Coupon Accepted Successfully!


Some of the most important measures that must be followed to control inflation are

  • Fiscal Policy: Reducing Fiscal Deficit
  • Monetary Policy: Tightening Credit
  • Supply Management through Imports
  • Incomes Policy: Freezing Wages.

Fiscal Policy: Reducing Fiscal Deficit

Fiscal policy means how a Government raises its revenue and spends it. If the total revenue raised by the Government through taxation, fees, surpluses from public undertakings is less than the expenditure it incurs on buying goods and services to meet its requirements of defence, civil admin­istration and various welfare and developmental activities, there emerges a fiscal deficit in its budget. To check inflation the Government should try to reduce fiscal deficit. It can reduce fiscal deficit by curtailing its wasteful and inessential expenditure. In India, it is often argued that there is a large scope for scaling down non-plan expenditure on defence, police and General Administration and on subsidies being provided on food, fertilizers and exports.

Monetary Policy: Tightening Credit

Monetary policy refers to the adoption of suitable policy regarding interest rate and the avail­ability of credit. Monetary policy is another important measure for reducing aggregate demand to control inflation. It affects the cost of credit through interest rate. The higher the rate of interest, the greater the cost of borrowing from the banks. Other tools of monetary policy like SLR, CRR, Repo rate, Reverse Repo rate, open market opertions are use to control inflation in the economy by draining the liquidity from the market.

Supply Management Through Imports

To check the rise in prices of food-grains, edible oils, sugar etc., the Government has often taken steps to increase imports of goods in short supply to enlarge their available supplies. When inflation is of the type of supply-side inflation, imports are increased. To increase imports of goods in short supply the Govern­ment reduces customs duties on them so that their imports become cheaper and help in containing inflation.

Incomes Policy: Freezing Wages

Another anti-inflationary measure is the avoidance of wage increases. When cost of living rises due to the initial rise in prices, workers demand higher wages to compensate for the rise in cost of living. By freezing wages of the employee can helpful in controlling inflation.


What is Casa Ratio?
Casa is basically the current and savings account deposits. Casa ratio is the share of current and savings account deposits to the total deposits of the bank. In India, interest rates paid on current and savings account deposits is administered by banking regulator - the Reserve Bank of India.
Why are banks keen on garnering a higher share of CASA?
Interest rate paid on Casa is much lower compared to other deposits like term deposits or recurring deposits. While banks do not pay any interest on current account, interest paid on savings account deposit is 4%. Banks therefore make maximum effort to increase the share of Casa on their books to reduce their overall cost of deposits. HDFC Bank has the highest share of Casa to total deposits at 52%, followed by the State Bank of India at 48% and ICICI Bank at 45%.
What does Casa mean for customers?
Recently, RBI increased interest paid on savings account deposits from 3.5% to 4%. Further a year ago, RBI told banks to pay interest on savings deposits on a daily basis rather than paying on the minimum balance maintained by them in six months. As a result, savings account customers earn better returns compared to what they earned a year ago. Further, interest earned on savings account deposits does not attract TDS (tax deduction at source). Interest income above 10,000 a year attracts TDS of 10% in case of term deposits. However, there is no major benefit for current account deposits, which is mainly maintained by corporates and traders.
What are the disadvantages of high CASA?
These deposits can move out of banks' books anytime, leading to asset-liability mismatches. While in case of term deposits, banks are almost certain that the depositor may not withdraw money before the maturity of the deposit and may also renew the deposit on maturity. Further, to finance long-term projects, banks need to have long-term liabilities on their books to avoid mismatches. Banks cannot rely on Casa deposits to fund long-term loans.

Test Your Skills Now!
Take a Quiz now
Reviewer Name