Policy Instruments

The policy instrument deals with government interventions into market failings. From a broader perspective, the policy instrument helps accomplish goals or solve problems. The behavioural premise of a policy instrument aims to get people to figure out what they expect to do. The perfect analysis of policy instruments was started in the early 1970s, though it has been written a lot before, notably in Economics. Government authorities create interference through policy instruments in local, national or international economies. Governing authorities (the government or public) use policy instruments as a technique to promote assertive policies to achieve a predefined set of goals. 

Policy instruments keep clear and realistic objectives, which are essential for success, as policies without principles tend to lose their purpose in the long run. In addition, if there is a lack of enthusiasm, these policies will suffer in the implementation process. Some frequently and routinely used policy instruments include providing grants, guarantees and other funding sources. The scope and extent of government activity and the number of tools available for public participation have changed over the last five decades. We expect policy instruments to achieve outcomes that comply with the aim of public policy. Policy instruments can have many forms, ranging from regulatory régimes to the provision of services to help improve the performance of several businesses. We may use a policy instrument as an individual economic tool to manipulate an economic variable to achieve a lucrative objective. Policy instruments that may contain interest rates, tax rates, subsidies, minimum prices, wages and legislation are among the policy instruments.

Where can we use policy instruments?

Some creative examples of policy instruments:

• Long-term development.
• Energy policy
• Wind power
• Bioenergy projects (a term used to describe the power and gas produced from biological materials)
• Feed-in tariff
• Gases that cause global warming
• Renewable energy
• Education
• Capacity strengthening 
• Awareness-raising initiatives
• Monitoring methods
• Different cultural arrangements
• Holistic approaches 

We have identified more than 60 types of policy instruments. While we can categorise policy instruments in many ways, authorities can categorise them into four main categories. 

The descriptions of the various categories are as below:

• Instruments of Law and Regulation
• Rights-Based Instruments and Customary Norms
• Economic and Financial Instruments
• Social and Cultural Instruments

We can consider these categories separately or within the context of a policy mix. Categories may reflect different circumstances and priorities across administrative scales, e.g., subnational, national and international. These different categories apply to many worldviews and sociocultural contexts. The allocation of responsibilities, costs and gains from biodiversity protection and usage must change appropriately with policy instrument selection.

Instruments of Law and Regulation

Implementing and expressing laws and regulations at different levels can encourage positive relationships between the protection of environmental functions and human wellbeing. The perfect balance between designing legal certainty and implementing such policy instruments can boost socioeconomic flexibility. Legal and regulatory mechanisms cover unexpected risks. Social and environmental norms and principles can inform the content and procedural features of policy tools.

Rights-Based Instruments and Customary Norms

If we synergise rights and norms for the conservation and protection of the earth, it can boost our integrality as humans. International and national human rights instruments, whether binding or non-binding, can be creatively interpreted to fit socio-ecological systems and foster flexibility. Strengthening indigenous peoples’ collective rights, values and equitable and fair natural resource management can facilitate adaptive governance.

Economic and Financial Instruments

We use economic and financial instruments to change people’s behaviour towards desired policy objectives. Policy instruments typically encompass a wide range of design and implementation approaches. Policy instruments include traditional fiscal mechanisms, including subsidies, taxes, charges and fiscal transfers. Policy instruments also reflect conditional and voluntary incentive systems, such as payments for ecological services. Policy instruments seek to represent the socioeconomic costs and benefits of biological diversity protection and its usage with ecological services. Financial instruments, on the other hand, are frequently extra-budgetary. Authorities expect support through local and international aid. It may be from external borrowing or debt for natural swaps, among other reasons. In general, we may treat policy instruments as affecting people (consumers and providers) and governmental authority behaviour.

Examples of instruments:

• Program for the Exchange of Non-Timber Forest Products
• Payments for Ecosystem Services 

Social and Cultural Instruments

Instruments for natural and cultural assets that focus on the linked connections between ecosystems and sociocultural phenomena are popularly known as “social and cultural instruments.” They include heritage sites such as sacred sites, peace parks, indigenous and community conserved areas. 

The appropriate geographical jurisdiction varies depending on the instrument. Social mechanisms are beyond economic and financial policy instruments. 

Awareness-based voluntary interventions may include:

• Information related instruments like environmental education, eco-labelling, pollutant acquittance, transfer registers, biodiversity registers, awareness-raising, information dissemination; community right to know
• Self-regulation, voluntary agreements, corporate social responsibility, buyer-supplier relations
• Participation
• Some authoritative people can influence the actions of indigenous peoples, local communities and local resource users’ collective efforts, among other things.

Attempts to create a taxonomy of policy instruments based on their qualities have long dominated research into policy instruments. One of the earliest is Christopher Hood’s typology, which distinguishes between various tools for data collection and policy instruments designed to impact societal growth. 

Three Families of Policy Instruments:

• Policy Instrument
  • Positive 
  • Negative
• Regulatory
  • Prescriptions
  • Prohibitions
• Economic
  • Grants or Subsidies
  • Taxes, User Charges
• Communicative 
  • Information
  • Propaganda
• We can design the genuine concept of policy instruments. Experts recommend six steps, as under:
• We can develop a regional context with analysis and tap the innovation potential
• We can expect active participation with proper governance
• We can discuss an overall vision for the future of the region
• We can identify the priorities
• We can define a rational or sound policy mix through roadmaps and action plans
• We can integrate mechanisms for monitoring and evaluation

What can one expect?

• We have a piece of well-designed evidence and a place-based strategy
• We expect the owner of the plan to include all interested stakeholders
• With regional assets, we forecast with adjustments to priorities
• We predict we will focus on a few priorities.
• We await a well-thought-out evaluation and impact assessment system

Explanation of policy instruments

RBI monetary policy is an ideal example of the appropriate use of policy instruments. Monetary policy is a regulatory policy in which the central bank retains control over money to achieve broad economic objectives. The primary policy instruments are the Cash Reserve Ratio, Statutory Liquidity Ratio, Bank Rate, Repo Rate, Reverse Repo Rate and Open Market Operations. Monetary policy refers to the credit-control measures enacted by the country’s central bank. In the case of the Indian economy, the RBI is the sole monetary authority that determines the supply of money in the economy. 

We can classify the monetary policy instruments into two types:

Quantitative Methods

• Bank Rate Policy
• Legal Reserve Ratios
• Open Market Operations 
• Repo Rate
• Rate of Reverse Repo

Qualitative Methods

• Regulation of Consumer Credit
• Marginal Requirement Modification
• Moral Suasion

The quantitative and qualitative methods of monetary policy aim to accelerate growth and stability by controlling the credit supply in the economy. Both quantitative and qualitative instruments have advantages and disadvantages, but they are crucial for our economic balance and price stability. Our RBI governor presents that credit policy and financial budget.  

Conclusion:

Though it has been published many times before, the proper analysis of policy instruments began in the early 1970s. The policy tool is used to intervene in market failures by the government. Policies without principles tend to lose their purpose over time, so policy instruments must maintain clear and realistic aims. These policies will suffer in the implementation phase if there is a lack of enthusiasm. RBI monetary policy is an ideal example of the appropriate use of policy instruments. Monetary policy is a regulatory policy in which the central bank retains control over money to achieve broad economic objectives.