Both are
used to influence the economy of a country, Monetary Policy is drafted by the
Central Bank whereas Fiscal Policy is drafted by the Government.
Monetary Policy
Monetary policy is
drafted out by RBI & manifests itself by fixing interest rates like
the Repo & Reverse Repo as well as
determining levels of CRR and SLR which influence money supply & credit
flow in the economy.
RBI’s is also
called the bank of bankers which keeps a check on inflation & maintains an
optimum level of GDP growth at the same time. If they raise the interest rates
too high then that might help in checking inflation but at the same time deter
economic activity and slow down GDP growth, and if they keep the rates too low
then that will promote economic activity, but it will also spur inflation. So, the balancing act is healthy for a striving economy.
The RBI is an
independent body, on the helm is the RBI Governor who discharges his duty &
obligation and does suggest the government on multiple occasions.
Fiscal Policy
Fiscal policy is the policy that regulates how the government spends money, & raises taxes. Taxes are the main form of earnings for the
government. When the government is not able to come up with enough earnings to
pay for their expenses, they incur a fiscal
deficit which leads to borrowing. So the government borrows through auction
of Treasury (g-sec)-bills or through selling stake in a public sector
enterprise or Loan from the World Bank.
The purpose of the
fiscal policy is to promote economic growth as well, and during times of recession
when government raises spending or tax rebate– that’s termed as a fiscal
stimulus package because you are using the instruments of fiscal policy to
boost the economy.
Cessation
Intension behind monetary policy and fiscal policy is to have financial prudence such in stability of a currency, which can help the economy to grow & draft policies to create environment of sustainable growth.
