Features and importance

2. Introduction
 This policy is also known as budgetary policy.
 One major function of the government is to stabilize
the economy.
 Current indian govt wants to achieve fiscal deficit
target by not reducing expenditure but increasing tax
collection.
 Keynesian economics, when the government changes
the levels of taxation and governments spending, it
influences aggregate demand and the level of
economic activity.

3. Meaning
• The word fisc means ‘state treasury’ and fiscal policy
refers to policy concerning the use of ‘state treasury’ or
the government finances to achieve the macroeconomic
goals.
• Fiscal policy involves the decisions that a government
makes regarding collection of revenue, through taxation
and about spending that revenue.
• It is sister strategy to monetary policy through which a
central bank influences a nation’s money supply.

4. Objectives of Fiscal Policy
1. Development by effective mobilisation of resources
2. Reduction in inequalities of income and wealth
3. Price stability and control of inflation
4. Employment generation
5. Reducing the deficit in the balance of payment
6. Increasing national income
7. Development of infrastructure

5. Instruments of Fiscal policy
Instruments of Fiscal
Policy
Budget Taxation
Public
expenditure
Public debt

6. Budget
• “A Budget is a detailed plan of operations for some
specific future period”.
• The budget is simply the combination of revenues earned
from taxes and expenditures made by all goods and
services by nation’s government in a year.
• Budget is presented by the finance minister of India.
• Budget is also known as Annual Financial Statement of
the year.

7. Taxation
Direct Tax
•Individual Income Tax &
Corporate Tax.
• Wealth tax @ 2%
Indirect Tax
• GST
Tax revenues: A government’s primary source of revenues.
• Direct taxes: Taxes on incomes earned by households and firms.
These are usually progressive in nature, meaning that the
percentage paid increases as income increases, or proportional,
meaning that all individuals (or firms) pay the same percentage
no matter what their income.
• Indirect taxes: Taxes on consumption are indirect, meaning they
are actually paid by the sellers goods, but they are born by both
producers and consumers.

8. Public Expenditure
• Public expenditure is spending made by the
government of a country on collective needs and
wants such as pension, provision, infrastructure, etc.
• Public expenditure is an important component of
aggregate demand.
• Public expenditure include Revenue expenditure and
capital expenditure.

9. • Current Expenditures: This is the day to day cost of running the
government. The wages and salaries of public employees, including
in local, state and national government, such as police, teachers,
legislatures, military servicemen, judges, etc…
• Capital Expenditures: These are investments made by the
government in capital equipment and infrastructure, such as money
spent on roads, bridges, schools, hospitals, military equipment,
courthouses, etc...
• Transfer payments: This type of government spending does not
contribute to GDP (unlike those above), because income is only
transferred from one group of people to another in the nation.
Includes welfare and unemployment benefits, subsidies to producers
and consumers, etc… Money transferred by the government from
one group to another, without going towards the provision of an
actual good or service.

10. Public Debts
“ public debt is defined as any money owned by a
government agency”
• Internal borrowings
Borrowings from the public means of treasury bills and
govt. bonds.
Borrowings from the central bank
• External borrowings
Foreign investment
International organizations like World Bank &IMF
Market borrowings

11. There are three main types of fiscal policy:
Neutral: This type of policy is usually undertaken when an economy is
in equilibrium. In this instance, government spending is fully funded by
tax revenue, which has a neutral effect on the level of economic
activity.
Expansionary: This type of policy is usually undertaken during
recessions to increase the level of economic activity. In this instance,
the government spends more money than it collects in taxes.
Contractionary: This type of policy is undertaken to pay down
government debt and to cap inflation. In this case, government
spending is lower than tax revenue.
Types of Fiscal Policy

12. Concept of Deficit
• Revenue Deficit = Revenue Expenditure – Revenue
Receipts
• Fiscal Deficit = Total Expenditure (that is Revenue
Expenditure + Capital Expenditure) – Total Receipts
(that is all Revenue and Capital Receipts other than
loans taken)

13. Statistical Data of Fiscal Deficit
Year Fiscal deficit of
centre
Fiscal deficit of
states
Combined Fiscal deficit of
centre and states
governments
(Rs. crore)
2005-06 146435 87608 237187
2006-07 142573 79979 220617
2007-08 126912 75690 199375
2008-09 336992 127320 459908
2009-10 418482 194962 610851
2010-11 373591 158374 529594
2011-12 515990 171798 688434
2012-13 490190 198076 683418
2013-14 524539 284642 806383
2014-15 531177 293973 821903

14. Achievements of Fiscal Policy in
India
• Mobilization of resources
• Increase in savings
• Increase in capital formation
• Incentives to investment
• Reduction in Income and wealth Inequalities
• Reduction in inter regional variations

15. Fiscal Reforms in India
• Simplification of taxation system
• Improving tax to GDP ratio
• Reduction in rates of direct taxes
• Reforms in indirect taxes
• Introduction of service tax

16. Contd…
• Reduction in non-plan government expenditure
• Reduction in subsidies
• Closure of sick public sector companies
• Disinvestment of public sector units
• Efforts to reduce government administrative expenses

17. Conclusion
• Thus, the fiscal policy encompasses two separate but related
decisions; public expenditures and the level and structure of
taxes.
• It occupies the central place for maintaining full employment
without inflationary forces in the economy.
• With its various instruments it influences the economic
stability of an economy.
• The fiscal policy of the Indian government has been very
successful in several fields such as mobilization of resources
for economic development, increasing rate of savings and
capital formation, developing cottage and small scale
industries ,reducing the incidence of poverty etc.

18. Thank you