CASE FOR MONETARY AND FISCAL POLICIES TO WORK IN TANDEM.

 THEORY 

Major economic policies are broadly divided into two 1. Monetary policy and 2.Fiscal policy.while monetary policy is primarily concerned with the  management of interest rates and the total money supply in circulation, fiscal policy deals with taxing and spending policies  of the Government. In effect, monetary policy really focus on the demand ( desire to have)and supply (availability) of money which is administered largely by the Central banks (  RBI in India, Federal Reserve in USA, Peoples Bank of China in China) along with the network of  banking and other financial institutions. On the other hand fiscal policy refers to the revenue, expenditure and borrowing policies  of different layers of Governments namely Central, State and local Governments including village Panchayats, urban local self Governments like municipality, corporations township etc. Theoretically  the working of these policy instruments are explained in terms of shifts in IS and LM curves.  Where IS curves denote  Investments and Savings or fiscal policy. On the otherhand LM denotes demand for and supply of money or monetary policy. IS curve shows the combinations of interest rate and income levels where Saving Investment equality take place leading to the equilibrium of the product market in the economy. On the otherhand LM curve shows combinations of interest rates and levels of income where  the demand for money (L) and Supply of money (M) are equal leading to money market equilibrium. If both product market and money market simultaneously reach equilibrium position it is termed as General equilibrium. While stalwarts like J M Keynes and others called fiscalists believed in the efficacy of fiscal or budgetary policy, Milton Friedman and other Monetarists vehemently supported the efficacy of monetary policy to deal with macro economic issues. 

CASE FOR INTEGRATION OF MONETARY AND FISCAL POLICIES 

Recently India's Finance Secretary has observed that " we have maintained the fiscal consolidation part that's important, because we need to be non inflationary in our approach .... " We have to work within a certain fiscal regime and we have to that extent, aided the monetary authority to see that if they have to do,what they have to do ,we are supportive. The fiscal policy and monetary policy need to work in tandem,not at cross roads".Economists,investors and financial experts eagerly wait for the monetary policy reports and outcomes involving monetary policy decision making based on inputs gathered from various sources. With Monetary easing we are able to maintain the inflation under control. However inflationary policies can work really in the short term to push growth  but for sustained growth we need to have full control on inflation.  India is expected to meet it's fiscal deficit target of 4,8 % this year and 4.4% of GDP in 2025-26.In short when fiscal policy and monetary policy act in tandem Government (managing  fiscal policy) and Central Bank (managing monetary policy)are coordinating their economic policy actions like simultaneously adjusting  Government spending and taxation,adjusting interest rates,money supply etc to achieve shared economic goals like stimulating growth and stabilizing both price level and balance of Payments stability. Monetary and fiscal policies can work together simultaneously during  both recessionary and high inflation period as well. 

It may be noted here that onslaught of globalisation has resulted in chronic inequality with the increasing burden on low and middle income groups while the burden of high income groups and  billionaires has reduced. Eventhough the era of hyper globalisation is over countries are currently concentrating on integration of global supply chains..At the same time the  technological development and automation are threatening to decline availability of employment growth. The appropriate strategy would be enabling technology adoption and innovation along with an inclusive economic framework. Building more inclusive economies comprises of finding the right balances between Government spending including both pre market measures like  reskilling and upskilling of the workforce. Policies can be active or passive depending on how strongly it responds to changing economic conditions.Under an active monetary policy the Central Bank uses its discretion and flexibility and allows the central bank to control moderate economic fluctuations that could create instability.Monetary policy is said to be passive when the Central Bank response  remains passive or react very slowly to changing economic conditions.Currently the Monetary policy committee (MPC) comprising of 6 members decides the policy repo rate required to achieve the inflation target in India.

CONCLUSION 

 When Monetary policy and Fiscal policy attempt to work together some policy coordination challenges is likely to crop up- like time lag in implementation ,potential for conflicting goals, rise in inflation and political interference. While exchange rate policy and inflation targeting is largely the domain of monetary policy, fiscal policy tools like taxation and public expenditure can be prudentially utilized,  it can also be swayed by both discredited politicians and palcating voters resulting in poor and undesirable consequences. Infact even if close integration in monetary  and fiscal policies may not be always feasible, regular discussion and interaction between monetary and fiscal policy experts will make policy making and implementation more efficient and effective.