fiscalpolicy-140328225047-phpapp01.pptx

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Fiscal Policy….with respect to investment

Presented by:

RAJESH KUMAR

MBA(Finance), ACS, AIII



“The policy of the o!e"n#ent "ea"$in the le!el ofo!e"n#ent %pen$in an$ t"an%fe"% an$ the ta&

%t"'ct'"e

*R

“Fiscal policy i% the '%e of o!e"n#ent "e!en'e

collection (ta&ation) an$ e&pen$it'"e (%pen$in) to

infl'ence the econo#y

Meaning:



1)Neutral iscal policy : It i% '%'ally 'n$e"ta+en hen anecono#y i% in e-'ili."i'# /o!e"n#ent %pen$in i% f'lly

f'n$e$ .y ta& "e!en'e an$ o!e"all the .'$et o'tco#e ha% a

ne't"al effect on the le!el of econo#ic acti!ity

!) "#pansionary iscal policy: It in!ol!e% o!e"n#ent%pen$in e&cee$in ta& "e!en'e, an$ i% '%'ally

'n$e"ta+en $'"in "ece%%ion%

$)%ontractionary iscal policy: It occ'"% hen

o!e"n#ent %pen$in i% loe" than ta& "e!en'e, an$ i%'%'ally 'n$e"ta+en to pay $on o!e"n#ent $e.t

(So'"ce0 1i+ipe$ia)

&tages or 'ypes:

https://en.wikipedia.org/wiki/Government_spending

https://en.wikipedia.org/wiki/Tax

https://en.wikipedia.org/wiki/Revenue

https://en.wikipedia.org/wiki/Economic_activity

https://en.wikipedia.org/wiki/Economic_activity

https://en.wikipedia.org/wiki/Revenue

https://en.wikipedia.org/wiki/Tax

https://en.wikipedia.org/wiki/Government_spending



Econo#ic %ta.ili2ation Econo#ic "oth (*P growth $.+,- in !/1!01$)

E#ploy#ent ene"ation (nemployment $., in !/11 est.)

Re$'ction in ine-'alitie% of inco#e an$ ealth

Inc"ea%e in capital fo"#ation 3"ice %ta.ility an$ cont"ol of inflation (2.3 4 5pril !/1$)

Effecti!e #o.ili2ation of "e%o'"ce%

Balance$ "eional $e!elop#ent

Inc"ea%e in national inco#e 4e!elop#ent of inf"a%t"'ct'"e

Fo"ein e&chane ea"nin%(Foreign reserves 6!+7.!+ billion in

8ct.!/1!)

8b9ectives:



http:indiabudget.nic.in



Note:0 *ata on F*; have been revised since 5pril !/11 to e#pand the coverage.



“B'$et "efe"% a financial %tate#ent hich %ho%

anticipate$ "e!en'e an$ anticipate$ e&pen$it'"e in an

acco'ntin yea"

o"

“State#ent of e%ti#ate$ "eceipt% an$ e&pen$it'"e% of

the o!e"n#ent in "e%pect of e!e"y financial yea" hich

"'n% f"o# 5 Ap"il to 65 Ma"ch

<udget:



(a) =evenue <udget: The Re!en'e B'$et %ho% the

c'""ent "eceipt% of the o!e"n#ent an$ the e&pen$it'"e

that can .e #et f"o# the%e "eceipt%

(.) %apital <udget: The Capital B'$et i% an acco'nt of

the a%%et% a% ell a% lia.ilitie% of the cent"al

o!e"n#ent, hich ta+e% into con%i$e"ation chane% in

capital It con%i%t% of capital "eceipt% an$ capital

e&pen$it'"e of the o!e"n#ent

'ypes o budget:



8>"=NM"N' <*"'

=">"N" <*"' %5P;'5? <*"'

=">"N"="%";P'&

=">"N""@P"N*;'="

%5P;'5?="%";P'&

%5P;'5?"@P"N*;'="

'5@

=">"N"

N8N0'5@

=">"N"

P?5N

=">"N"

"@P"N*;'="

N8N0P?5N

"@P"N*;'="

P?5N %5P;'5?

