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Fiscal Policy of India
Fiscal Policy of India
Fiscal Policy-definition
Fiscal policy is the means by which a government adjusts its levels of spending in order to monitor and influence a nations economy. Fiscal policy is that part of government policy which is concerned with razing revenue through taxation and other means and deciding on the level and pattern of expenditure. In other wards the term fiscal policy refers to the expenditure a government undertakes to provide goods and services and to the way in which the government finances these expenditures.
Fiscal Policy-Meaning
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.
any decision to change the level, composition or timing of govt. expenditure or to vary the burden ,the structure or frequency of the tax payment is fiscal policy.
increase in savings & investment. Employment: By encouraging the use of labourabsorbing technology Stabilization: fight with depressionary trends and booming (overheating) indications in the economy 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.
Deficit financing
AD=C+I+G+(XM)
Apart from G, C and I are also likely to be affected directly or indirectly by the policy change.
BUDGET
A budget is a detailed plan of operations for some specific future
COMPONENTS OF BUDGET
borrowings 19%
customs 12%
interest 20%
Government Income
Tax Revenue
bn
100 200 300 400 500 600 700 0 Public sector total receipts1 billion Public sector total receipts1 % GDP
Year 33 34 35
36
%GDP
37
38
39
40
41
Methods of funding
This expenditure can be funded in a number of different
ways:
Taxation Seignorage, the benefit from printing money Borrowing money from the population, resulting in a fiscal deficit
aggregate demand in the economy, in an effort to achieve economic objectives of price stability, full employment, and economic growth. The government can implement these deficit-spending policies to stimulate trade due to its size and prestige. In the classical view, fiscal policy also decreases net exports, which has a mitigating effect on national output and income. When government borrowing increases interest rates it attracts foreign capital from foreign investors.