a minimum amount of liquid assets which shall not be less than a specified percentage of their demand and time liability.

Selective Credit Control

Regulation of credit for specific purposes or branches of economic activity. Distribution or direction of available credit supply Such controls have been used to prevent speculative hoarding of commodities like food grains and essential raw materials to check and undue rise in their Prices (sugarcane, Oilseeds, Cotton Food grains, Vegetable oil and Cotton textiles)

Fiscal policy
Consist of decisions relating to the entire financial structure of the government including tax revenue, public expenditures, loans, transfers, debt management, budgetary deficit .

Objective of fiscal policy

To mobilize adequate resources for financing various programmes and projects adopted for economic development. To promote necessary development in private sector. To arrange an optimum utilization of resources. To control the inflationary pressures in economy. To remove poverty and unemployment. To attain the growth of public sector for attaining the objective of a socialistic pattern of society. To reduce regional disparities.

Instrument of Fiscal Policy

Taxation Policy Public Expenditure policy Public debt policy Deficit financing

Taxation Policy
Direct taxes - progressive Indirect taxes - regressive

Public Expenditure Policy

Development of infrastructure Development of public enterprises Support to private sector Social welfare and employment generation programmes

Deficit Financing
Taking a loan from RBI in the form of issuing fresh currency

Public Debt Policy

Internal debt - issuing cash certificates and bonds External debt World Bank ,IMF,IDA