"@P"N*;'="

N8N0P?5N

%5P;'5?

"@P"N*;'="

*;="%'

'5@

;N*;="%'

'5@



Capital Receipts: The #ain ite#% of capital "eceipt% a"e loan%"ai%e$ .y the o!e"n#ent f"o# the p'.lic hich a"e calle$

#a"+et .o""oin%, .o""oin .y the o!e"n#ent f"o# the

Re%e"!e Ban+ an$ co##e"cial .an+% an$ othe" financial

in%tit'tion% th"o'h the %ale of t"ea%'"y .ill%, loan% "ecei!e$

f"o# fo"ein o!e"n#ent% an$ inte"national o"ani2ation%, an$

"eco!e"ie% of loan% "ante$ .y the cent"al o!e"n#ent

(=s -A/,A+-3 %rore or the year !/1$012)

Capital Expenditure: Thi% incl'$e% e&pen$it'"e on the

ac-'i%ition of lan$, .'il$in, #achine"y, e-'ip#ent,in!e%t#ent in %ha"e%, an$ loan% an$ a$!ance% .y the cent"al

o!e"n#ent to %tate an$ 'nion te""ito"y o!e"n#ent%, 3SU%

an$ othe" pa"tie%

(=s1-A-7A!+3 %rore or the year !/1$012)

%apital <udget(5ccount):



Capital expenditure is also categorized as plan and non –planin the budget documents:

a) Plan capital e#penditure: 3lan capital e&pen$it'"e,

li+e it% "e!en'e co'nte"pa"t, "elate% to cent"al plan

an$ cent"al a%%i%tance fo" %tate an$ 'nion te""ito"y

plan% (=s 7A77A$!! %rore or the year !/1$012)

.) Non0plan capital e#penditure: 7on8plan capital

e&pen$it'"e co!e"% !a"io'% ene"al, %ocial an$econo#ic %e"!ice% p"o!i$e$ .y the o!e"n#ent(=s 11A/+A+37 %rore or the year !/1$012)

%apital "#penditure:















Revenue Receipts: Re!en'e "eceipt% a"e $i!i$e$ intota& an$ non8ta& "e!en'e% Ta& "e!en'e% con%i%t of the

p"ocee$% of ta&e% an$ othe" $'tie% le!ie$ .y the

cent"al o!e"n#ent (=s 1/A7-A$$1 %rore or the year !/1$012)

Revenue Expenditure: B"oa$ly %pea+in, "e!en'e

e&pen$it'"e con%i%t% of all tho%e e&pen$it'"e% of the

o!e"n#ent hich $o not "e%'lt in c"eation of

phy%ical o" financial a%%et% (=s 1A3!A!7! %rore or the year !/1$012)

=evenue <udget(5ccount):





a) *irect ta#: 4i"ect ta&e% 9 hich fall $i"ectly onin$i!i$'al% (pe"%onal inco#e ta&) an$ fi"#%

(co"po"ation ta&) *the" $i"ect ta&e% li+e ealth ta&,

ift ta& an$ e%tate $'ty (=s 7A-2A$$3 %rore

or the year !/1$012)b) ;ndirect ta#0 In$i"ect ta&e% li+e e&ci%e ta&e% ($'tie%

le!ie$ on oo$% p"o$'ce$ ithin the co'nt"y), c'%to#%

$'tie% (ta&e% i#po%e$ on oo$% i#po"te$ into an$

e&po"te$ o't of In$ia) an$ %e"!ice ta&

(=s 7A/2A2!$ %rore or the year !/1$012)

'a# =evenue:






Plan revenue e#penditure: 3lan "e!en'e e&pen$it'"e"elate% to cent"al 3lan% (the Fi!e8:ea" 3lan%) an$

cent"al a%%i%tance fo" State an$ Union Te""ito"y 3lan%

(=s 2A2$A!-/ %rore or the year !/1$012)

