understanding monetary & fiscal policy
DESCRIPTION
Basic understanding of Monetary & Fiscal Policy in IndiaTRANSCRIPT
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Understanding Monetary & Fiscal
Policy
Presented By
Anil Nandyala
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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
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Why it is important to know ?
Decision making
Getting an idea about how country is heading
Measuring the performanceEx : Fuel Subsidies
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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
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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
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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)
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Economic Cycle
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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
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FISCAL POLICY
Fiscal policy is the use of government revenue collection (taxation) and expenditure (spending) to influence the economy
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Fiscal Policy Tools
Taxation Vodafone case
Spending Investment activities Subsidies
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Government Expenditure Breakdown
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Impact’s of Bad Fiscal Policy
Fiscal Deficit – crowding out money
Rating downgrade (Lowest Investment Rating)
Currency Depreciation
High Interest rates
Inflation
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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
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Thank You