Fiscal Policy and Budget

Fiscal policy
The word fisc means ‘state treasury’ and fiscal
policy refers to policy concerning the use of ‘state
treasury’ or the govt. finances to achieve the
macroeconomic goals
Objectives of Fiscal Policy :

It has 2 major objectives:

I. GENERAL-. aimed at achieving macroeconomic

goals
II. SPECIFIC-. relating to any typical problems of an
economy

 Fiscal policy and Macroeconomic
Goals
Economic Growth: By creating conditions for increase
in savings & investment.
 Employment: By encouraging the use of labor-
absorbing technology
 Economic Equality: By reducing the income and
wealth gaps between the rich and poor. Price stability:
employed to contain inflationary and deflationary
tendencies in the economy
Instruments of Fiscal Policy
Budgetary surplus and deficit
Government expenditure
Taxation- direct and indirect
Public debt
Deficit financing
Budgetary surplus and deficit
“A budget is a detailed plan of operations for some
specific future period”
 Keeping budget balanced (R=E) or deficit (R<E) or
surplus (R>E) as a matter of policy is itself a fiscal
instrument.
 An accumulated deficit over several years (or
centuries) is referred to as the government debt
A deficit is a flow. And a debt is a stock. Debt is
essentially an accumulated flow of deficits
Government Expenditure
It Includes
Government spending on the purchase of goods &
services.
Payment of wages and salaries of government
servants
 Public investment
Transfer payments
Taxation
Meaning :

Classified into
1. Direct taxes- Corporate tax, Div. Distribution Tax,
Personal Income Tax, Fringe Benefit taxes, Banking
Cash Transaction Tax
2. Indirect taxes- Central Sales Tax, Customs, Service
Tax, excise duty
Public Debt
A. Internal borrowings
1. Borrowings from the public by means of treasury bills
and govt. bonds
2. Borrowings from the central bank (monetized deficit
financing)
B.External borrowings
1. Foreign investments
2. International organizations like World Bank & IMF
3. Market borrowings
 Budget
“A budget is a detailed plan of operations for some
specific future period” It is an estimate prepared in
advance of the period to which it applies
Components of Budget
COMPONENTS OF BUDGET
1. Revenue receipts
2. Capital receipts
3. Revenue expenditure
4. Capital expenditure
Thank You
“We need faster growth because, at our level of incomes,
there can be no doubt that we must expand the production
base of the economy if we want to provide broad-based
improvement in the material conditions of living of our
population, .......... But growth alone is not enough if it does
not produce a flow of benefits that is sufficiently wide-
spread. We, therefore, need a growth process that is much
more inclusive, .......... and which also ensures access to
essential services such as health and education for all
sections of the community”. -Dr. Manmohan Singh, Prime
Minister