Non0 plan revenue e#penditure: 7on8plan

e&pen$it'"e, the #o"e i#po"tant co#ponent of "e!en'e

e&pen$it'"e, co!e"% a !a%t "ane of ene"al, econo#ic

an$ %ocial %e"!ice% of the o!e"n#ent The #ain ite#%

of non8plan e&pen$it'"e a"e inte"e%t pay#ent%, $efence

%e"!ice%, %'.%i$ie%, %ala"ie% an$ pen%ion% (=s +A+!A+/,

%rore or the year !/1$012)

=evenue "#penditure:



<udget deicit: 1hen a o!e"n#ent %pen$% #o"e than

it collect% .y ay of "e!en'e, it inc'"% a .'$et $eficit

Revenue Deficit : The "e!en'e $eficit "efe"% to the

e&ce%% of o!e"n#ent;% "e!en'e e&pen$it'"e o!e"

"e!en'e "eceipt% (=s $A3+A,$, %rore or the

year !/1$012)

Re!en'e $eficit < Re!en'e e&pen$it'"e 9

Re!en'e "eceipt%

Measures o overnment *eicit:



Fiscal Deficit : Fi%cal $eficit i% the $iffe"ence .eteen

the o!e"n#ent;% total e&pen$it'"e an$ it% total "eceipt%

e&cl'$in .o""oin

/"o%% fi%cal $eficit < Total e&pen$it'"e 9 (Re!en'e

"eceipt% = 7on8$e.t c"eatin capital "eceipt%)

7on8$e.t c"eatin capital "eceipt% a"e tho%e "eceipt%

hich a"e not .o""oin% an$, the"efo"e, $o not i!e"i%e to $e.t Examples are recovery of loans and

the proceeds from the sale of PSUs. he fiscal

deficit !ill have to be financed through

borro!ing. hus" it indicates the total borro!ingre#uirements of the government from all sources

(=s 7A2!A2++ %rore or the year !/1$012)



/"o%% fi%cal $eficit < 7et .o""oin at ho#e =

Bo""oin f"o# RBI = Bo""oin f"o# a."oa$

7et .o""oin at ho#e incl'$e% that $i"ectly .o""oe$f"o# the p'.lic th"o'h $e.t in%t"'#ent% (fo" e&a#ple,

the !a"io'% %#all %a!in% %che#e%) an$ in$i"ectly f"o#

co##e"cial .an+% th"o'h Stat'to"y >i-'i$ity Ratio

(S>R)

? Fi%cal $eficit i% @ of /43 (D56), The

Econo#ic Ti#e%



Primary deicit: To o.tain an e%ti#ate of .o""oin

on acco'nt of c'""ent e&pen$it'"e% e&cee$in "e!en'e%,

e nee$ to calc'late hat ha% .een calle$ the p"i#a"y$eficit It i% %i#ply the fi%cal $eficit #in'% the inte"e%t

pay#ent%

(=s 1A31A,12 %rore or the year !/1$012)

/"o%% p"i#a"y $eficit < /"o%% fi%cal $eficit 9 netinte"e%t lia.ilitie%

$et interest liabilities consist of interest payments

minus interest receipts by the government on net

domestic lending.



Re!en'e

$eficit

Fi%cal

#a"+%#an%hip







B'$eta"y $eficit% #'%t .e finance$ .y eithe" ta&ation,

.o""oin o" p"intin #oney /o!e"n#ent% ha!e #o%tly "elie$ on .o""oin, i!in

"i%e to hat i% calle$ o!e"n#ent $e.t

The concept% of $eficit% an$ $e.t a"e clo%ely "elate$

4eficit% can .e tho'ht of a% a flo! hich a$$ to the

stoc% of $e.t

If the o!e"n#ent contin'e% to .o""o yea" afte" yea", it

lea$% to the acc'#'lation of $e.t an$ the o!e"n#ent ha%

to pay #o"e an$ #o"e .y ay of inte"e%t

The%e inte"e%t pay#ent% the#%el!e% cont"i.'te to the $e.t

(Public debt -3.7+ o *P in !/1! est.)

