FISCAL__POLICY.pptxuse of government spending

Fiscal policy is the use of government spending and taxation to influence a nation's economy, with the goal of stabilizing it, promoting growth, and reducing poverty. It is distinct from monetary policy, which is managed by the central bank. Key tools include adjusting government expenditure and tax rates to either stimulate a weak economy through expansionary policy (increased spending, lower taxes) or to slow down an overheating economy with contractionary policy (decreased spending, higher taxes).

1. FISCAL POLICY Policy related to government income and expenditure is called fiscal policy . It plays a major roles in both developed and developing nations .

2. DEFINITION Fiscal policy is defined as the discretionary action by government to change:- The level of government expenditure on goods and services and transfer payments . The yield of taxation at any given level of output . - Prof. D.C. Rowan

3. TYPES OF FISCAL POLICY CONTRACTIONARY POLICY EXPANSIONARY POLICY

4. Contractionary fiscal policy reduces economic activity to control inflation by decreasing government spending, increasing taxes, or reducing transfer payments, while expansionary fiscal policy stimulates economic activity and growth, often during a recession, by increasing government spending, lowering taxes, or both, to boost aggregate demand and employment. These policies work in opposite directions to manage the economy.  

5. OBJECTIVES

6. OBJECTIVES OF FISCAL POLICY To reduce poverty & unemployment. To reduce economic inequalities . To increase the volume of investment for promoting the capital formation . To increase the rate of saving. Optimum utilization of resources . To stabilize economy .

7. TOOLS OF FISCAL POLICY 1. GOVT. EXPENDITURE 2. TAXATION POLICY 3 . PUBLIC DEBT POLICY 4. DEFICIT FINANCING

8. Public expenditure policy Govt. expenditure Financial resources Public expenditure policy Taxation policy Public debt policy Deficit financing

9. Public expenditure policy It has greater impact on economic activity. It is two types :- 1.Developmental public expenditure [ eg : extension of irrigation ,health facility ,education facility , expansion of means of transport] 2.Non developmental public expenditure [ eg : defense system , law & order, pensions ,subsidies ]

10. OBJECTIVES OF PUBLIC EXPENDITURE POLICY Promoting private sector :- government should encourage private sector by providing tax concessions , tax holidays & subsidized loans at concessional rates. Infrastructure development :- it include development in roads , airports , railways , bridges , tunnels , power projects. Social welfare :- it includes developing in various classes of society in relation to education ,safe drinking water , sanitation.

11. TAXATION POLICY Government generates major part of its revenue from taxes . Taxes are classified into two categories :- Direct taxes . Indirect taxes.

12. D/B direct and indirect taxes :- Direct taxes are those taxes which are paid by the person & incidence of tax also born by the same person For eg .- income tax , wealth tax. Indirect taxes are those taxes paid by one person & incidence of tax shifted to another person. For eg .- excise duty , custom duty , added tax.

13. PUBLIC DEBT POLICY revenue generated through taxes is not sufficient . To meet this requirement , govt. resort this issue through public debt . Borrowings money from public within or outside the country called public debt .basically it is of two types:- 1.External debt 2. Internal debt

14. D/B internal and external debt Debt generated within the country is called internal debt . To encourage the people , debt should be raised from small savings . Post offices & commercial banks are main sources. The fund borrowed from other countries is called external debt . The developing nations like India need huge amt . of funds for purpose of development .

15. DEFICIT FINANCING It is used for financing the budgetary deficit. Budget deficit arise when govt. expenditure exceed its govt. income. To bridge the gap between these income & exp . Govt. borrows loan from RBI. Further RBI lends money to govt. by new issuing currency notes. Due to this , inflation rate increase . Govt. use deficit financing as last resort .

16. Advantages of fiscal policy export promotion. Capital formation . Resource mobilisation . Incentives to public sector . Encourage savings . Poverty alleviation & employment generation Public welfare.

17. LIMITATIONS OF FISCAL POLICY Lack of confidence. Lack of elasticity . Non monetised sector Illiteracy Delay in decision Defective tax structure Inflation Limitation regarding full employment

18. SUGGESTIONS FOR REFORMS IN FISCAL POLICY Improving tax administration to raise larger revenue . Reducing subsidies Downsizing of government Privatization Agricultural taxation Check on black money Progressive tax culture Public sector performance to ne improved Reduction in non developmental expenditures

19. EFFECTS OF FISCAL POLICY There are 4 major effects of fiscal policy:- UNEMPLOYMENT EXPANSION CONTRACTION INFLAMATION ISSUES

20. ACHIEVEMENTS OF FICSAL POLICY IN INDIA MOBILISATION OF RESOURCES INCREASE IN SAVINGS INCREASE IN CAPITAL FORMATION INCENTIVES TO INVESTMENTS REDUCTION IN INCOME AND WEALTH INEQUALITIES REDUCTION IN INTER REGIONAL VARIATIONS

21. Current fiscal policy India's fiscal policy in 2025 focuses on continued fiscal consolidation with a target fiscal deficit of 4.4% of GDP for FY 2025-26, alongside a boost in capital expenditure for infrastructure development Increased Capital Expenditure ( Capex ) : There's a significant focus on increasing capital expenditure, particularly for infrastructure development, to stimulate economic growth.  For 2025-26, total expenditure, including capital expenditure, is set at approximately ₹50.65 lakh crore

22. CONCLUSION The conclusion of fiscal policy is that it's a powerful government tool, using taxes and spending to manage the economy, aiming for macroeconomic goals like stable prices, growth, and full employment. By influencing total  demand , governments can use  expansionary policies  (like tax cuts or increased spending) during recessions or  contractionary policies  (like tax hikes or spending cuts) during economic booms. Effective fiscal policy requires strategic timing, targeting, and temporary adjustments, with successful implementation leading to improved economic stability and growth. 

23. THANK YOU