7.6 Economic Policies

Hanumant Dhokle

POLICIES THAT AFFECT THE ECONOMIC CONDITION OF ANY NATION

What is an economic policy? It is nothing but the policy of the government. Does it impact the industry? Yes, it certainly does because economic policy drives the action that governments take in the economic sector. It covers the systems for setting interest rates and government deficit as well as the labour market, national ownership, and many other areas of governance. Such policies are often influenced by international institutions like the International Monetary Fund or World Bank as well as political beliefs and the consequent policies of the parties.

Policies are designed by different ministries and regulatory authorities to direct the economic activity. Economic policies are designed according to the phases of business cycles (contraction and expansion) prevailing at that point to meet the economic objectives of the country.

Fiscal Policy

This is presented by the finance minister for the coming financial year in the parliament before the end of a current financial year. It is the plan of the government for expenditure, revenue and borrowing. It is also known as the Union Budget. The term fiscal policy refers to the expenditure goverment undertakes to provide goods and services and the way in which the government finances this expenditures. There are two methods of financing-taxation & borrowing.

Monetary Policy

This is presented by the governor of the Reserve Bank of India (RBI) after the fiscal policy, by which the RBI seeks to ensure price stability for the economy. Usually fiscal policy and monetary policy target similar economic problems like increasing inflation, GDP growth rate, unemployment, foreign exchange etc.

Industrial policy, agricultural policy, export-import policy and foreign investment policy are the other forms of economic policies presented by respective ministers at the state and centre level. Important considerations for the policy makers before designing an economic policy are as follows:

  • What are the economic objectives of the government?
  • What is the current economic scenario in terms of economic indicators?
  • What is the economic forecasting?

So, as a good investor you have start watching the economic cycles, economic indicators and also the economic policies of the government as announced from time to time. You will then start developing a direct relation with these economic factors, business development and the stock market. And that is the first step to differentiate you as a professional investor with an edge.

Every year the RBI publishes the 'Handbook of Statistics on Indian Economy' which is available on the RBI website too. This gives a clear picture about the economic situation of the country with different parameters and is a clear indicator/pointer of our economy.

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