*ebt:

http://en.wikipedia.org/wiki/List_of_countries_by_public_debt

http://en.wikipedia.org/wiki/List_of_countries_by_public_debt





Perspectives on the 5ppropriate 5mount o

overnment *ebt:

The"e a"e to inte"lin+e$ a%pect% of the i%%'e *nei% hethe" o!e"n#ent $e.t i% a .'"$en an$ to,

the i%%'e of financin the $e.t

The .'"$en of $e.t #'%t .e $i%c'%%e$ +eepin in#in$ that hat i% t"'e of one %#all t"a$e";% $e.t

#ay not .e t"'e fo" the o!e"n#ent;% $e.t, an$ one

#'%t $eal ith the Ghole; $iffe"ently f"o# the

Gpa"t; Unli+e any one t"a$e", the o!e"n#ent can "ai%e

"e%o'"ce% th"o'h ta&ation an$ p"intin #oney



By .o""oin, the o!e"n#ent t"an%fe"% the .'"$en of

"e$'ce$ con%'#ption on f't'"e ene"ation%

Thi% i% .eca'%e it .o""o% .y i%%'in .on$% to the people li!in at p"e%ent .'t #ay $eci$e to pay off the

.on$% %o#e tenty yea"% late" .y "ai%in ta&e%

The%e #ay .e le!ie$ on the yo'n pop'lation that ha!e

'%t ente"e$ the o"+ fo"ce, ho%e $i%po%a.le inco#eill o $on an$ hence con%'#ption

Th'%, national %a!in%, it a% a"'e$, o'l$ fall Al%o,

o!e"n#ent .o""oin f"o# the people "e$'ce% the

%a!in% a!aila.le to the p"i!ate %ecto"

To the e&tent that thi% "e$'ce% capital fo"#ation an$

"oth, $e.t act% a% a G.'"$en; on f't'"e ene"ation%



Note : *ata or !/1!01$ is as per 5dvance "stimates released by %&8.









In$ia;% fi%cal %it'ation "e-'i"e% i##e$iate attention, hih "oth

an$ lo inte"e%t "ate ill not ta+e ca"e of the p"o.le# in the lon"'n

In, fact "oth "ate in "ecent yea"% ha!e .een %inificantly loe",

at p"e%ent In$ia% econo#ic "oth "ate i% 6 in the la%t

-'a"te" of D56

In$ia;% e&te"nal po%ition i% "elati!ely %t"on, in te"#% of t"a$e flo,

"e%e"!e%, fo"ein e&chane%, .'t 'p to %o#e e&tent #oneta"y an$

e&chane "ate policie% a"e .ia%e$ to co#pen%ate the fi%cal $eficit

Coo"$ination of fi%cal policy ith #oneta"y an$ e&chane "ate

policy o'l$ .e .ette" than lettin late" to a$'%t fi%cal loo%ene%% A na""o foc'% on $eficit o" $e.t can lea$ to nelect the lon "'n

"oth

%onclusion:



/o!t ha% to thin+ a.o't "e!en'e enhancin ta& "efo"#%

.eca'%e the"e ha% a#ple %cope of i#p"o!in in$i"ect ta&

%t"'ct'"e Ta& "efo"# i% an e%%ential %tep toa"$% inc"ea%in

o!t "e!en'e a% ell a% "e$'ce #ic"oecono#ic $i%to"tion Fi%cal a$'%t#ent i% oin to #ao" aen$a fo" the o!t

they ha!e to plan it intelliently "athe" than %eein a% a

c"i%i%

/o!t ha% to "econ%t"'ct thei" e&pen$it'"e Hence e can %ay that fi%cal #ea%'"e% "e$'ce the inten%ity

of .'%ine%% fl'ct'ation% (Inflation Rece%%ion) .'t only

the%e alone a"e not %'fficient to co""ect fl'ct'ation%

%inificantly , the"efo"e the "ole of $i%c"etiona"y fi%cal policy an$ e&plicit chane% in ta& "ate% an$ /o!t

E&pen$it'"e a"e "e-'i"e$ to c'"e "ece%%ion an$ c'".

inflation



'hanB you……..

L'e%tion

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