MTP Project

Submitted by Group 4 (Sec-E):

Adarsh Goyal - BD22004
Aman Chawla - BD22010
Harshita Shrivastava - BD22022
Kavya Sai - BD22031
Tanmay Gupta - BD22055
Vaibhav Aggarwal - BD22057

PART-1
A. What are your goals?

1. Fight Climate Change – “Save the planet”, “Reduce our carbon footprint”, “Stop Global
Warming.”

2. Invest in the Future – “Invest now for rewards later”, “Improve our roads and airports”,
and “Invest in Innovation.”

3. Reduce Inequality – “What about the 99%?”, “We’re too rich to accept poverty”, “Share
the wealth.”

B. Reason behind choosing these goals

1. Fight Climate Change

We chose "Fighting Climate Change" as one of our goals because it is practically one of the
hottest topics across the globe and countries are paying more attention to climate change for a
sustainable future. The more we delay, the more pay, hence taking climate action now is the
need of the hour. Investing more in sustainable development can promote economic growth and
improve people's health. Switching to green and good climate practices will decrease the debt
on countries as well, as this will decrease the burden of imports of oil and natural gasses, and
enable countries to become energy sufficient.

2. Invest in the Future

As the leader of the country or any organization, it is essential to understand that social and
economic development are intrinsically linked. It means that children's education, health, and
nutrition are essential and instrumental in nurturing competitive, dynamic, and thriving
economies. More importantly, investing in human capital will definitely yield huge returns if the
policies and actions by the concerned authorities are well-designed.
Also, this remains largely untapped, and infrastructure remains one of the most important
factors in any economy. Due to these reasons, we have selected this as one of our goals.

3. Reduce Inequality
We chose this as the third goal as we have been witnessing the increase in the gap between
rich and poor, especially in advanced economies, and under any unexpected circumstances like
any natural calamity or even the pandemic, these people are most vulnerable to health and
economic shocks and have been hit the hardest. Moreover, the growth of countries depends on

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the overall development of all its citizens, and it should be the topmost priority of the
government and policymakers to take care of the most deprived section of society and provide
equal opportunities to them for growth and development.

C. While choosing policies, does any one goal dominate your decision? Justify.

While choosing policies, our primary focus was on policies that impact the country's better future
while serving other goals. We tried to keep “Invest in the future” as our prime goal as it covers
part of other goals and also helped us decrease and stabilize the debt line.
Policies like increasing carbon tax, extending renewable energy tax credits, and free college
debt helped us achieve multiple goals. Moreover, investing in the future helped focus more on
overall human development, including focusing on the children's education, health, and nutrition,
which seemed very important to us as policymakers. Although a few policies also affected the
other goals negatively but overall had a positive impact like an increased tax on alcohol,
eliminating funding for Amtrak, and ending human space exploration. We felt that few of these
policies either didn’t affect or negatively affected the goals but were still selected keeping in
mind the overall debt line of the country.

D. From the attached set of policies, pick any five that you haven't chosen and mention
whether they could have helped you achieve your goals.

Our central focus was on investing and improving the future, and hence most of the policies
selected are focused on that. From the remaining set of policies, we have identified the following
five policies which could have further helped us achieve our goals-

1. Increase the gas tax - As the world moves away from fossil fuels and towards more
sustainable solutions, this policy could have helped us fight climate change.

2. Boost low-wage workers' Social Security - Eliminating inequality remains to be our

one of our most important goals. By boosting Social Security, we could have further
reduced inequality.

3. Increase child care subsidies - Children are the future of any economy, and increasing
childcare subsidies will have a double effect - it will help in investing in the future and
also help in reducing inequalities.

4. Using income taxes to fund Social Security - Income tax is one of the most important
sources of revenue for any economy. Hence, this can be used to fund social security,
which will further help in reducing inequality.

5. Eliminate the cap on wages subject to a payroll tax - By eliminating the wage cap,
the payroll tax would be applied to all wages, regardless of the amount, making the tax
more progressive. This will help in reducing inequality.

2
 PART-2
In its last monetary policy meeting, RBI raised the repo rate. Write a 2-page report
justifying the following

a. RBI has done right in increasing the repo rate

Repo rate: The interest rate at which central bank provides money to all other banks
when they want to borrow.

