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Fiscal Policy Business Environment
Fiscal Policy Business Environment
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Taxation : Through effective fiscal policies, the government aims to mobilize resources by way of
direct taxes as well as indirect taxes because most important source of resource mobilization in
India is taxation.
Public Savings : The resources can be mobilized through public savings by reducing
government expenditure and increasing surpluses of public sector enterprises.
Private Savings : Through effective fiscal measures such as tax benefits, the government can
raise resources from private sector and households. Resources can be mobilized through
government borrowings by ways of treasury bills, issue of government bonds, etc., loans
from domestic and foreign parties and by deficit financing.
Cont
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Employment Generation
The government is making every possible effort to increase employment in the country through
effective fiscal measure. Investment in infrastructure has resulted in direct and indirect
employment. Lower taxes and duties on small-scale industrial (SSI) units encourage more
investment and consequently generates more employment. Various rural employment programs
have been undertaken by the Government of India to solve problems in rural areas. Similarly,
self employment scheme is taken to provide employment to technically qualified persons in the urban
areas.
Cont
Capital Formation
The objective of fiscal policy in India is also to increase the rate of capital formation so as to
accelerate the rate of economic growth. An underdeveloped country is trapped in vicious (danger)
circle of poverty mainly on account of capital deficiency.
In order to increase the rate of capital formation, the fiscal policy must be efficiently designed to
encourage savings and discourage and reduce spending.
Cont
Development of Infrastructure
Government has placed emphasis on the infrastructure development for the purpose of
achieving economic growth. The fiscal policy measure such as taxation generates revenue to
the government. A part of the government's revenue is invested in the infrastructure
development. Due to this, all sectors of the economy get a boost.
Tax
Direct Tax
Capital
Receipt
Non- Tax
Indirect Tax
Public
Expenditure
Revenue
Expenditure
Capital
Expenditure
Revenue Expenditure
Interest Payments
Major Subsidies
Defense
Capital Expenditure
Expense on administration
Repayment of Loans
Extension of fresh loans to
the state govt by the central
Loans to public enterprise
Expense on Irrigation
project
Sectoral development
Revenue Receipts
Tax
Capital Receipts
Direct Tax
Income Tax
Corporate Tax
Wealth Tax
Gift Tax
Indirect Tax
Sales Tax
Excise Tax
Custom
Service Tax
Concept of Deficit
Budgetary Deficit:
Revenue Deficit:
Fiscal Deficit:
Primary Deficit:
Fiscal deficit:
Is the difference between what the government spends and what it
earns.
It is expressed as a percentage of GDP.
Unproductive
expenditure
by govt.
Huge
borrowings
Weak
revenue
mobilization
Increase in
subsidies
Payment of
interest
What
causes
deficit?
Tax evasion
Pensions
Defense
expenditure
Poor
performance
of public
sector
Fiscal Policy
Discretionary
Fiscal Policy
Anti- Recessionary
Fiscal Policy
Non- Discretionary /
Automatic
Fiscal Policy
Anti Inflationary
Fiscal Policy
AntiRecessionary
Fiscal Policy
Increase In Govt
Expenditure
Reduction In
Taxes
Anti-Inflationary
Fiscal Policy
Reducing Govt
Expenditure
Increase In
Taxes
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Due to large revenue deficit a smaller amount are left for productive
investment in Infrastructure and social capital (education and health)
In India, to reduce Fiscal Deficit the Govt has been curtailing Capital
Expenditure.
Target a growth rate of 7.4 percent in current financial year on back of new
optimism and decisive policy environment
Increasing states share in taxes from 32% to 42% (increase states share by
1.5 lakh crores)
Increase PPF limit to 1.5 lakh to increase saving under govt. scheme.
Financial Inclusion
In the recent years the government and Reserve Bank of India has
been pushing the concept and idea of financial inclusion.
1.
The Pradhan Mantri Jan Dhan Yojana (PMJDY), the biggest financial inclusion
initiative in the world, has surpassed original target of opening bank accounts
for 7.5 crore uncovered households in the country by 26th January, 2015, with
banks already opening 11.50 Crore accounts by 17th January 2015
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Out of the accounts opened, 60% are in rural areas and 40% are in urban
areas.
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Share of female account holders is about 51%.The Rupay cards have been
issued to more than 10 crore beneficiaries who will get a benefit of personal
accidental insurance of Rs. 1.00 Lac under the Yojana. In addition there is a
life insurance cover of Rs.30, 000 for eligible beneficiaries
1.
Covers accidental death risk of Rs.2 lakh for a premium of just Rs.12 per year.
Similarly, the Atal Pension Yojana, will provide a defined pension, depending
on the contribution, and its period
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To encourage people to join this scheme, the Government will contribute 50%
of the beneficiaries premium limited to Rs 1,000 each year, for five years, in
the new accounts opened before 31st December, 2015
3.
The third Social Security Scheme is the Pradhan Mantri Jeevan Jyoti Bima
Yojana which covers both natural and accidental death risk of Rs.2 lakhs. The
premium will be Rs.330 per year, or less than one rupee per day, for the age
group 18-50.
Fiscal Consolidation
Fiscal Consolidation refers to the policies undertaken by
Governments (national and sub-national levels) to reduce
their deficits and accumulation of debt stock. Key deficits of
government are the revenue deficit and the fiscal deficit.
Steps taken for fiscal consolidation
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As per the current budget presented by Arun Jaitley, the government has
delayed the current financial consolidation plan by one year by keeping the
fiscal deficit at 3.9 % as opposed to the earlier projected 3.6% as per the
earlier roadmap.