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EFFECTS OF FISCAL POLICY ON BUISNESS ENVIRONMENT

Presented by Dhruv(2k11b11) Karamvir(b13) Rupen(b25)

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Understanding of Fiscal Policy

Fiscal policy is based on the theories of British economist John Maynard Keynes. Also known as Keynesian economics, this theory basically states that governments can influence macroeconomicproductivitylevelsbyi ncreasingordecreasingtaxlevelsand public spending. This influence, in turn, curbs inflation increases employment and
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Three possible stances of fiscal policy fiscal policy A neutral stance of

implies a balanced budget where G =T Government spending = Tax revenue. Government spending is fully funded by tax revenue and overall the budget outcome has a neutral effect on the level of economic activity.
Anexpansionarystanceoffiscal

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policyinvolvesanetincreasein government spending (G > T)

Government spending can be broken down into three main categories:

1.

General governmentexpenditure - consists of the combined capital and current spendingofcentralgovernmentin cludingdebt

interestpaymentstoholdersofgov ernment debt. General government final 3/18/12 consumption - is government

2.

Main areas of expenditures

1.

Interest payments: - The widening of fiscal deficit and consequent rise in debt stocks during last two decades has resulted in mounting expenditure on interest payments. Subsidies:-Expenditure onsubsidies is acrucial element of government expenditure particularly in the light of targeting poverty alleviation and the growing need to

2.

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Expenditure can be fundedin a number of different ways:

Taxation Seignorage,

the benefit from printing

money
Borrowing

money from the population, resulting in a fiscal deficit.

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Indian Fiscal Policies

India was a latecomer to economic reforms, embarking on the process in earnest only in1991, in the wake of an exceptionally severe balance of payments crisis. The need for apolicy shift had become evident much earlier, as many countries in east Asia achieved high growth and poverty reduction through policies which emphasized greater export orientation
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Growth history in India

growth 1980s

recorded annual average of 5.7 percent in the 1980s. growth wasunsustainable, fuelled by abuildup of external debt whichculminated in the crisis of1991.

a systemic shift to a more open economywithgreaterrelianceupo nmarketforces,alargerrolefort heprivatesectorincluding foreign 3/18/12

So

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THANK YOU

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