CHAPTER 10

FISCAL POLICY
LEARNING OBJECTIVES
 To understand the mechanism of fiscal policy
implementation
 To learn the structure of union budget
 To know the procedure for calculating the
fiscal deficit
 To assess the taxation system and the
reforms undertaken

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Fiscal Policy
 The policy of the government pertaining to
public revenue, public expenditure, and
public debt is known as fiscal policy

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Objectives of Fiscal Policy
1.To strike a balance between government
revenue, expenditure, and borrowings
2. To attain the best possible level of economic
development
3. To achieve full employment
4. To reduce inequality of income and wealth

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Tools of Fiscal Policy

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Union Budget
 The policy of the government to promote
economic growth and avoid undesirable
effects on the economy through taxation,
government expenditure, and debt
management is called fiscal policy. The
implementation of fiscal policy is through
annual ‘union budget’ exercise.

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Reforms Undertaken
 Subsidies
 User Charges and Investment Financing
 Budgetary Reform
 Tax Reforms

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Role of Government
 Providing public goods like defence, police,
and roads
 Promoting social welfare

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Finance and Savings
 The financial system plays a vital role in the
economy by channelising funds from savings
to investment.
 Usage of saving instruments such as
provident funds and ‘post office and small
saving instruments
 Replacement of the plethora of income tax
deductions by a comprehensive exemption
based on the net saving principle

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