Synopsis Project Report on Issues and Priorities in Indian Monetary
and Fiscal policies
Custom Dissertation Writing Help in Issues and Priorities in Indian Monetary and Fiscal policies
Research Proposal for Thesis on Issues and Priorities in Indian Monetary
and Fiscal policies
Area Of
Research
Indian Macroeconomics
Objective of the thesis
Understanding the working of India’s monetary and fiscal
policies, identifying weaknesses and presenting solutions for the same.
Thesis in brief
In India, monetary policy has always emphasized the
objectives of price stability and growth. Focus has been on formulating a
balance between the two objectives depending on the existing situation and at
the same time keeping the inflation within reasonable limits. The dilemma of
the central bank is that they have to act as a manager of public debt and as a
monetary authority. While the former requires keeping its cost low, the latter demands
a reduction in the extent of government debt that it holds. The RBI's liquidity
management is not led as much by the interest rate considerations as by the aim
of providing adequate liquidity.
The problems that can be identified in the policies
are
First, the financial integration between
the various sectors is not complete.
Second, the interest sensitivity of
investment needs to be established.
Third, the economy is characterized
mainly by bank financing rather than market financing.
Fourth, the daily trial balance-sheet
of the RBI is not prepared and the daily liquidity forecasts depends on
pro-rata allocation of numbers under various heads of the balance-sheet that is
prepared on a weekly basis.
Fifth, the objective of monetary policy
is not one of inflation targeting but of duality of objectives that makes it
difficult to have a clear policy on interest rate management.
Finally, the liquidity policy, to be
consistent with rate of interest signals that the RBI provides through monetary
policy, should be such that changes in key policy rates would have a noticeable
impact on short-term market rates of interest. In case the liquidity operations
do not have effect on the money market rates, it would reflect lack of clarity
about the interest rate signals.
Regarding fiscal policy, Revenue maximisation requires
that the tax system be reformed through widening the tax base, simplification
of tax rules, review of exemptions/incentives, and strict tax compliance along
with extensive use of information technology and data warehousing. It is also
necessary to design a long-term tax policy. This would remove the need for a
large number of tax changes each year and would provide stability to the tax
system. The Public Sector Enterprises that are making losses need to be
restructured so that the profitability of the public enterprises could be a
major source of resource generation and support to government finances. Fiscal
consolidation also requires altering the pattern of expenditure. The level of
expenditure of the Central Government is heavily loaded in favour of obligatory
constituents — interest payments, defence and statutory grants to States —
reducing the maneuverability of fiscal policy. Capital expenditure, which adds
to the productive capacity in the economy, is being progressively pre-empted by
growth in revenue expenditures. Although explicit subsidies provided by the
Central Government have declined, there is a wide range of hidden subsidies
that need to be contained. Proper targeting of subsidies is needed to reduce
leakages and misappropriation.
Conclusion
The above mentioned dilemmas can be resolved through
proper fiscal and monetary policy coordination which will be examined in detail
in this thesis. The monetary policy must be made more responsive to the
macroeconomic situation and to liquidity smoothing so that market expectations
formation is sound.
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