Editorials, GS-3, Indian Economy, Uncategorized

The currency question

Livemint The recent agreement between the Government of India and the Reserve Bank of India to make inflation targeting the central bank’s prime focus has long way to go. This move represents an important structural shift in one of the two pillars of conventional macroeconomic policy (the other, of course, being fiscal policy). Background: Since… Continue reading The currency question

GS-3, Uncategorized

LS clears decks for MPC

The Lok Sabha recently approved the Finance Bill 2016 which included an amendment to the RBI Act clipping the central bank governor’s powers to set monetary policy. The amendment made to the RBI Act through the Finance Bill removed the governor’s powers to singularly set monetary policy vesting them in a six-member Monetary Policy Committee.… Continue reading LS clears decks for MPC

Editorials, GS-3, Indian Economy, Uncategorized

Raghuram Rajan’s pivot to liquidity management

Article Link Economists have welcomed the slew of liquidity management measures announced by RBI in its latest monetary policy, saying it will result in quicker transmission of policy rates to lending rates. Why new liquidity management measures were required? Bank lending rates have not fallen to the same extent as policy rates have. There was… Continue reading Raghuram Rajan’s pivot to liquidity management

Editorials, GS-3, Indian Economy, Uncategorized

For a paradigm shift in fiscal deficit

Article Link Whenever there is debate on budget, fiscal deficit, by default, occupies the centre-stage. However, this year it found a special mention in Finance Minister’s budget speech. Finance Minister Arun Jaitley, in his speech, said that “there is a suggestion that fiscal expansion or contraction should be aligned with credit contraction or expansion respectively,… Continue reading For a paradigm shift in fiscal deficit

GS-3, Indian Economy, Uncategorized

Relation between fiscal deficit and bank credit

There is  an inverse correlation between fiscal deficit (fiscal expansion) and bank credit (monetary expansion). That is, if credit growth falls, fiscal deficit may need to rise and if credit rises, fiscal deficit ought to fall — to ensure adequate money supply to the economy. The FRBM Act says it cannot borrow more than 3… Continue reading Relation between fiscal deficit and bank credit