8/6/2019 Me Indian Fiscal Policy Group 7

1/16

TEAM MEMBERSTEAM MEMBERS

CHETAN BASOTIACHETAN BASOTIA

SHIVAKRITI KAPOORSHIVAKRITI KAPOOR

PRASHATI KHAREPRASHATI KHARE

GAURAV GAJWANIGAURAV GAJWANI

KRISHNA AGARWALKRISHNA AGARWAL

RASHITA KHANNARASHITA KHANNA

8/6/2019 Me Indian Fiscal Policy Group 7

2/16

Fiscal policy is the means by which a

government adjusts its levels of spending

in order to monitor and influence anation's economy. It is the sister strategy

to monetary policy with which a central

bankinfluences a nation's money supply.

These two policies are used in variouscombinations in an effort to direct a

country's economic goals...

8/6/2019 Me Indian Fiscal Policy Group 7

3/16

Economic Growth: By creating conditions for increasein savings & investment.

Employment: By encouraging the use of labour-

absorbing technology

Stabilization: Fight with depressionary trends andbooming (overheating) indications in the economy

Economic Equality: By reducing the income andwealth gaps between the rich and poor.

Price Stability: Employed to contain inflationary and

deflationary tendencies in the economy.

8/6/2019 Me Indian Fiscal Policy Group 7

4/16

Expansionary FiscalExpansionary FiscalPolicyPolicy

Contractionary FiscalContractionary Fiscal

PolicyPolicy

8/6/2019 Me Indian Fiscal Policy Group 7

5/16

The goal of expansionary fiscal policy is to reduce

unemployment. Therefore the tools would be an

increase in government spending and/or a decrease

in taxes.

Contractionary Fiscal PolicyContractionary Fiscal Policy

The goal of Contractionary fiscal policy is to

reduce inflation.Therfore tools would be to

decrease government spending and/or to

increase taxes.

8/6/2019 Me Indian Fiscal Policy Group 7

6/16

yy Budgetary surplus and deficitBudgetary surplus and deficit

yy Government expenditureGovernment expenditure

yy TaxationTaxation-- direct and indirectdirect and indirect

yy Public debtPublic debt

8/6/2019 Me Indian Fiscal Policy Group 7

7/16

y A budget is a detailed plan of operations forsome specific future period

y Keeping budget balanced (R=E) or deficit(RE) as a matter of policy isitself a fiscal instrument.

y An accumulated deficit over several years (orcenturies) is referred to as the government debt.

8/6/2019 Me Indian Fiscal Policy Group 7

8/16

Budget DeficitBudget Deficit

Government incurs moreGovernment incurs moreexpenditure on goods and servicesexpenditure on goods and servicesthan its receipts from taxes andthan its receipts from taxes and

nonnon--tax revenue.tax revenue.

Budget SurplusBudget Surplus

Government incurs lessGovernment incurs lessexpenditure on goods and servicesexpenditure on goods and servicesthan its receipts from taxes andthan its receipts from taxes andnonnon--tax revenue.tax revenue.

8/6/2019 Me Indian Fiscal Policy Group 7

9/16

The principle relating to governmentexpenditure includes:

Greater reliance on domestic borrowingsover external debt .

Preference for market borrowings overinstruments carrying administeredinterest rates.

Development of a deep and wide marketfor government securities to improveliquidity.

8/6/2019 Me Indian Fiscal Policy Group 7

10/16

Taxation is an important instrument ofresource mobilization to raise savings tonational income ratio and also cuts downconsumption and thereby controls inflation.

Taxes can be imposed :

Directly through highly progressive taxes on

income and profits. Indirectly through excise duties and sales tax

on luxury goods.

8/6/2019 Me Indian Fiscal Policy Group 7

11/16

DirectDirect

TaxTax

CorporateCorporate

Income tax,Income tax,Capital gainCapital gaintax.tax.

IndirectIndirect

TaxTax

Customs,Customs,

Service Tax,Service Tax,Excise dutyExcise duty.

8/6/2019 Me Indian Fiscal Policy Group 7

12/16

y Internal borrowings

1. Borrowings from the public by means of

govt. bonds,etc.

2. Borrowings from the central bank

y External borrowings

1. Foreign investments2. International organizations like World Bank

& IMF

3. Market borrowings

8/6/2019 Me Indian Fiscal Policy Group 7

13/16

Emphasis on Overall economic

Growth.

HighlyAcceptable for DevelopingCountries.

Takes care of Revenue and

Expenditure

For the Social Welfare

8/6/2019 Me Indian Fiscal Policy Group 7

14/16

y High degree of fiscal deficit leads to excess

market borrowing by the government which

leads to inflationary situation.

y To check the rate of inflation fiscal deficit

has to be reduced through raising revenue of

government and by reducing governmentexpenditure.

8/6/2019 Me Indian Fiscal Policy Group 7

15/16

8/6/2019 Me Indian Fiscal Policy Group 7

16/16

We would ensure economic growth momentum butWe would ensure economic growth momentum but

at the same time fiscal prudence will be kept inat the same time fiscal prudence will be kept inmindmind

Dr.Manmohan Singh(P.M.) / May 28, 2009Dr.Manmohan Singh(P.M.) / May 28, 2009