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The main contribution of monetary policy to poverty alleviation is thus ensuring price stability in a growth-environment. Important area of overlap between financial sector and fiscal policy relates to taxation as also tax exemptions or concessions to financial instruments and institutions.
The main contribution of monetary policy to poverty alleviation is thus ensuring price stability in a growth-environment. Important area of overlap between financial sector and fiscal policy relates to taxation as also tax exemptions or concessions to financial instruments and institutions.
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The main contribution of monetary policy to poverty alleviation is thus ensuring price stability in a growth-environment. Important area of overlap between financial sector and fiscal policy relates to taxation as also tax exemptions or concessions to financial instruments and institutions.
Copyright:
Attribution Non-Commercial (BY-NC)
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Als PPT, PDF, TXT herunterladen oder online auf Scribd lesen
been clearly enunciated as price stability while ensuring provision of adequate credit for productive purposes. • The main contribution of monetary policy to poverty alleviation is thus ensuring price stability in a growth-environment
Monetary & Fiscal Policy Prof. Parulm Gupta 2
Fiscal Policy • An important area of overlap between financial sector and fiscal policy relates to taxation as also tax exemptions or concessions to financial instruments and institutions. To the extent tax free status is given to a large segment of financial instruments .
Monetary & Fiscal Policy Prof. Parulm Gupta 3
MONETARY POLICY REFORMS • Objectives – Price stability – Ensuring adequacy of credit to support growth – Financial Stability • Instruments – Move from direct to indirect instruments • LAF ( Liquidity Adjustment Facility ) • OMO (open market operation) • MSS ( Market Stabilisation Scheme )
Monetary & Fiscal Policy Prof. Parulm Gupta 4
Developmental Measures 1. Discontinuation of automatic monetisation through an agreement between the Government and the Central Bank. Rationalisation of Treasury Bill market. Introduction of delivery versus payment system and deepening of inter-bank repo market. 2. Introduction of Primary Dealers in the government securities market to play the role of market maker. 3. Amendment of Securities Contracts Regulation Act to create the regulatory framework. 4. Deepening of government securities market by making the interest rates on such securities market related.
Monetary & Fiscal Policy Prof. Parulm Gupta 5
• Introduction of auction of government securities. Development of a risk-free credible yield curve in the government securities market as a benchmark for related markets. • Development of pure inter-bank call money market. Non-bank participants to participate in other money market instruments. • Introduction of automated screen-based trading in government securities through Negotiated Dealing System (NDS). Setting up of risk-free payments and system in government securities through Clearing Corporation of India Limited (CCIL). Phased introduction of Real Time Gross Settlement (RTGS) System. • Deepening of forex market and increased autonomy of Authorised Dealers.
Monetary & Fiscal Policy Prof. Parulm Gupta 6
Among the measures taken in this direction, are • elimination of system of automatic monetisation of budget deficit, • clearer delineation of roles between the Reserve Bank of India (RBI) and Government in financing of development by keeping levels of monetisation consistent with inflation and growth objectives, • reduction in fiscal dominance by attempting to reduce deficits, and improvements in monetary policy-transmission, through market integration as part of financial sector reforms, especially in banking sector. The implications of each of these measures in terms of changing expectations on the role of the RBI, perhaps need to be detailed. Monetary & Fiscal Policy Prof. Parulm Gupta 7 4. cross-subsidisation
• In the past as part of the regime of administered
interest rates, the banking and financial institutions were providing loans on concessional terms to certain sectors and also certain categories of borrowers, leading to cross-subsidisation. The credit allocation by banks was also directed to many such sectors/borrowers through various target prescriptions. • Thus, while discontinuing Funds, net transfer of profits of the RBI as dividend has increased from Rs.200 crore in 1991-92 to Rs. 2,000 crore in 1998-99. • No doubt, there still exists flow of concessional funds under General Line of Credit (GLC) for rural development. Thus, the overall responsibility and accountability in regard to use of such monetised resources have been clearly delineated. Monetary & Fiscal Policy Prof. Parulm Gupta 8 5.Modified interest rate prescriptions
• the RBI has introduced modified interest
rate prescriptions, linking concessionality to size of credit limits, rather than to specified sectors or groups of borrowers. Thus, for small borrowers with credit limits up to Rs.2 lakh, the maximum rate applicable is Prime Lending Rate (PLR), which is the rate charged for the best borrowings by a bank. Monetary & Fiscal Policy Prof. Parulm Gupta 9 Conclusion • In brief, monetary policy is increasingly focused on efficient discharge of its objectives, that no doubt help poverty alleviation, albeit indirectly, while the more direct attack on poverty alleviation would rightfully be the preserve of fiscal policy, aided by conducive monetary and financial conditions