1. Fiscal &monetary policy its trend since 1990s
Presented by: Nou Sina

2. SPIN INTERVIEW FRAMEWORK
Learning Objectives
1.What is fiscal policy ?
2.Main objectives fiscal policy
3.Important instruments of fiscal policy
4.Fiscal Responsibility and Budget Management Act-2003
5.Trend in Indian fiscal policy since 1990s
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6.What is monetary policy ?
7.Objectives
8.Its instruments
9.Its major changes in monetary policy post 90
10.How is fiscal policy and monetary policy interact with with
each other
11.Conclusion remark
Fiscal Policy , Monetary Policy and its linkages

3. 1. Let’s first understand what is fiscal policy ?
The fiscal policy is concerned with the raising of government revenue and
incurring of government expenditure. To generate revenue and to incur
expenditure, the government frames a policy called budgetary policy or fiscal
policy.
“It is a policy under which the government uses its expenditure and revenue
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program to produce desirable effects and avoid undesirable effects on the national
income , production and employment” – Arthur Smithies
Fiscal Policy , Monetary Policy and its linkages

4. Main objectives fiscal policy
1.Development by effective mobilization of
resources.
2.Efficient allocation of financial resources
3.Reduction in inequality # income and wealth
of
4.Price stability and control inflation
5.Employment generation
6.Capital formation
7.Development of infrastructures
Fiscal Policy , Monetary Policy and its linkages

5. There are three main stances of fiscal policy
1.Neutral stance : ( G=T) #
2.Expansionary stance: (G> T)
3.Contractionary Stance :( G< T)
Fiscal Policy , Monetary Policy and its linkages

6. There are four major of instruments of fiscal policy
I. Budgetary surplus and deficit
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II. Government expenditure
III. Taxation- direct and indirect
IV. Public debt

7. Fiscal Responsibility and Budget Management Act-2003(FRBM)
The main purpose of FRBM was:
1. To reduce deficit as a ratio of GDP should be brought down by 0.5
% every year
2.# Fiscal deficit as a ratio of GDP should be reduced by 0.3% every
year and brought down to 3 % by 2007-08.
3. The total liabilities of the union gov’t should not rise by more than
9% per year.
4. The union gov’t should not give guarantee to land raised by PSUs
and state gov’t for more than 0.5% of GDP in the aggregate.

8. Trend in Indian Fiscal Policy since 1990s
The combined Receipts and expenditures of the state and central
government as the % of GDP
1990-99 2000-01 2004-05 2007-08 2009-10 BE
Total Receipts 26.0 28.5 28.2 27.8 31.4
# Rev. Receipts
18.1 17.5 19.5 22.2 21.6
Cap. Receipts 7.9 11.0 8.7 5.6 9.8
Total Exps 26.8 28.6 27.6 27.4 31.9
Revenue Exps 22.3 24.5 23.2 22.4 27.1
Capital Exps. 4.5 11.0 4.4 5.0 4.8
Note: BE: budget estimated
Source: RBI, various Issues

9. Revenue, Fiscal and Primary deficit as the % of GDP
1990- 2000-01 2004-05 2007- 2009-10
99 08 BE
Revenue Deficit 4.2 7.0 3.6 0.2 5.5
#ff deficit
Fical 7.7 9.9 7.5 4.2 10.2
Primary deficit 2.7 3.7 1.3 (-)1.3 4.6
Note: BE: budget estimated
Source: RBI, various Issues

10. The combined of state and central government debt as the % of GDP
year Central and state public Debt
1990-99 63.2
2000-01 70.6
#ff 2004-05 81.4
2007-08 75.1
2009-20 BE 76.5
Note: BE: budget estimated
Source: RBI, various Issues

11. Monetary Policy

12. What is Monetary Policy?
It is the process by which the central bank or
monetary authority of a country regulates
1. the supply of money
2. availability of money and
#ff 3. cost of money or rate of interest in order to attain
a set of objectives oriented towards the growth
and stability of the economy.

13. Objectives of Monetary Policy
 It is concerned with the changing the supply of money
stock and rate of interest for the purpose of stabilizing the
economy by influencing the level of aggregate demand.
 At times of recession monetary policy involves the
adoption of some monetary tools which tends to increase the
money supply and lower interest rate so as to stimulate
aggregate demand in the economy.
#ff
 At the time of inflation monetary policy seeks to contract
aggregate spending by tightening the money supply or
raising the rate of return

14. Objectives of Monetary Policy
 To ensure the economic stability at full employment or
potential level of output.
 To achieve price stability by controlling inflation and
deflation.
 To promote and encourage economic growth in the
#ff
economy

15. Monetary Policy Instruments
Open Market Operations
Bank rate
Cash Reserve Ratio
#ff
Statutory Liquidity Ratio
Repo rate
Reverse Repo rate

16. Conclusion Remark
However , in order to achieve social justice ,
reduction in inequality of income and wealth etc
government has to use effective fiscal deficit and
public debt and make fiscal policy and monetary
policy in growth oriented one
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17. Sources:
1. Public finance- R.K Lekhi, first Edition, 1988
2. Monetary and fiscal actions in India- U.P. Sinah& K.D. Prasad, fisrt
pbulished 2010
3. ADBI Institute Working Paper Series On Fiscal Policy Issues for India
after the Global Financial Crisis (2008–2010)
4. http://www.indiabudget.nic.in
5. www.rbi.org.in
6.
#ff www.slideshared.com
7. http://www.screbd.com

18. Thank you
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