PROJECT REPORT ON MONETARY POLICY AND AGRICULTURE DEVELOPMENT IN SINGAPORE IN PARTIAL FULFILLMENT OF THE DEGREE AWARDED AT M.COM PART I (GROUP) SEMESTER I Economics of global trade SUBMITTED TO UNIVERSITY OF MUMBAI FOR ACADMIC YEAR 2012-2013 SUBMITTED BY, NAME: PRAKASH RANJAN ROLL NO: 30 VIVA COLLEGE OF ARTS COMMERCE AND SC IENCE VIRAR (WEST) 401303.
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
"A policy employing the central banks control of the supply of money as an instrument for achieving the
objectives of general economic policy is a monetary policy."
According to A.G Hart
"A policy which influences the public stock of money substitute of public demand for such assets of both
that is policy which influences public liquidity position is known as a monetary policy."
Monetary PolicyMonetary policy is one of the two most important regulatory framework to
maintain consistency in the economy, hence, economic development. Monetary policy is a major part of
the state policy or precisely part of the economic policy persuedby the state for attaining it‘s goals. It
primarily involves decisions regarding monetary management Major Objectives.
Monetary Policy Definition. Monetary Policy is used to describe the activities undertaken by a
government agency, typically the central bank of a country, to moderate the supply of money, availability
of money, and cost of money or rate of interest to help promote economic growth, price stability, high
employment, and a stable currency for use in international trade transactions. The Federal Reserve
System is the monetary agency and central bank in the United States. The Fed carefully reviews the status
of the domestic economy and, based on that review and accepted economic theories, formulates policies
designed to obtain desired economic objectives in the marketplace. Generally, Monetary Policy is
regarded as either expansionary or contractionary. The former is achieved by rapidly expanding the
money supply in the economy, and the latter relates to the opposite approach. The general method used is
to regulate interest rates as a means to achieve these objectives. The counterpoint to Monetary Policy isFiscal Policy, which is the process of stimulating or contracting the economy through the use of
government spending, borrowing and taxation Monetary policy.
The objectives of a monetary policy in India are similar to the objectives of its five year plans. In a
nutshell planning in India aims at growth, stability and social justice. After the Keynesian revolution ineconomics, many people accepted significance of monetary policy in attaining following objectives.
Rapid Economic Growth
Price Stability
Exchange Rate Stability
Balance of Payments (BOP) Equilibrium
Full Employment
Neutrality of Money
Equal Income Distribution
Rapid Economic Growth : It is the most important objective of a monetary policy. The monetary
policy can influence economic growth by controlling real interest rate and its resultant impact on the
investment. If the RBI opts for a cheap or easy credit policy by reducing interest rates, the investment
level in the economy can be encouraged. This increased investment can speed up economic growth.
Faster economic growth is possible if the monetary policy succeeds in maintaining income and price
stability.
Price Stability :
All the economics suffer from inflation and deflation. It can also be called as Price Instability. Both
inflation are harmful to the economy. Thus, the monetary policy having an objective of price stability
tries to keep the value of money stable. It helps in reducing the income and wealth inequalities. When the
economy suffers from recession the monetary policy should be an 'easy money policy' but when there is
inflationary situation there should be a 'dear money policy'.
Exchange Rate Stability : Exchange rate is the price of a home currency expressed in terms of any
foreign currency. If this exchange rate is very volatile leading to frequent ups and downs in the exchange
rate, the international community might lose confidence in our economy. The monetary policy aims at
maintaining the relative stability in the exchange rate. The RBI by altering the foreign exchange reserves
tries to influence the demand for foreign exchange and tries to maintain the exchange rate stability.
Balance of Payments (BOP) Equilibrium : Many developing countries like India suffers from the
Disequilibrium in the BOP. The Reserve Bank of India through its monetary policy tries to maintain
equilibrium in the balance of payments. The BOP has two aspects i.e. the 'BOP Surplus' and the 'BOP
Deficit'. The former reflects an excess money supply in the domestic economy, while the later stands for
stringency of money. If the monetary policy succeeds in maintaining monetary equilibrium, then the BOP
equilibrium can be achieved.
Full Employment : The concept of full employment was much discussed after Keynes's publication of
the "General Theory" in 1936. It refers to absence of involuntary unemployment. In simple words 'Full
Employment' stands for a situation in which everybody who wants jobs get jobs. However it does notmean that there is a Zero unemployment. In that senses the full employment is never full. Monetary
policy can be used for achieving full employment. If the monetary policy is expansionary then credit
supply can be encouraged. It could help in creating more jobs in different sector of the economy.
Neutrality of Money : Economist such as Wicksted, Robertson have always considered money as a
passive factor. According to them, money should play only a role of medium of exchange and not more
than that. Therefore, the monetary policy should regulate the supply of money. The change in money
supply creates monetary disequilibrium. Thus monetary policy has to regulate the supply of money and
neutralize the effect of money expansion. However this objective of a monetary policy is always
criticized on the ground that if money supply is kept constant then it would be difficult to attain price
stability.
