Fiscal Policy Navin
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Transcript of Fiscal Policy Navin
8/2/2019 Fiscal Policy Navin
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Fiscal Policy-Meaning
• The word fisc means „state treasury‟ and fiscalpolicy refers to policy concerning the use of „state treasury‟ or the govt. finances to achievethe macroeconomic goals.
• “any decision to change the level, compositionor timing of govt. expenditure or to vary theburden ,the structure or frequency of the tax
payment is fiscal policy.” - G.K. Shaw
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Objectives of Fiscal Policy
• It has 2 major objectives:
i. GENERAL obj-. aimed at achievingmacroeconomic goals
ii. SPECIFIC obj-. relating to any typical
problems of an economy
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Fiscal Policy And
Macroeconomic Goals• Economic Growth: By creating conditions for increase in
savings & investment.
• Employment: By encouraging the use of labour-
absorbing 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.
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Instruments of Fiscal Policy
• Budgetary surplus and deficit
• Government expenditure
• Taxation- direct and indirect
• Public debt
• Deficit financing
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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
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Government Expenditure
It includes :
• Government spending on the purchase of
goods & services.
• Payment of wages and salaries of
government servants
• Public investment
• Transfer payments
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Taxation
• Meaning : Non quid pro quo transfer of
private income to public coffers by means
of taxes.
• 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.
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Public debt
• Internal borrowings1. Borrowings from the public by means of treasury bills
and govt. bonds
2. Borrowings from the central bank (monetized deficitfinancing)
• External borrowings
1. foreign investments
2. international organizations like World Bank &IMF
3. market borrowings
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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.
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COMPONENTS OF BUDGET
• Revenue receipts
• Capital receipts
• Revenue expenditure
• Capital expenditure
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BUDGET FINANCIALS
2007-08
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Where The Rupee Comes From
service & other taxes
7%
excise
17%
customs
12%
income tax
13%
corporation tax
21%
borrowings
19%
non-debt capital reciepts
1%
non-tax revenue
10%
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Where Does The Rupee Goes To
state's share of
taxes & duties
18%
non plan assistance
to states
5%
planned state
assistance
7%
central plan
20%
interest
20%
defence
12%
subsidies
7%
other non plan exp.
11%
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Fiscal Responsibility And Budget
Management (FRBM) Bill• Introduced in Lok Sabha in December 2000.
• Objectives include:
1. Long-term macroeconomic stability2. Inter-generational equity in fiscal management.
• It aimed at:1. Reducing revenue deficit
2. Reducing gross fiscal deficit3. Reducing the Public debt
4. No Borrowing from the RBI
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Sticking to FRBM Targets
Items Units
2005-
06
2006-
07
2007-
08*
Central Government Finances
Revenue deficit/ GDP % 2.6 2 1.5
Fiscal deficit/ GDP % 4.1 3.7 3.3
Gross Tax/ GDP % 10.3 11.4 12.0
Expenditure/ GDP % 14.2 14.1 14.0**
Debt/ GDP % 65.1 64.4 58.6
*From Budget proposals ** SBI share transfer excluded
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Thank You