What are Economic Policies such as Industrial, Fiscal, and Monetary?

1. Industrial Policy

• Definition: Govt. strategy to promote growth in specific industries.

• Objectives: Boost growth, create jobs, improve competitiveness, encourage innovation.

• Tools: Subsidies, tax breaks, infrastructure support, R&D aid.

2. Fiscal Policy

• Definition: Govt. decisions on spending and taxation.

• Objectives: Stabilize economy, manage demand, ensure full employment & price stability.

• Tools:

  • Spending (e.g., public projects, welfare)

  • Taxation (e.g., tax hikes or cuts)

Types:

• Expansionary Fiscal Policy:

  • ↑ Spending / ↓ Taxes → Used during recessions.

• Contractionary Fiscal Policy:

  • ↓ Spending / ↑ Taxes → Used during high inflation.

3. Monetary Policy

• Definition: Central bank control over money supply and interest rates.

• Goal: Regulate inflation, control growth, and ensure financial stability.

• Managed by: Central banks (e.g., RBI, Federal Reserve)

Tools:

• Open Market Operations: Buy/sell govt. bonds to control liquidity.

• Reserve Requirement: Set % of deposits banks must keep → affects lending.

• Discount Rate: Interest rate for loans to banks → affects borrowing costs.

Types:

• Expansionary Monetary Policy:

  • ↓ Interest rates → Encourages borrowing and spending.

• Contractionary Monetary Policy:

  • ↑ Interest rates → Controls inflation by reducing spending.

4. Monetary vs. Fiscal Policy – Key Differences