Global Turmoil: Role of Monetary and Fiscal Policy

The global Economic meltdown has effect on all the countries in the world. The Indian economy is also not exception to this situation because world economy cannot perform in seclusion in today's faster growing world. All the economies are interlinked to each other and any major ebb and flow in economic conditions causes numerous impacts for all other economies.

The global economic crisis started with Subprime disaster in the US. Many strong economies are suffering from the crisis of credit and liquidity due to the interconnectedness of each other in international trade relations. This situation has the negative impacts on GDP, Employment, exports, FDI and economic development of the nation.

Government and Policy makers are always taking precautionary measures for maintaining the economic stability and corrective actions in inflationary and recession situations. The striking balance of Monetary and Fiscal policies may help to overcome the situation to some extent. Monetary and Fiscal policies can be framed and implemented according to the economic situations.

Central Banks of countries can influence the economy through the use of monetary policy by controlling the monetary variables such as rate of interest, the money supply and the volume of credit. The fiscal policy can be used to help on economy out of recession or reduce demand pressures in a boom.

Monetary and fiscal policies are complementary to each other. Monetary policy influences the level of aggregate income and spending in the economy by influencing the money supply and cost of borrowing. Fiscal policy affects income and spending through its effects on size, composition and timing of government revenue and spending. These two policies can play the role in a perfect balancing for promotion of inclusive growth. This paper will focus on the important and balanced role of monetary and fiscal policy in economy with reference to the current scenario in Indian Economy.