“7th December 2022 – Reserve Bank of India (RBI) raises repo rate by a smaller 35
basis points amid moderating inflation pressure.”
(Source:https://cleartax.in/s/repo-rate#:~:text=One%20way%20to%20do%20this,which%20helps%20in%20
controlling%20inflation)

RBI has done right in increasing the

repo rate because increase in repo
rate causes it difficult for banks to
borrow money from central bank which
in turn leads to lesser money flow in
the economy, leading to reduction in
prices of goods and services, helping
to reduce the inflation. Shown are the
past trends of repo rates vs inflation.

(Source:https://www.google.com/url?sa=i&url=https%3A%2F%2Fgoldenpi.com%2Fblog%2Fessentials%2Fb
ond-market%2Fimpact-of-hike-in-repo-rate-on-the-indian-economy%2F&psig=AOvVaw1HZjzkf9tZ04kT95Ix6
8UR&ust=1673446304252000&source=images&cd=vfe&ved=0CBAQjRxqFwoTCICC8riXvfwCFQAAAAAdA
AAAABAI)

Hence we can observe that the repo rate and inflation have an inverse relation with each
other. Inflation can be detrimental to the lower and middle class people as well as to our
currency value. Hence increase in repo rate by RBI can be justified as a motive to
control the inflation in our economy.

b. RBI should have gone for a pause.

In 2022 alone, RBI has increased the repo rate as

many as four times from 4.40% to 6.25%. Increase
in repo rate in turn leads to increase in interest
rates by the banks. Which in turn leads individuals
and business to reduce their expenditures causing
the economy to slow down.

3
With the economy already slowed down after the covid pandemic, such repeated rises in
the repo rate will further discourage the economic growth.

Stock markets also come down with increase in repo rate as the investors are
discouraged with the interest rates. Above shown image is the reaction of stock market
after raise in repo rate on Jun 8, 2022.
(Source:https://www.google.com/url?sa=i&url=https%3A%2F%2Fwww.business-standard.com%2Farticle%2
Ffinance%2Frbi-raises-repo-rate-by-50-bps-to-tame-prices-pegs-fy23-gdp-growth-at-7-2-122060900047_1.h
tml&psig=AOvVaw3bH4SG29ssIrHIOHvGa7TV&ust=1673447616359000&source=images&cd=vfe&ved=0C
BEQjhxqFwoTCMixhKqcvfwCFQAAAAAdAAAAABAD)

Hence RBI should have gone for a pause for the decision in change of repo rate and let
the economy recover from the pandemic effect.

c. RBI should have decreased the repo rate.

Though RBI wanted mainly to combat inflation,

increase in repo rate can have many negative
impacts on the economy and people. It reduces
the purchasing power of people which in turn
reduces the overall demand and hence slow
down the economic growth.
Shown is the graph showing trend of how
changes in repo rate affected GDP from 2002
to 2012.
(Source:https://www.google.com/url?sa=i&url=https%3A%2F%2Fwww.srjis.com%2Fpages%2FpdfFiles%2F
15700089547.%2520Mr.%2520Manikandan%2520N.%2520Iyer%25202.pdf&psig=AOvVaw04_VriruzA_qezl
HMZz_1S&ust=1673448629156000&source=images&cd=vfe&ved=0CBEQjhxqFwoTCJDDx5GgvfwCFQAA
AAAdAAAAABAv)

• The increase in interest rates also cause raise in EMIs which discourage people
from becoming homeowners or taking any kind of loans.
• Investors in mutual funds also get discouraged due to the increase in interest
rates. The interest rate increase particularly has impacts long duration bond funds. This
is because bond prices decline as yield increases, which lowers the return on debt
investments.
• The real estate sector which was improving in sales due to low cost of financing
will be impacted by the rise in repo rate by RBI.
• With Covid-19 impacting many individuals, especially the common people, their
struggle is further going to worsen with the limited purchasing power due to money
supply crunch in the economy.
Hence RBI should have decreased the repo rate to help economy and GDP of the
country grow back improving the condition of the common man.