Fiscal policy

in this presentation some key information of fiscal policy.

1. FISCAL POLICY

2. Introduction Fiscal Policy is a part of macro economics. 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 Development by effective mobilisation of resources Reduction in inequalities of income and wealth Price stability and control of inflation Employment generation Reducing the deficit in the balance of payment Increasing national income Development of infrastructure

5. Instruments of Fiscal policy

6. Budget “A Budget is a detailed plan of operations for some specific future period” Budget is presented by the finance minister of India. Budget is also known as Annual Financial Statement of the year. Total Expenditure has accordingly been estimated at  Rs. 17,77,477 crore in 2015-16 The requirements for expenditure on Defence, Internal Security and other necessary expenditures are adequately provided.

7. Taxation Direct Tax Individual Income Tax & Corporate Tax. Wealth tax @ 2% Indirect Tax Central excise (a tax on manufacture goods) VAT @ 12.5% Service Tax @ 14% Custom Duty

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. 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

10. Types of Fiscal Policy

11. 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)

12. 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

13. Fiscal deficit of centre and states governments

14. Statistical Data of Fiscal Deficit Year Fiscal deficit of centre Fiscal deficit of states Combined Fiscal deficit of centre and states governments (as per cent of GDP) 2005-06 3.96 2.37 6.42 2006-07 3.32 1.86 5.14 2007-08 2.54 1.52 4.00 2008-09 5.99 2.26 8.17 2009-10 6.46 3.01 9.43 2010-11 4.79 2.03 6.79 2011-12 5.73 1.91 7.64 2012-13 4.85 1.96 6.76 2013-14 4.62 2.51 7.10 2014-15 4.13 2.28 6.38

15. Fiscal deficit of centre and states governments

16. 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

17. 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

18. 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

19. Fiscal Responsibility and Budget Management Act, 2003 The Fiscal Responsibility and Budget Management Act, 2003 is an Act of the Parliament of India to institutionalise financial discipline, reduce India's fiscal deficit, improve macroeconomic management and the overall management of the public funds by moving towards a balanced budget. Objectives To introduce transparent fiscal management systems in the country To introduce a more equitable and manageable distribution of the country's debts over the years To aim for fiscal stability for India in the long run

20. Current Fiscal Policy The state of world economy has been the most decisive factor affecting the fortunes of every developing countries.   Roadmap to achieve Fiscal deficit of 3% of GDP in three years: Target is 3.9% in 2015-16, 3.5% in 2016-17, 3% in 2017-18. The current financial year will end on a satisfactory note with the fiscal deficit at 4.6 percent (below the red line of 4.8 percent) and the revenue deficit at 3.3 percent. Fiscal Deficit in 2014-15 estimated to be 4.1 percent which will be below the target set by new Fiscal Consolidation Path and Revenue Deficit is estimated at 3.0 percent.

21. 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.

22. Thank you