Fiscal policies in respect of India

1. Presentation on
“Fiscal policies & deficit financing”
Submitted To :
Dr. Gayatri Gupta
Submitted By :
Ayush yadav
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2. Index
 Introduction of fiscal policies.
 Fiscal deficit and surplus.
 Introduction of deficit financing.
 Reasons for financial deficit.
 Objectives of deficit financing.
 Adverse effects.
 Limitations of deficit financing.
 Is deficit financing is inflationary?
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3. What is fiscal policies?
 The fiscal policy is concerned with the
raising of government revenue and
incurring of government expenditure.
 To generate revenue and to incur
expenditure, the government frames a
policy called budgetary policy or fiscal
policy. So, the fiscal policy is concerned
with government expenditure and
government revenue.
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4. What is fiscal policies?
 Fiscal policy deals with the taxation and
expenditure decisions of the government.
 Fiscal policy is composed of several parts.
These include, tax policy, expenditure
policy, investment or disinvestment
strategies and debt or surplus
management.
 Fiscal policy is an important constituent of
the overall economic framework of a
country. 4

5. What is fiscal deficit/surplus?
 When the government receives more than it
spends, it has a surplus.
 If the government spends more than it
receives it runs a deficit. To meet the
additional expenditures, it needs to borrow
from domestic or foreign sources.
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6. Fiscal deficit
 Fiscal deficit is the
difference between
the government total
expenditures and
total receipts.
 Fiscal deficit= govt.
exp.- govt receipts.
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7. Reasons for fiscal deficit
Increase in
Subsidies
Payment of
Interest
Defense
Expenditure
Poor
Performance of
Public Sector
Tax Evasion
Unproductive
expenditure by
the government
Huge
Borrowings
Weak Revenue
Mobilization
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8. Deficit financing
 Deficit financing is defined as financing the
budgetary deficit through public loans.
 Deficit financing is an approach to money
management that involves spending more
money than is collected during the same
period.
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9. Objective’s of deficit financing
 To finance war.
 Economic development.
 Mobilization of resources.
 To granting subsidies.
 To increase in aggregate demand
 For payment of interest.
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10. To finance war
 Deficit financing has generally being used as a
method of financing war expenditure.
 During the war time through normal methods of
raising resources. It becomes difficult to
mobilize adequate resources. Therefore
government has to adopt deficit financing
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11. Economic development
 The main objective of deficit financing in an
under developed country like India is to
promote economic development
 The use of deficit financing in fact becomes
essential for financing the development plan
especially in underdeveloped countries.
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12. Mobilization of resources
 Deficit financing is also used for the
mobilization of surplus, ideal and unutilized
resources in the country.
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13. To granting subsidies
 In a country like India government grants
subsidies to the producers to encourage them
to produce a particular type of commodity,
granting subsidies is a very costly affair which
we cannot meet with the regular income this
deficit financing becomes must for it.
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14. To increase aggregate
demand
 Deficit financing loads to increase in aggregate
demand through increased public expenditure.
 This increase the income and purchasing
power of the people as a consequence there is
an increase availability of goods and services
and the production and employment level also
increase.
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15. Payment of interest
 Loan which are taken by the govt. are
supposed to be repaid with their interest for
that government needs money deficit financing
is an important tool to get the income for the
repayment of loan along with the interest.
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16. Adverse effect of deficit financing
 Leads to inflation.
 Adverse effect on saving.
 Inequality.
 Adverse effect on investment.
 Problem of balance of payment.
 Change in pattern of investment.
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17. Leads to inflation
 Deficit financing may lead to inflation. Due
to deficit financing money supply increases
& the purchasing power of the people also
increase which increases the aggregate
demand and the prices also increase.
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18. Adverse effect on saving
 Deficit financing leads to inflation and
inflation affects the habit of voluntary saving
adversely. Infect it is not possible for the
people to maintain the previous rate of
saving in the state of rising prices.
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19. Inequality
 In case of deficit financing income
distribution becomes unequal.
 During deficit financing deflationary
pressure can be seen on the economy
which make the rich richer and the poor,
poorer. The fix wage earners are badly
effected and their standard of living
detoriates thus no gap b/w rich & poor
increases.
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20. Adverse effect on investment
 Deficit financing effects investment
adversely when there is inflation in the
economy trade unions make demand for
higher wages for that they go for strikes and
lock outs which decreases the efficiency of
Labour and creates uncertainty in the
business which a decreases the level of
investment of the country.
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21. Problem of balance of
payment
 Deficit financing leads to inflation. A high
price level as compared to other countries
will make the exports more expensive and
thus they start declining.
 On the other hand rise in domestic income
and price may encourage people to import
more commodities from abroad. This will
create a deficit in balance of payment and
the balance of payment will become
unfavorable.
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22. Change in pattern of
investment
 Deficit financing leads to inflation. During
inflation prices rise and reach to a very high
level in that case people instead of
indulging into productive activities they start
doing speculative activities.
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23. Limitation on deficit financing
• Deficit financing is inevitable under planned
economic development to activate
unutilized resources or step up tempo of
economic process.
• It is necessary to the extent it can promote
capital formation and economic
development.
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24. Is deficit financing
inflationary?
 Deficit financing may not necessarily be inflationary
there are certain conditions under which deficit
financing may not lead to inflation. With increase in
money supply due to deficit financing prices do rise but
rise in price will only be temporary for about a period.
As flow of goods and services increase prices will
began to fall. deficit financing is an important device for
financing development plans for underdeveloped
countries and accelerate their rate of economic
development. But If deficit financing is not kept with in
limits It may give rise to prices, distorted investment and
unequal and unjust distribution of income. therefore it is
essential that deficit financing is kept within limits and its
impact on prices and costs are softened through
various controls.
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25. Thank you....
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