The monetary and fiscal policies affect the financial sector and the economy in general.

They can also attuned to influence specific sector or industries or segments. The modern economy is regarded as a credit economy in the sense that credit forms the basis of most of the economic actives in such an economy

Fiscal policy is the revenue expenditure and debt of the government for achieving certain objective like control of inflation, public expenditure etc. The fiscal policy operates through the budget. The budget is an estimate of government expenditure and revenue for ensuring financial year , presented to Parliament usually by finance minister

 Full employment: the main aim of every government

is to attain full employment level

Price stability: another objectives of fiscal policy is

price stability when price rise i.e., inflation exists in an economy, fiscal policy aims at decrease in demand and aggregate expenditure and tax rate is also raised

Reduction in economic inequality: in a democratic country like India the prominent aim of fiscal policy is to remove economic inequality. To remove economic inequality progressive direct taxes like income tax, property taxes are levied at a higher scale because the burden of such taxes generally falls on rich people.
Economic development: economic development is an important feature of underdeveloped countries. To achieve development of a country, fiscal policy acts as a source of capital formation because as capital formation is increased production and employment also increases

Monetary policy refers to the steps taken by the reserve bank of India to regulates the cost and supply of money and credit to achieve the socio-economic objectives of the economy. Monetary policy influences the supply of money or the rate of interest and the availability of money

 To accelerate the process of economic growth: one of

the twin aim of the accelerate the process of economic growth with a view to raise the national income. Controlled expansion : the second objective is to control the prices and reduce the inflationary pressures in the economy. The monetary policy of the reserve bank during the planning period is appropriately termed as that of controlled expansion

GNP=C+I+G+X Where: C = private consumption expenditure I = private investment expenditure G = government expenditure X = net exports three components of the GNP, namely C, I and X can be influenced by the monetary policy which can also influence the private consumption and investment spending and export and import

The government and the central bank make use of various fiscal and monetary policies respectively to achieve stability and growth by influencing and regulating the behavior of various classes of spenders as savers, consumers and investors. They can make the overall economic situation and business prospects bright or check an unwarranted boom or unhealthy demand explosion. They can encourage investment and production in certain priority sectors and discourage them in the non-priority sectors. They are also capable of influencing technological choices and investment and production patterns.

The both monetary and fiscal operations have repercussions on the whole economy, affecting the price level, the balance of payment, the level of industrial activity and employment. the fiscal largely with effecting structural changes in the economy. While monetary policy aims at regulating investment in private sector and short term management of the economy.

When economic objectives are set, both monetary and fiscal policies should aim at Achieving these objectives. If they are to be successful, a close co-ordination of monetary and fiscal policies is necessary, for they are complementary and not competitive

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