(Online Course) Pub Ad for IAS Mains: Financial Management: Role of Finance Ministry in Monetary Policy and Fiscal Policy Area (Paper -2)

(Online Course) Public Administration for IAS Mains Exams

Topic: Financial Management: Role of Finance Ministry in Monetary Policy and Fiscal Policy Area

Finance Ministry is the centre of National Financial Administration. The Ministry of Finance, dealing with the financial business of the government, has overall responsibility for framing, executing and controlling the bit. Its roles are vast and varied. Firstly, finance ministry plays a crucial role in socio-economic development of the nation. Secondly, policy-maker in financial matters, Thirdly, plays a role of co-ordinator and controller. Fourthly, it mobilises national resources. Fifthly, exercises control over public expenditure. Sixthly, plays a role in the public policy areas in industry, banking, taxation making. Seventhly, it is responsible for successful implementation of budget, plans, programmes, policies and to expedite the process of decision-making. Lastly, it also plays a major role of innovator. In short, its approach and decisions effect practically the whole economy of a nation.
The Finance Ministry also plays crucial role in monetary policy and fiscal policy of a country. Monetary and fiscal policy has an important place in financial administration with the expansion of money and its popularity it is desirable to have control over money supply by government agency.

Monetary policy in India is an adjunct of economic policy. As such, the objectives of monetary policy are not different from the objectives of economic policy. The Government of India tries to manipulate its monetary policy through the R.B.I. which is the monetary authority in the country. The monetary or credit policy of RBI has been characterised as one of controlled monetary expansion. Its aims at controlling inflation by restraining the secondary expansion of credit and regulating of supply of money in order to meet the requirements of different sectors of the economy to accelerate the pace of economic growth."

Monetary policy refers to the credit control measures adopted by the central bank of a country. Johnson defines monetary policy, “as policy employing central ‘bank control of the supply of money as an instrument for achieving the objectives of general economic policy.” G. K. Shaw defines it as “any conscious action undertaken by the monetary authorities to channel the quality, availability or cost of money.

The main objectives of monetary policy is to stabilise the price and control the flow of money in order to achieve the goals of economic policy of a country. Thus, important function in India is done by Reserve Bank of India who also makes credit and monetary policies of a country. Economic development and control over prices is the motto of such policies. Bank rate, interest rate, exchange rate and loan policy are the main instrument of monetary policy. Thus monetary policy plays a crucial role in achieving the aims of economic policy of a country. This work is done by RBI and not by finance ministry, It does not mean that finance ministry has no role in monetary policy. In fact the government influences investment, employment, output and income through monetary policy. This is done by increasing or decreasing the money supply by the monetary authority. Finance Ministry like a vigilant guard always keep watch on monetary policy. Thus Finance Ministry as a controller, co-ordinator, adviser and analytic of monetary policy, plays an important role in strengthen the economic policy of a country.

Like monetary policy Finance Ministry also has role to play in fiscal policy. Finance Ministry does play a major role in subjects which are part of fiscal Policy in bringing development, stability and economic development. The subjects of fiscal policies are : Govt. income and expenditure, public debit, deficit finance s stem, capital gain, national income, increase in per individual income expansion of employment opportunities. Monetary policy and fiscal policy in India is an adjunct of economic policy and as such Finance Ministry plays a crucial and major role.

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