Fiscal Policy Final Prentation

8/14/2019 Fiscal Policy Final Prentation

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Fiscal Policy and Budget

Presented By :-

Ajay Banka

Amey Vikram

Binny Kumar


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Fiscal Policy-Meaning

The word fisc means state treasury and fiscalpolicy refers to policy concerning the use ofstate treasury or the govt. finances to achievethe macroeconomic goals.

Any decision to change the level, compositionor timing ofgovt. expenditure or to vary the

burden ,the structure or frequency of the tax

payment is fiscal policy.- G.K. ShawG.K. Shaw


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Objectives of Fiscal Policy

Economic Growth.

Promotion of Employment.

Economic Stability

Economic Justice or Equity.


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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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Use of Fiscal Policy

Adjustment of income tax allowances rather than ratesof income tax

Extending or amending range of goods covered by

VAT Changing the rules under which tax has to be paid married persons allowances, inheritance taxes, stampduties, etc.

Abolishment of certain tax allowances MIRAS

(Mortgage Income Relief At Source) Accusations of stealth taxes much of it is atinkering with the tax system to achieve certain aims

mostly non-economic (governments these days, forexample, rarely increase taxes to dampen down theeconomy)


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Economic effects of fiscal policy

Governments use fiscal policy to influence

the level of aggregate demand in the

economy, in an effort to achieve economicobjectives of price stability, full

employment, and economic growth.


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Instruments of Fiscal Policy

Government expenditure

Taxation- direct and indirect

Public debt


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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 into1. Direct taxes- Corporate tax, Div. Distribution Tax,

Personal Income Tax, Fringe Benefit taxes, Banking

Cash Transaction Tax

2. Indirect taxes- Central Sales Tax, Customs, ServiceTax, 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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Fiscal policy framework

The Government's fiscal policy framework is based on the five key principles set

out in the Code for fiscal stability - transparency, stability, responsibility, fairness

and efficiency.

The Code requires the Government to state both its objectives and the rules

through which fiscal policy will be operated. The Government's fiscal policy

objectives are:


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Cont.

over the medium term, to ensure soundpublic finances and that spending and

taxation impact fairly within and betweengenerations.

over the short term, to support monetarypolicy and, in particular, to allow theautomatic stabilisers to help smooth the

path of the economy.


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Fiscal Policy In Inflation

Control Over Public Expenditure.

Increase In Taxes.

Increase In public Borrowing.

Delay In The Payment of old Debts


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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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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 assistanceto 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 Policy Final Prentation

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