Fiscal policy & monetary policy

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Fiscal policy
Meaning :

Fiscal policy may be defined as that part of government economic policy which deals with taxation expenditure, borrowing and management of public debt in an instrument of modern public finance

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Definitions
Fiscal policy means public expenditure and tax policy. Paul Samuelson By fiscal policy is meant the use of public finance of expenditure taxes borrowing and financial administration to further our national economic objective Buehler

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Objectives of Fiscal policy

Fiscal policy for full Employment
Fiscal policy and Economic stabilization Fiscal policy and economic Growth.

A) Imposition of additional taxes B) Direct physical control C) Revenue of public enterprises D) Increase in the rates of taxation E) Public debt

Fiscal policy and Social justice.

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Features of Fiscal policy of India

Rationalization of product classification codes.

Common accounting year for income tax.

Long term fiscal policy( introduced in 1986 budget). Impact of rural employment.

Black money
Reliance on indirect taxes . Inadequate public sector contribution.

Inflationary potential.

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Components of Fiscal policy

Budgetary policy Taxation policy

Public debt
Public expenditure
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Role of Fiscal policy

To divert existing resources from unproductive to

productive and social more desirable uses. Fiscal policy must be blended with planning for development To create an equitable distribution and wealth in the society . To maintain relative price stability through fiscal measures. Fiscal policy is the developing economy has to operate with in the framework.
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Instruments of Fiscal policy

Public expenditure Taxes (revenue) Public debts

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Aspects of Fiscal policy

Taxation policy

Public Expenditure Policy

Public debt Policy

Deficit Financing Policy

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Taxation Policy
Tax revenue is one of the most important sources of

revenue of the Government of India . The government levies both direct and indirect taxation policies. Direct taxes are in progressive in nature . Indirect taxes are in regressive in nature . Taxation played an important role in mobilizing resources for the five years plan

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Public expenditure policy

Public expenditure is played an important role in

development of India. The public expenditure incurred by the Government of India has been creating a serious impact on the production and distribution patterns of the economy

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Deficit Financing Policy

Deficit financing in India the government taking loans

from RBI . It is a kind of forced saving which are the results of increases in prices during the period of the Government investment . Thus its helps the country by providing necessary funds for meeting the requirement of economic growth but it will also creates the problem of inflationary rise in price

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Public Debt Policy

The government takes resources to public debt for

financing developmental expenditure . In the post-independence the Central Government has been raising of good amount of public debt regularly in order to mobilize resources to meet its developmental expenditure. Total public debt of the Central government is made up of internal debt and extent debt.

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Merits of Fiscal policy

Capital Formation.
Mobilization of resources . Incentive to Savings .

Inducement of private sector .

Reduction of Inequality . Export Promotion. Alleviation of poverty and Unemployment

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Demerits of Fiscal policy

Instability
Defective Tax structure Inflation

Negative return of the public sector

Growing inequality

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Necessary Reforms in Fiscal Policy

Progressive Taxes
Agricultural Taxation Broad-Based Tax Net

Checking Tax Evasion

Increasing reliance on direct Taxes Simplified Tax structure Checking the block money Raising the Profitability of PSUs

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PUBLIC REVENUES
SOURCE OF REVENUE FOR UNION Taxes on income other than agriculture income . Duties and customers ,including export duties. Corporate Taxes. Rate of stamp duty on bills of exchange. Estate duty in respect to property other than agriculture. Taxes on capital value of asset ,exclusive of agriculture lands , individual companies lands Terminal taxes on goods of passengers carried by the Railways, and Airways.

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Sources of revenue for State

Taxes on agricultural income Estate duty in respect of agricultural land.

Taxes on land and building.

Capitation Taxes. Fisheries.

Irrigation water storage and water power .

Duties in respect t of succession to agricultural land. Forests

Taxes on professions , trades , employment .

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Public Expenditure
The expenditure of external state and local governments is known as Public expenditure . In other words we can say that it is the spending by government of any sort , at any level i.e Central government , local government deffence.etc

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Classification of Public Expenditure

According to the authority which spends the Monet.

Federal/union/ central Expenditure . State /Provincial Expenditure . expenditure of municipalities and other local bodies. According to the objective of expenditure Development activities providing subsides , welfare activities , employment opportunities. Non- development activities like money spent on administration machinery , law and order

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Principles of Expenditure
Principle of Economy
Principle of Sanction Principle of Benefit

Principle of prudence
Principle of Transparency

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Expenditure of the Central government

Non plan Expenditure

Revenue Expenditure Capital Expenditure Plan Expenditure Revenue Expenditure Capital Expenditure

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Public Debt
Public debt in the Indian context refers to the

borrowings of the central govt. & state Govt. Gross public debt is the gross financial liability of the Govt. Net public debt is the gross debt is the gross debt minus the value of capital assets of the Govt. & loans & advances given by the govt. to other sectors

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Basic principles of debt management

Fairness
Cost Flexibility

Objective orientation
Expediency Timing transparency

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Features of Indian public debt

Market loans
Bonds Treasury bills

Special floating & other loans

Special securities issued to RBI Ways & means advances Securities against small savings Small savings Provident fund
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Development activities financed by public expenditure

Development of infrastructure
Development of public enterprises Support to private sector

Social welfare & employment programs

Increase production Exploitation & development of mineral resources Promote price stability Promote balanced growth Reduce inequality of income
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Evaluation of recent fiscal policy of Govt. of India

Evaluation of fiscal policy :-the effectiveness of the

fiscal policy can be assessed from 3 angles

Fiscal policy & savings & capital formation Fiscal policy & economic inequalities & Fiscal policy & inflation control

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Evaluation report on recent fiscal policy

Employment
Education Backward regions development

Tax policy
Contingent & other liabilities Debt management Financial intermediary National investment fund Public administration
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Monetary Policy

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