Equal Income Distribution : Many economists used to justify the role of the fiscal policy is
maintaining economic equality. However in resent years economists have given the opinion that the
monetary policy can help and play a supplementary role in attainting an economic equality. monetary
policy can make special provisions for the neglect supply such as agriculture, small-scale industries,
village industries, etc. and provide them with cheaper credit for longer term. This can prove fruitful for
these sectors to come up. Thus in recent period, monetary policy can help in reducing economic
Large percentage of money never come in the mainstream economy. Rich people, traders, businessmen
and other people prefer to spend rather than to deposit money in the bank. This shadow money is used for
buying precious metals like gold, silver, ornaments, land and in speculation. This type of lavish spending
give rise to inflationary trend in mainstream economy and the monetary policy fails to control it.
6. Time Lag Affects Success of Monetary Policy
The success of the monetary policy depends on timely implementation of it. However, in many casesunnecessary delay is found in implementation of the monetary policy. Or many times timely directives
are not issued by the central bank, then the impact of the monetary policy is wiped out.
7. Monetary & Fiscal Policy Lacks Coordination
In order to attain a maximum of the above objectives it is unnecessary that both the fiscal and monetary
policies should go hand in hand. As both these policies are prepared and implemented by two different
authorities, there is a possibility of non-coordination between these two policies. This can harm the
interest of the overall economic policy.
These are major obstacles in implementation of monetary policy. If these factors are controlled or kept
within limit, then the monetary policy can give expected results. Thus though the monetary policy suffers
from these limitations, still it has an immense significance in influencing the process of economic growth
1 In October last year, Monetary Policy increased slightly the slope of the S$NEER policy band, with no
change to the level at which the band was centred. This policy decision was made in light of upside risks
to inflation amidst sustained high levels of domestic economic activity. At the same time, the policy band
was widened slightly to accommodate volatility across international financial markets.
2 Since then, the S$NEER (Chart 1) has appreciated gradually within the upper half of the policy band.
This took place in the context of a general strengthening in regional currencies given broad-based
weakness in the US$ and continued investor interest in higher-growth Asian and emerging markets.
Amidst conditions of abundant global liquidity, the domestic three-month interbank rate has eased further
since end-October last year to 0.44%.
OUTLOOK FOR 2011
3 The Singapore economy saw a step-up in the level of economic activity in Q1 this year following aslowdown in H2 2010. According to the Advance Estimates released by the Ministry of Trade and
Industry today, Singapore‘s GDP expanded by 23.5% on a quarter -on-quarter seasonally adjusted
annualised basis in Q1 2011. The expansion was broad-based across the trade-related1 and services
sectors, reflecting an improvement in final demand.
Agriculture is of very limited significance to the Singapore economy, representing only 0.1 per cent of
GDP, estimated at S$134 billion (US$84 billion) in 1998. Agriculture products include vegetables, eggs,
fish, milk, and ornamentals, namely orchids and other ornamental plants, and ornamental fish.
Approximately 90 per cent of food consumed in Singapore is imported. In 1998, value of total supply of
primary produce was S$2 billion.
Singapore is an island city state consisting of a total land area of 647 sq km. With limited land and sea
resources for agriculture, Singapore‘s agricultural developments take place mainly in allocated areas,
called Agro technology Parks on land and Marine Parks at sea. These Parks are developed and managed
by the Department, and cover a total of 2,000 ha, with 1,500 ha for Agro technology Park development
and 500 ha for Marine Park development. Agro technology is the application of modern science and
technology to large-scale, intensive farming so as to optimise use of resources and increase yield and
productivity in the farm. It is the aim of the Department that, in the long-term, Singapore could develop to
become an agro technology centre focussing on tropical and urban agriculture.
There are six Agro technology Parks, with 441 farms occupying some 1,034 ha (1998 figures), producing
vegetables, eggs, fish, milk, as well as ornamental plants and fish. Usually the Parks have a mix of farms.
This is to minimise spread of disease specific to a single type of species of plant or animal and to
minimise environmental impact and pollution. Adjacent to the Lim Chu Kang Agro technology Park, a 10
ha Agri-Bio Park has been established, which is dedicated to agri-biotechnology investments. The Marine
Parks are for marine fish farming, there being five Parks with 90 floating fish farms producing both
finfish and shellfish. The Department regulates the number of floating farms in each Park so as to prevent
water stagnation and poor water quality within the farming site. The agricultural products, with the
exception of the ornamentals, are destined for domestic consumption, which is relatively high, in terms of per capita consumption. Example: per capita consumption of chicken is 32 kg, pork 23 kg, fish 26 kg,
PUB uses the Singapore Standards (SS) CP 48:1989 – Code of Practice for Water Supply (published by
the Productivity & Standards Board of Singapore). The SS serve as a guideline for architects, professional
engineers and licensed plumbers. Where applicable, the equivalent British Standards and ISO standardsare also used.
