Fiscal policy of india

Fiscal policy is related to income and expenditure of government. It refers to budgetary policy of government. It is also known as Income and Expenditure Policy or Tax and Expenditure Policy of government. The fiscal policy is of great importance for both developed and developing countries.

1. FISCAL POLICY OF INDIA BY: Sakshi Roll No. 1516720070 Class: B.com 3

2. Meaning of Fiscal Policy Fiscal policy is related to income and expenditure of government. It refers to budgetary policy of government. It is also known as Income and Expenditure Policy or Tax and Expenditure Policy of government. The fiscal policy is of great importance for both developed and developing countries. It is an instrument for promoting economic growth, employment, social welfare, etc. Fiscal policy may be defined as that part of government economic policy which deals with taxation, government expenditure, borrowings, deficit financing and management of public debts in an economy. G overnment's public expenditure and public revenue policy have a great bearing on the economic equality and economic development of the country.

3. Objectives of Fiscal Policy of India To mobilise resources for rapid economic development of the country To increase the rate of saving in the country so that sufficient financial resources can be obtained from within the economy To increase the rate of investment in the economy, so as to promote capital formation To remove poverty and unemployment To reduce economic inequality To reduce regional disparities To achieve economic stability To ensure optimum utilisation of resources

4. Techniques of Fiscal Policy Fiscal policy has following four techniques: Public Expenditure Policy, Taxation Public Debt Policy, Deficit financing.

5. Public Expenditure Policy Public expenditure influences the economic activities of a country very much. Public may be of two kinds, i.e., developmental and non-developmental. Developmental expenditure is of great importance to the economic growth of the country. Expenditure on developmental activities requires huge amount of capital. Public expenditure may be made in many ways,viz. Development of Public Enterprises: Underdeveloped countries lack in basic and heavy industries. Establishment of these industries requires huge capital investment. Support to Private Sector: In order to accelerate the rate of economic growth in the country, government should encourage private sector. Development of Infrastructure: Government spends huge amount for development of infrastructure, which is must for economic development. Social Welfare: Government spends huge amount on public health, education, safe drinking water, sanitation, welfare of weaker sections of society, etc.

6. Taxation Policy Taxes are the main source of revenue of government. Government levies both direct and indirect taxes in India. Direct taxes are paid directly by the assessee to the government, e.g. , income tax, wealth tax, etc. Indirect taxes are paid indirectly by the public to the government, i.e., these taxes are charged trader/manufacturer from the public and then paid to government, e.g., excise duty, custom duty, added tax (VAT), goods and services tax (GST), etc. Main objectives of taxation policy in India are as follows: To Generate Income/Mobilisation of Resources: Taxes are the major sources of government revenue. To Promote Saving: One of the important objectives of taxation policy is to promote savings.. To promote Investment: To promote investment in remote and backward areas, rural various tax rebates, tax concessions and tax holiday benefits are given for investment in areas

7. P ublic Debt Policy Government needs lot of funds for the economic development of the country. No government can mobilise so much funds by way of taxes alone. There are many reasons for it, viz., (i) most of the population is poor, (ii) adverse effect of more taxes on saving and investment; (iii) taxes are levied only upto taxable capacity of the people. Public debt is obtained from two kinds of sources: Internal Debt: Internal debt should be mobilised in a manner that it has no adverse effect on private investment. It is more beneficial to collect small savings as it encourages the people to save more. External Debt: India cannot meet its financial requirements from internal debt alone. It has to borrow from abroad as well. The main advantage of foreign loans is that these loans are received in foreign currency.

8. Deficit Financing Deficit financing refers to financing the budgetary deficit. Budgetary deficits here means excess of government expenditure over government over government income. Deficit financing in India means,”T aking loan from Reserve Bank of India by the government to meet the budgetary deficit.” Reserve bank gives this loan by issuing new currency notes.

9. Contribution or Advantages of Fiscal Policy Capital Formation Inducement to Private Sector Mobilisation of Resources Incentives for Savings Development of Public Enterprises Social Welfare Alleviation of Poverty and Generation of Employment Opportunities Reduction in Inequality of Income and wealth Export Promotion

10. Drawbacks/Limitations of Fiscal Policy Inflation Defective Tax Structure Poor Tax Administration Inequality of Income Failure of Public Sector Increase in Non-development Expenditure Increasing Interest Burden Failure in Eradicating Poverty and Unemployment

11. Suggestions for Reforms in Fiscal Policy of India Reduction in Non-developmental Expenditure Reduction in Public Debt Agricultural Taxation Increase in Profitability of Public Sector Enterprises Wide Scope of Taxes More Direct Taxes Reduction in Tax Evasion Progressive Tax Structure

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