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Understanding Monetary & Fiscal Policy Presented By Anil Nandyala

Understanding monetary & fiscal policy

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Basic understanding of Monetary & Fiscal Policy in India

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Page 1: Understanding monetary & fiscal policy

Understanding Monetary & Fiscal

Policy

Presented By

Anil Nandyala

Page 2: Understanding monetary & fiscal policy

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

Page 3: Understanding monetary & fiscal policy

Why it is important to know ?

Decision making

Getting an idea about how country is heading

Measuring the performanceEx : Fuel Subsidies

Page 4: Understanding monetary & fiscal policy

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

Page 5: Understanding monetary & fiscal policy

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

Page 6: Understanding monetary & fiscal policy

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)

Page 7: Understanding monetary & fiscal policy

Economic Cycle

Page 8: Understanding monetary & fiscal policy

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

Page 9: Understanding monetary & fiscal policy

FISCAL POLICY

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

Page 10: Understanding monetary & fiscal policy

Fiscal Policy Tools

Taxation Vodafone case

Spending Investment activities Subsidies

Page 11: Understanding monetary & fiscal policy

Government Expenditure Breakdown

Page 12: Understanding monetary & fiscal policy

Impact’s of Bad Fiscal Policy

Fiscal Deficit – crowding out money

Rating downgrade (Lowest Investment Rating)

Currency Depreciation

High Interest rates

Inflation

Page 13: Understanding monetary & fiscal policy

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

Page 14: Understanding monetary & fiscal policy

Thank You