Fiscal and monetary interface in India

Abstract

Fiscal and monetary policies are two pillars of macroeconomic policy, for both accelerating growth and ensuring stability. Their relative roles and the nature of interface have been of great interest to both academics and policy makers. This paper presents a practitioner’s perspective of how the interface evolved in India. The pre-reform status of the interface, from 1950 to 1991, is briefly recalled. This is followed by a detailed account of the manner in which the interface was transformed during 1991–2003. The transformation was through mutual consultations between Government and RBI. This framework of interface was supplemented by unconventional measures between 2003 and 2008. It was put to test after the Global Financial Crisis—something that was experienced in other economies as well. This stressful interface between 2008 and 2015 has been replaced by an entirely new framework in 2016.