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OM PRAKASHTHOUSEEF

AMITRAVIYASEER

AMARJEETCHANDANCHIRARAJIB LOCHAN

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Overview field ofeconomicsconcerned with paying

forcollective or governmental activities,and withthe administration anddesign ofthose activities.

Thefieldis often dividedinto questions

of whatthe government orcollectiveorganizationsshoulddo or aredoing, andquestions ofhow to pay forthoseactivities.

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Collection ofsufficientresourcesfromtheeconomy in an appropriate manner.

basically deals with all aspects ofresourcemobilization andexpenditure managementin government.

Resource generation,resource allocationandexpenditure management (resourceutilization) aretheessentialcomponentsof a public financial management system.

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Publicfinanceisclosely connectedto issues ofincomedistributionandsocialequity. Governmentscanreallocateincomethroughtransferpayments orby designing taxsystemsthattreathigh-incomeandlow-incomehouseholdsdifferently.

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1)Government purchases of goods andservicesforcurrent use areclassed asgovernmentconsumption.

2)Government purchases of goods andservicesintendedto createfuturebenefits--- such asinfrastructureinvestment orresearchspending---areclassed asgovernmentinvestment.

3) Governmentexpendituresthat are not purchases

of goods andservices, andinstead justrepresenttransfers of money--- such associalsecuritypayments--- arecalledtransfer payments.

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Someforms of governmentexpenditure are

specifically intendedto transfer incomefrom somegroupsto others. Forexample, governmentssometimestransferincometo peoplethathavesuffered a lossdueto naturaldisaster. Likewise,publicpension programstransfer wealthfrom the

young to the old. Otherforms of governmentexpenditure whichrepresent purchases of goods andservices also havetheeffect ofchanging theincomedistribution. Forexample,engaging in a war may

transfer wealthto certain sectors ofsociety.Publiceducation transfers wealthto families withchildrenin theseschools. Publicroadconstruction transferswealthfrom peoplethatdo not usetheroadstothose peoplethatdo (andto thosethatbuildthe

roads)

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STIMULUS MEASURES

FOR REDUCINGREVENUE DEFICIT

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Thereduction in revenuedeficitby Rs 6,668

crore was mainly on account ofsubstantial

increasein non-taxrevenue, particularly in

othercommunication services (3G and BWA

Spectrum Auction) by Rs 71,007 crore

apartfrom theincreasein nettaxrevenueto the Centreby Rs 28,591 crore (or nearly

Rs 1 lakh crore combined).

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Higherrealisation in revenue wasspent onnon-Plan revenueexpenditureto thetuneof Rs 83,150crore of which petroleumsubsidy was nearly Rs35,000crore.

Similarly, the fiscal consolidation in2011-12 is based on the assumption ofhigher tax collections, assuming agrowth rate of 18.5percent on the topof an increase of 26 per cent in therevised estimate for 2010-11.

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In thecase oftherevenuedeficit,thesituation isexpectedto turn somewhatbetter as perrevisedestimatesforthecurrent year- bothin absoluteterms andin relation to GDP - dueto thebonanza

accruing from thespectrum auctions andthespurtin nominal GDP at market pricesby as much as 20.3%in stead oftheearlier projection of only 12.5%. In the

coming year,revenuedeficit willsharplyriseto Rs307,270crore,even though, as aratio of GDP,itisslatedto remainunchanged atthis yearslevel of3.4%.

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FISCAL POLICY

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In economics,fiscalpolicy isthe use ofgovernmentexpenditure andrevenue

collection (taxation) to influencetheeconomy.

Governments usefiscal policy to influencethelevel of aggregatedemandin theeconomy,in an effortto achieveeconomicobjectives of pricestability,full

employment, andeconomic growth.

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Taxation

Sei

gnio

rag

e,the

be

nefit

fr

om pri

nti

ng money

Borrowing money from the population orfromabroad

Consumption offiscalreserves.

Sale offixed assets (e.g.,land).

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increasing governmentspending anddecreasing taxrates arethebest waysto

stimulate aggregatedemand. Thiscan beusedin times ofrecession orlow economicactivity as an essentialtoolforbuildingtheframeworkforstrong economic

growth and working towardsfullemployment.

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When governmentsfund a deficit withthe

issuing of governmentbonds,interestratescan increase acrossthe market,because governmentborrowing createshigherdemandforcreditin thefinancial

markets. Thiscauses a lower aggregatedemandfor goods andservices,contraryto the objective of a fiscalstimulus.

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Fiscalconsolidation hasbeen impressive. Thisyearhas also seen significant progressin thosecriticalinstitutionalreformsthat will pavethe

way fordoubledigit growthin the nearfuture. Attimesthebiggestreforms are notthe ones

that makeheadlines,butthe onesconcerned

withdetails of governance which affecttheeveryday life of aam aadmi

(common man). In preparing this yearsbudget,I havebeen deeply conscious ofthisfact..

Foodinflation remains a concern Currentaccountdeficitsituation posessomeconcernMustensurethat privateinvestmentissustained Theeconomy hasshown.

remarkableresilience.

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One-way payment of money for which no money, good,orservice isreceivedin exchange. Governments usesuchpayments as means of income redistribution bygiving outmoney under social welfare programs suchas socialsecurity, old age or disability pensions,student grants,unemployment compensation,etc. Subsidies paid toexporters, farmers, manufacturers,however, are notconsidered transfer payments.Transfer payments areexcludedin computing grossnational product.

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government provision of roads.

government provision of nationaldefense.

Social Security pensions.

government provision of education.

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Cash expendedin salesrevenue generation, orin maintaininga revenue generating asset.

PLAN REVENUE

EXPENDITURE

REVENUE EXPENDITUREREVENUE RECEIPTS

when the actual amount ofexpenditureand actual amount ofreceivedrevenuedo nottally withthe anticipatedexpenditure andrevenuefigures.

NON PLANREVENUE

Non-plan expenditure is defined as expenditure committed by theexpenditure. Interest payments, pensions, salaries, subsidies andmaintenance expenditure are all non-plan expenditure.

Non-plan expenditure is generally an outcome of plan expenditure. Forexample, the national highways the government constructed in the year2003-04 and before, need to be maintained. All the expenses goingtowards this is treated as non-plan expenditure.

REVENUE DIFICIT

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THANK YOU