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Financial Administration - Monetary and Fiscal Policies

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FINANCIAL ADMINISTRATION: MEANING & IMPORTANCE As per the definition given by the USA Census department, Financial Administration involves all the activities of finance and taxation. Includes central agencies for accounting, auditing, and budgeting; the supervision of local government finances; tax administration; collection, custody, and disbursement of funds; administration of employee-retirement systems; debt and investment administration; and the like.   So,in simple words Financial Administration is an all encompassing term for all those functions /operations having the objective to make funds and finance available to the government for its duties and responsibilities to be carried out smoothly and also all those activities that ensure the lawful and efficient use of those funds/finance. And these functions are collectively performed by the Executive(asks for funds),Legislature(that has the sole power to grant those funds),Finance Ministry(controls those funds) and the Auditor(to audit whether the funds were used for what they were demanded). The steps involved are preparation of the budget for the ensuing financial year,getting it passed by the legislature,executing the budget and collecting the funds for it,managing those funds via the treasury and the audit of the Centre and State executive accounts by the Audit authority. So one can understand the importance of Financial Administration in its element. A balanced and precise financial administration is the base as well as the means to attain successfully all goals of development as well as growth of a country. MONETARY POLICY: Monetary Policy is the process by which monetary authority(an authority that controls all matters relating to money)  of a country, generally a central bank controls the supply of money in the economy by exercising its control over interest rates in order to maintain price stability,reduce inflation  and achieve high economic growth. A sound monetary policy ensures that various sectors of the economy have sufficient tokens/authority to carry out their transactions. It provides the basis to the fiscal policy and the fiscal policy influences the monetary policy and gives it a direction to proceed in. Monetary policy helps in keeping the money supply and economy of a nation stable whereas the fiscal policy is more involved in development and infrastructural work and policy making and enactment of budget. A monetary policy is changed from time to time to combat inflation,deflation,price rise,imbalance in demand and supply,etc by mopping up excess money or infusing money in the market as the requirement may be. A sound monetary policy helps the government determine  its fiscal policy and how much it will collect as revenue and spend as expenditure. The fiscal policy helps bring money into the market whereas the monetary policy helps in managing that money supply  and keeping it stable.  In India the monetary policy is  managed by the RBI which is the central bank as well as monetary authority of the country.   The major operations/techniques of the RBI to implement its monetary policy for furthering the goals of economic growth are: 1) Supply of money/money supply :  Printing currency or facilitating foreign inflow of the same. 2) Interest rates :  By rising it or dropping it the bank controls money supply in the market. 3) Open Market Operation:  Buying and selling of government bonds/securities from or to the public and banks as and when it wants to mop up excess money supply in the market or infuse money supply into the market. 4) Cash Reserve ratio:  It is a certain percentage of bank deposits that a bank needs to keep reserve with the RBI. A high CRR is when the RBI wants to mop up excess liquidity in the market and a lower CRR is when the RBI wants to infuse liquidity into the market. 5) Statutory Liquidity ratio:  Every financial institute needs to maintain a certain amount of liquid assets in the form of cash,precious metals,bonds,etc from their time and demand liabilities with the RBI. A high SLR is to mop up excess liquidity in the market and a lower SLR is the opposite. 6) Bank Rate Policy:  Also known as discount policy. It is is the rate of interest charged by the RBI for providing funds or loans to the banking system.   7) Credit ceiling:  RBI issues prior information or direction that loans to the commercial banks will be given up to a certain limit.This is done when the priority sectors need assistance support is given to limited sectors. It saves up funds for priority sector funding of government. 8) Credit Authorization scheme:  RBI as per the guidelines of this scheme authorises banks to advance loans to desired sectors. 9) Moral suasion:  RBI requests banks not to indulge in loan giving to unproductive sectors and maintain discretion so that the economy benefits. 10) Repo Rate and Reverse Repo Rate:  Repo rate is the rate at which RBI lends to commercial banks against government bonds and

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