A Comparison of Monetary and Fiscal Policies of the United Arab Emirates and India

Both monetary and fiscal policies have the aim of steering the economy of a country in the right direction for further development. Using specific tools, administrations do their best to avoid undesirable and unexpected effects, which may hit the population expectations, the inside and outside markets, and the state’s position in the world. Fiscal policy is concentrated on changing tax norms and levels of government spending to influence the demand. It has its roots in John Keynes’ research in the area and his work The General Theory of Employment, Interest, and Money. The Keynesian school assumes that state has the power of limitations for solving critical situations. However, the opponents do not agree with this (Amadeo, 2016). Monetary policy uses the tools of setting interest rates and influencing the money supply. The arrangements are faster to implement so they can be considered helpful during “the change of the scenery.” Fiscal measures are taken by the government, and decisions are the responsibility of central banks and authorities in the sphere. These tools are mainly used in the modern world simultaneously for reaching a balanced position. The complex approach intends movement towards a stable and growing economic situation, balanced self-regulation of prices, total resources involvement, etc. An administration may choose the expansionary or contractionary direction of policies, depending on the targets followed. For further comparison of two fiscal and monitory policies, the economic situation in UAE and India will be considered.

The United Arab Emirates has an open state economy and expansionary fiscal and monetary policies. The country was established in 1971 and consists of seven emirates. Arabic is the official language though English is widespread as well, and Islam is the official religion. The UAE is known for its rich oil reserves, which are the seventh-largest in the world. The export of oil and gas constitutes the basis of trade operations. However, in the latest decade, Emirates have greatly diversified it. In the Cooperation Council for the Arab States of the Gulf (Gulf Cooperation Council, GCC), the UAE economy is one of the largest (“United Arab Emirates economic outlook – spring 2016,” n. d.). In 2015, the GDP was $ 370.29 billion, and the GDP per capita was more than $ 39,000. The economy shows a budget surplus in the recent years. The advantages of the monetary and fiscal policies of UAE are fast developing infrastructure, large-scale diversification, the significant market role of the private sector, and the availability of free trade zones. All these facts, without any doubt, attract investments and capital expenditure. However, the country was hit by a crisis in 2007-2010. The challenges of oil dependence, expatriation, and inflation still have to be overcome. Still, the United Arab Emirates is moving into the future, concentrating on high educational levels of the young generation and population procuring with work places.

India is one of the largest countries in the world by territory and it is chasing China in terms of the rapidly increasing population. In 2016, about 1,334,945,000 people lived in India (“India population clock,” n. d.). The Republic of India (official name) became independent in 1950 (earlier it was the part of British Empire). Today, India is full of contrasts, diversity of religions, languages, and cultures. The country showed the seventh result in the world by GDP level ($ 8.727 trillion) in 2015. Considering the number of citizens, GDP per capita remained at the mark of approximately $ 1.800 in 2015 (about $ 2,000 in 2016). It deserves to be improved and has shown a positive dynamic lately. Since 1991, India has become a market-based economy. However, in the following decade, it still suffered the consequences of protectionism that was the consequence of the previous government. The largest economic crisis of the 21st century let India rebound quite fast, because of the high domestic demand. Nowadays, the country is a fast-growing industrialized giant. The service sector, industry, and agriculture formulate the basis of Indian economy. India still experiences a budget deficit, faces the problems of poverty, corruption, discrimination, lack of education (more than 200 million people remain illiterate), and infrastructure development difficulties. There have been significant successes during the last several years, though. The relatively low dependency on external factors and integration into the world trade processes, as well as high investment interest and the increasing level of the employed population make India’s position in the world more and more stable.

Both countries, the United Arab Emirates and India, provide expansionary monetary and fiscal policies. The countries are relatively “young.” They are still in the process of revealing their full potential in many spheres of life. Hence, changes in economies (manufacturing, agriculture, or natural resources extraction, services, outsource) are among the fastest and the most qualitative (“Country vs country,” n. d.). Some points of the countries’ economies are based on the availability of natural resources. Others are repercussion of historical events. Excluding independent showing, UAE and India have experienced a spurt in the previous decade. Comparing the instruments and models of fiscal and monetary policies and their balance, the differences will be analyzed hereinafter.

In fiscal policies, both countries work in the direction of diversification. However, UAE’s economy is still highly dependent on oil and gas extraction, while India shows a set of varied components (e.g. outsource interest increase). On the other hand, matching the indexes of unemployment shows the “victory” of UAE in percentage terms (“The annual economic report 2015,” n. d.). Comparing the taxation norms, the indicators in India are much higher. For example, corporate and personal income tax rates exceed 30%. In the UAE, the corporate one is at a 55% level, while the personal one is absent (has to be set since 2018, 5%) (“India sales tax rate,” n. d.; “United Arab Emirates sales tax rate,” n. d.). Social security marks are above in India too. However, it is evident without exploring the sphere more than social insurance, and the provision of the population are more qualitative in the UAE.

When it comes to monetary policies, the UAE shows a positive balance of trade (import and export). In India, this number is negative (the country buys more than sells). The amount of external debt is more than twice larger for India ($ 480 billion in 2015) than for the UAE ($ 204 billion the same year). The inflation level is higher in India (about 4.2 percent for now). However, in 2016 it has shown a more positive dynamic than the UAE, where it has increased a lot (from 0.5 to almost 2 %). India leads in the amount of gold reserves, but the UAE prevails in the volume of crude oil production (“India gold reserves,” n. d.; “United Arab Emirates gold reserves,” n. d.). India experiences a ponderable capital flow, and open market operations are precisely considered by the Reserve Bank of India. The scale of these procedures in the Emirates is high but falls behind in any case.

In conclusion, the evaluation of the appropriateness of the fiscal and monetary methodologies and tools in the Republic of India and the United Arab Emirates has to be considered. Both countries are similar in choosing the path for future development, betting on diversification, and integration into worldwide processes. At the same time, India and the UAE are very different, and each state has its own course of action defined. A conclusion can be made that for India the time of abrupt changes is coming soon. For the UAE, the policy of being totally dependent on gas and oil has not proven itself. Therefore, the course of variety and expansion of economic opportunities is the appropriate one.