Decision-Making: Strategies, Policies and Plans
Singapore has a national policy that covers all of the major issues relating to freshwater management.
Under the drainage development programme, the Ministry of the Environment (ENV) builds new drains
and canals to reduce flooding in flood-prone areas and to provide drainage outlets for new developedareas. Singapore also maintains 22 tide-gates to protect low-lying areas against tidal inundation.
PUB has contingency plans and operating procedures to cope with prolonged dry weather situation. These
include early alerting of the public to conserve water.
Singapore‘s water pricing policy is based on cost-recovery and support of water conservation objectives.
There are fiscal incentives to promote water conservation in industry and monetary penalties to
discourage wasteful use of water. The water tariff structure comprises two broad categories: (i) domestic(households) and (ii) non-domestic (industrial and commercial). The water conservation tax, which is a
percentage of water charges, is imposed. Currently, the non-domestic tariff is a flat rate for all
consumption levels while the domestic tariff comprises three consumption block rates. However, since
July 1997, annual tariff adjustments will be made up to year 2000 to bring the domestic water tariffs (for
consumption of 40 cubic metres per month or less) into a uniform flat rate with the non-domestic tariff.
The objective is to reflect the strategic importance of water and to prepare consumers for the higher cost
of water from future sources. Water costs are fully (100 percent) recovered through pricing.
Prevention of pollution of freshwater supplies for potable use is effected through pollution surveillance of
catchments, which includes enforcement action by the relevant agencies, and constant water quality
Orchard Road, now one of Singapore's most up-scale thoroughfares, got its name because it
originally was lined with fruit orchards and vegetable gardens. Although contemporary Singapore still
maintained a tiny agricultural base, by 1988 urbanization had reduced the land area used for farming toonly about 3 percent of the total. Nonetheless, with intensive production, the farming sector met part of
the domestic demand for essential fresh farm produce: poultry, eggs, pork, some vegetables, and fish. In
1988 there were 2,075 licensed farms occupying only 2,037 hectares of land, with a total output of some
S$362 million worth of farm produce. A decade earlier farm holdings had covered 1,280 hectares.
The Primary Production Department, under the Ministry of National Development, ensured an adequate
and regular supply of fresh produce and provided support for agro-industries, including research and
development aimed at improving commercial and hightechnology farming. The department projected in
1988 that a total of 2,000 hectares of land in ten agro-technology parks would be developed and rented
out for long-term farming over the next decade.
The government began phasing out pig farming in 1984 because of odor and environmental pollution.
Some 200 pig farms raising about 500,000 pigs in 1987 were scheduled to be reduced to 22 farms with
300,000 pigs by 1990. Imports from Malaysia, Indonesia, and Thailand would be increased to meet
domestic needs. Some 1,000 poultry farms kept a total of about 2.2 million layers, 1.6 million broilers,245,000 breeders, and 645,000 ducks. Singapore remained free of major animal diseases.
Singapore grew 5.6 percent of its total supply of 180,000 tons of fresh vegetables in 1988 and imported
the rest from Malaysia, Indonesia, China, and Australia. The main crops cultivated locally included
vegetables, mushrooms, fruit, orchids, and ornamental plants. About 370 vegetable farms produced an
estimated 10,000 tons of vegetables, and mushroom cultivation expanded rapidly after the mid-1980s.
The Mushroom Unit of the Primary Production Development conducted research on mushroom
cultivation and advised commercial mushroom growers, who produced a variety of mushrooms for the
local market.
Noted for its orchids, Singapore exported flowers worth S$13.8 million in 1988, mainly to Western
Europe, Japan, Australia, and the United States. Singapore's 153 orchid farms produced another S$2.2
Local fishermen provided about 13 percent of the country's 110,000-ton fresh fish supply in 1988, using
three major fishing methods--trawling, gill-netting, and long-lining. There were about 1,170 licensed
fishermen operating nearly 400 fishing vessels, most of which were motorized. The Jurong Port andMarket Complex was a major fish landing point for both domestic and foreign vessels and handled 84
percent of the total fresh fish supply in 1988. Many foreign vessels brought their catches there for
processing and reexport. Fresh fish arrived also by truck from Malaysia and Thailand and by sea and air
from other neighboring countries.
Fish farming was a small but growing field. In 1988 seventyfour licensed marine fish farms raised mainly
high-value fish such as grouper and sea bass in a total of forty hectares of coastal waters. Many of the
farms had also introduced prawn farming in floating cages. Exports of ornamental fish for aquariums
amounted to S$60 million in 1988. Some 400 licensed aquarium fish farms operated in Singapore in
1988, including 36 commercial farms operating in the Tampines Aquarium Fish Farming Estate.