PRESENTATION ON FISCAL POLICY OF INDIA

SUBMITTED TO :MRS. ANURADHA MITTAL

PREPARED BY :PANKAJ PREET SINGH B.COM III (B) ROLL No :- 2558

INTRODUCTION
Fiscal Policy is a part of economic policy of the government which is related to government income and expenditure. It includes public expenditure policy, taxation policy, public debt policy and deficit financing. The Fiscal Policy is of great importance for both developed and developing countries. Fiscal Policy is an instrument for promoting economic growth, employment, social welfare, etc.

MEANING OF FISCAL POLICY

In the words Arthus Smithies, Fiscal policy is a policy under which the government uses its expenditure and revenue programmes to produce desirable effects and avoid undesirable effects on the national income, production and employment.

In the words of A.G. Buchler, Fiscal policy means the use of public finance or expenditure, taxes, borrowings and its administration to further our national income objectives.

OBJECTIVES OF FISCAL POLICY OF INDIA

To mobilise resources for rapid economic development of

the country. To increase the rate of saving in the country so that sufficient financial resources can be obtained from within the economy. To increase the rate of investment in the economy, so as to promote capital formation. To remove poverty and unemployment. To reduce economic inequality. To reduce regional disparities. To achieve economic stability. To ensure optimum utilisation of resources. To support private sector. To achieve favorable balance of payments.

TECNIQUES/TOOLS/SCOPE OF FISCAL POLICY

Fiscal policy has four techniques as under:

PUBLIC EXPENDITURE POLICY TAXATION POLICY PUBLIC DEBT POLICY DEFICIT FINANCING

Fiscal Policy of government is reflected in its annual budget. To have knowledge of fiscal policy it is essential to study its different techniques.

PUBLIC EXPENDITURE POLICY

Public expenditure influences the economic activities of a country very much. In 2009-10, share of public expenditure in national income was 18.83 %. Main features of governments policy regarding public expenditure are as follows: Development of Public Enterprises Support to Private Sector Development of Infrastructure Social Welfare

TAXATON POLICY
Taxes are the main sources of revenue of government. Government levies both direct and indirect taxes in India. Direct Taxes are those taxes which are paid directly by the assessee to the government e.g. income tax, wealth tax, etc. Indirect taxes are paid indirectly by the public to the government in form of excise duty, custom duty, value added tax(VAT), service tax, etc. Main objectives of taxation policy in India are as follows: Mobilisation of Resources To Promote Saving To Promote Investment To Bring Equality of Income and Wealth

PUBLIC DEBT POLICY

Government needs lot of funds for the economic development of the country. No government can mobilise so much funds by way of taxes alone. It therefore, becomes inevitable for the government to mobilise resources for economic development by resorting to public debt. Public debt is obtained from two kinds of sources: Internal Debt: In this small savings are being collected from large number of people through commercial banks and post offices. Internal debt constituted 95.9% of total public debt in year 2010-11. External Debt: India cannot meet its financial requirements from internal debt alone therefore it has to borrow from abroad as well. External debt constituted 4.1% of total public debt in year 2010-11.

DEFICIT FINANCING
Deficit financing refers to excess of government expenditure over government income. Deficit financing in India means, Taking loan from Reserve Bank of India by the government to meet the budgetary deficit. Reserve Bank Gives this loan by issuing new currency notes. Due to deficit financing : Necessary funds are available for economic growth Inflation in the country increases. Therefore it is essential that deficit financing be kept in safe limits.

ADVANTAGES OF FISCAL POLICY

Capital Formation Inducement to Private Sector Mobilisation of Resources Incentives for Savings Development of Public Enterprises Social Welfare Alleviation of Poverty and Generation of Employment Opportunities Reduction in Inequality of Income and Wealth Export Promotion A Tool to Control Economic Recession

DISADVANTAGES OF FISCAL POLICY

Inflation Defective Tax Structure Poor Tax Administration Inequality in Income Failure of Public Sector Increase in Non-development Expenditure Failed to Check Regional Disparities Increasing Interest Burden Failure in Eradicating Poverty and Unemployment

SUGGESTIONS FOR REFORMS IN FISCAL POLICY OF INDIA

Reduction in Non-developmental Expenditure Reduction in Public Debt Agricultural Taxation Wide Scope of Taxes More Direct Taxes Reduction in Tax Evasion Progressive Tax Structure Simple Taxation System Reduction in Subsidies Encouragement to Saving and Investment

LONG TERM FISCAL POLICY AND ITS FEATURES

Announcement of long term fiscal policy was in the direction of determining the relationship between planning in India and the process of making the budget. Main features of Long Term Fiscal Policy are : No Change in the Rate of Direct Taxes Tax Evasion Corporation Tax Gift Tax Change in the Structure of Indirect Taxes Employment Oriented No Secrecy Regarding Budget Immovable Property Import Duties Agriculture Sector

DIFFERENT CONCEPTS OF DEFICIT IN PUBLIC FINANCE

1. Budget Deficit: It is the excess of total expenditure both revenue and capital over total receipts both revenue and capital. Budget Deficit = Total Expenditure(Revenue + Capital) Total Receipts(Revenue + Capital) 2. Revenue Deficit: It is the excess of revenue expenditure over revenue receipts. Revenue Deficit = Revenue Expenditure Revenue Receipts

3. Monetised Deficit or Deficit Finance: This deficit is equal to increase in net RBI credit to the Central Government. Monetised Deficit OR Deficit Finance = Increase in Net RBI Credit to the Central Govt. 4. Fiscal Deficit: It is the difference between total expenditure of the government and revenue receipts plus grants. Fiscal Deficit = Total Expenditure Total Receipts except borrowings

5. Primary Deficit: It is the difference between fiscal deficit and payments on account of interest. Primary Deficit = Fiscal Deficit Interest Payments
Central Government Deficits (Percentage of GDP AT Current Prices) Year 1990-1991 2000-2001 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 (Budget Estimate) Revenue Deficit 3.3 4.1 1.1 4.5 5.1 3.4 3.4 Fiscal Deficit 6.6 5.7 2.6 6.0 6.3 5.1 4.6 Primary Deficit 2.8 0.9 (-)0.9 2.6 3.1 2.0 1.6

DIAGRAM SHOWING CENTRAL GOVERNMENT DEFICIT

Revenue Deficit Fiscal Deficit Primary Deficit

7 6 5 4 3 2 1 0 -1 -2

CAUSES OF INCREASE IN FISCAL DEFICIT

Increase in Interest Increase in Subsidies Increase in Defence Expenditure Poor Performance of Public Sector Units Poor Tax Collections Huge Expenditure on Government Administrative Machinery Increase in Salaries It is evident from the above account that amount of fiscal deficit is constantly rising. To meet this deficit, the government has either to borrow from the Reserve Bank of India or it has to resort to market borrowings.

MEASURES TAKEN BY GOVERNMENT TO REDUCE FISCAL DEFICIT

Simplification of Taxation System Improving Tax to GDP Ratio Reduction In Rates of direct Taxes Reforms in Indirect Taxes Introduction of Service Tax Reduction in Non-plan Government Expenditure Reduction in Subsidies Improvement in Tax Collection Closure of Sick Public Sector Companies Disinvestment of Public Sector Companies Efforts to Reduce Government Administrative Expenses Enactment of Fiscal Responsibility and Budget Management Act Reduction in Central Sales Tax (CST) Introduction of Goods and Service Tax (GST) New Direct Tax Code

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