Understanding monetary & fiscal policy

Understanding Monetary & Fiscal

Policy

Presented By

Anil Nandyala

AGENDA

Why it is important to know ?

RBI’s Roll

Monetary Policy

RBI’s Tools to control Monetary Policy

Factor’s Impacting Monetary Policy

Economic Cycle

Fiscal Policy

Fiscal Policy Tools

Monetary & Fiscal Policy Review

Why it is important to know ?

Decision making

Getting an idea about how country is heading

Measuring the performanceEx : Fuel Subsidies

RBI’s Role

Monetary Policy Maintaining price stability and ensuring adequate flow of

credit to productive sectors

Regulator & Supervisor of Financial System Importance of regulating Financial sector Ex: Saradha chit fund ($ 4-6 billon loss, 1.7M investors) Ex: Bank-run scenario (ICICI Bank), Lehman Brothers

Collapse

Manager of Foreign Exchange

Issuer of Currency

Developmental Role

Monetary Policy

Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment

RBI’s Tools to control Monetary Policy

Cash Reserve Ratio – 4%

Statutory Liquidity Ratio – 23%

Repo – 8%

Reverse Repo – 7%

Marginal Standing Facility Rate – 9%

Open market operationsEx : US Quantitative Easing ($80 B/M)

Economic Cycle

Factor’s Impacting Monetary Policy

Fiscal Policy not in tandem with Monetary Policy

Ex: LPG subsidy

Government spending in subsidies

Much of the Income is spent on needs, unlike the developed economies (per capita income : Rs 5729/month)

Wastage of Vegetables (40%)

Whole sale price index is used as reference

FISCAL POLICY

Fiscal policy is the use of government revenue collection (taxation) and expenditure (spending) to influence the economy

Fiscal Policy Tools

Taxation Vodafone case

Spending Investment activities Subsidies

Government Expenditure Breakdown

Impact’s of Bad Fiscal Policy

Fiscal Deficit – crowding out money

Rating downgrade (Lowest Investment Rating)

Currency Depreciation

High Interest rates

Inflation

Monetary & Fiscal policy Review

Monetary PolicyStringent: One of the few economies not much

impacted by Financial crisisCosts: Availability of the credit

Fiscal PolicyNot Stringent : Not looking in to core problemsEx: Food security billPopulation controlEducation system

Thank You