Financial stability is generally the domain of monetary authority; however, the fiscal policy of the government has the potential to either facilitate or undermine it. Analyze in the context of India. – IASPOINT

Financial stability is generally the domain of monetary authority; however, the fiscal policy of the government has the potential to either facilitate or undermine it. Analyze in the context of India.

Financial stability in a broader sense means keeping the macro economic fundamentals stable i.e, Inflation, interest rates, liquidity, etc. Monetary policy refers to tools used by the RBI to maintain financial stability in the economy, for example – CRR, SLR, Repo rates, etc.

Fiscal stability: Domain of monetary policy –

How does fiscal policy facilitate:

How can fiscal policy undermine:

In India therefore, close coordination of fiscal and monetary policy remains inevitable while simultaneously maintaining relative independence of RBI as well as public welfare aims of the government.

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