A country’s monetary and fiscal policies influence its economic outlook. In India, the Monetary Policy is drafted by the central bank (RBI). Through monetary policy, the RBI controls the cost of borrowing, liquidity conditions, inflation, etc. This has the power to shape the trajectory of the economy and ensure that prices remain stable in the medium to long term.
On the other hand, the Fiscal Policy is drafted by the government and consists of the use of government revenue (taxes, dividends, disinvestments, etc.) and expenditure (welfare schemes, projects, etc.) to grow the economy. Often, when the government changes tax rates demand in the economy also changes in proportion. Fiscal Policy influences the demand, supply, and employment levels in the economy.
The monetary and fiscal policy are the two most important influencers in a country’s economy. They dictate what the medium to long term future holds for the country.