Monetary and Fiscal Framework in Islamic Finance in Hindi and Urdu |Handout Notes
Introduction Islamic economics project was launched by Muslim economists in 1976 with the holding of the first international conference on the subject in Makkah. The main constituency of this initiative was the Muslims. Speedy development and quick recognition required focus on issues of practical significance for Muslim countries at that time. Accordingly, economic development, income distribution, poverty and macroeconomic policies were part of the initial research agenda. Fiscal and monetary policies were thus among the subjects that attracted attention of Islamic economists quite early. This happened when contour of the subject of Islamic economics were yet to be defined. Two international seminars on monetary and fiscal economics of Islam were held at Jeddah and Islamabad in 1978 and 1980, respectively. Since then, the discourse on these themes coincides with the development of Islamic economics in general. Fiscal policy works through the government budget in a country.
“Government” includes national, provincial/state, county/district and other local governments. However, the literature on fiscal policy generally focuses on fiscal action by the central government. Fiscal policy works through expenditures, taxes and subsidies at the government level. Sometimes public debt also becomes a guiding consideration. Monetary policy is concerned with monetary management by the monetary authority in a country. It revolves around volume of liquidity— purchasing power—in an economy. It works through the volume of money supply (high-powered money) and variations in the rates at which resource-surplus and resource-short units in the economy carry out their exchanges, whether directly with one another or through financial intermediaries. Traditionally executing authorities for both the policies are different: the treasury, alias government, for fiscal policy and the central bank for monetary policy. Linkage between both the policies is recognized in the mainstream economics literature.
But that is limited mostly to the case of deficit financing when government expenditure is not tax-financed. In such an instance, the monetary scene is affected by either injection of fresh money supply into the economy or shift of resources from the private sector to the public sector through public borrowing. Where do the things stand in this regard from the Islamic economics perspective? And, what is the likely line for further research? This study looks into these matters. Organization of the argument is as follows. State of the existing thinking is briefly reviewed in section 2. Survey of the literature reveals gaps in the area of institutional framework for these policies. Accordingly, the issue of institutional framework is dilated upon in section 3. Among other things, this includes nature and role of government in the light of the Shari[ah principles. In section 4 the goals of macroeconomic policy, in general, and those of fiscal and monetary policies, in particular, are separately discussed. International conferences and seminars have played defining role in the development of literature on Islamic economics. This is more so in the case of the subject of this study. The process of these symposia involves issuance of a call of papers along with identification of topics for research, writing of papers on the approved themes and presentation of the approved papers by the respective authors. The entire exercise is completed in a set time-frame