Introduction

 Fiscal Policy is a part of macro economics.

 This policy is also known as budgetary policy.
 One major function of the government is to stabilize
the economy.
 Current indian govt wants to achieve fiscal deficit
target by not reducing expenditure but increasing tax
collection.
 Keynesian economics, when the government changes
the levels of taxation and governments spending, it
influences aggregate demand and the level of
economic activity.
Meaning
• The word fisc means ‘state treasury’ and fiscal policy
refers to policy concerning the use of ‘state treasury’ or
the government finances to achieve the macroeconomic
goals.

• Fiscal policy involves the decisions that a government

makes regarding collection of revenue, through taxation
and about spending that revenue.

• It is sister strategy to monetary policy through which a

central bank influences a nation’s money supply.
Objectives of Fiscal Policy
1. Development by effective mobilisation of resources
2. Reduction in inequalities of income and wealth
3. Price stability and control of inflation
4. Employment generation
5. Reducing the deficit in the balance of payment
6. Increasing national income
7. Development of infrastructure
Instruments of Fiscal policy

Instruments of Fiscal
Policy

Public
Budget Taxation Public debt
expenditure
Budget
• “A Budget is a detailed plan of operations for some
specific future period”
• Budget is presented by the finance minister of India.
• Budget is also known as Annual Financial Statement
of the year.
• Total Expenditure has accordingly been estimated
at Rs.17,77,477 crore in 2015-16
• The requirements for expenditure on Defence,
Internal Security and other necessary expenditures
are adequately provided.
Taxation
Direct Tax Indirect Tax
• Individual Income Tax & • Central excise (a tax on
Corporate Tax. manufacture goods)
• Wealth tax @ 2% • VAT @ 12.5%
• Service Tax @ 14%
• Custom Duty
Public Expenditure
• Public expenditure is spending made by the
government of a country on collective needs and
wants such as pension, provision, infrastructure, etc.
• Public expenditure is an important component of
aggregate demand.
• Public expenditure include Revenue expenditure and
capital expenditure.
Public Debts
“ public debt is defined as any money owned by a
government agency”
• Internal borrowings
Borrowings from the public means of treasury bills and
govt. bonds.
Borrowings from the central bank
• External borrowings
Foreign investment
International organizations like World Bank &IMF
Market borrowings
Types of Fiscal Policy

Fiscal policy
Discretionary
policy
Non-discretionary
fiscal policy
To cure To control
recession inflation Personal
Transfer income
Increase in Raising taxes payment
Govt. taxes
to control
expenditure inflation
Reduction Corporate Corporate
Disposing of Income
of taxes budget dividend
taxes policy
surplus
Concept of Deficit
• Revenue Deficit = Revenue Expenditure – Revenue
Receipts

• Fiscal Deficit = Total Expenditure (that is Revenue

Expenditure + Capital Expenditure) – Total Receipts
(that is all Revenue and Capital Receipts other than
loans taken)
Statistical Data of Fiscal Deficit
Year Fiscal deficit of Fiscal deficit of Combined Fiscal deficit of
centre states centre and states
governments

(Rs. crore)
2005-06 146435 87608 237187
2006-07 142573 79979 220617
2007-08 126912 75690 199375
2008-09 336992 127320 459908
2009-10 418482 194962 610851
2010-11 373591 158374 529594
2011-12 515990 171798 688434
2012-13 490190 198076 683418
2013-14 524539 284642 806383
2014-15 531177 293973 821903
Fiscal deficit of centre and states
governments
900000
800000
700000
600000
Combined
500000
Fiscal deficit
400000 of centre and
states
300000
governments
200000
100000
0
Statistical Data of Fiscal Deficit
Year Fiscal deficit of Fiscal deficit of Combined Fiscal deficit of
centre states centre and states
governments

(as per cent of GDP)

2005-06 3.96 2.37 6.42
2006-07 3.32 1.86 5.14
2007-08 2.54 1.52 4.00
2008-09 5.99 2.26 8.17
2009-10 6.46 3.01 9.43
2010-11 4.79 2.03 6.79
2011-12 5.73 1.91 7.64
2012-13 4.85 1.96 6.76
2013-14 4.62 2.51 7.10
2014-15 4.13 2.28 6.38
Fiscal deficit of centre and states
governments
10
9
8
7
6 Combined
Fiscal deficit
5
of centre and
4 states
3 governments
2
1
0
Achievements of Fiscal Policy in
India
• Mobilization of resources
• Increase in savings
• Increase in capital formation
• Incentives to investment
• Reduction in Income and wealth Inequalities
• Reduction in inter regional variations
Fiscal Reforms in India
• Simplification of taxation system
• Improving tax to GDP ratio
• Reduction in rates of direct taxes
• Reforms in indirect taxes
• Introduction of service tax
Contd…
• Reduction in non-plan government expenditure
• Reduction in subsidies
• Closure of sick public sector companies
• Disinvestment of public sector units
• Efforts to reduce government administrative expenses
Fiscal Responsibility and Budget
Management Act, 2003
• The Fiscal Responsibility and Budget Management Act,
2003 is an Act of the Parliament of India to institutionalise
financial discipline, reduce India's fiscal deficit, improve
macroeconomic management and the overall management
of the public funds by moving towards a balanced budget.

• Objectives
• To introduce transparent fiscal management systems in the
country
• To introduce a more equitable and manageable distribution of
the country's debts over the years
• To aim for fiscal stability for India in the long run
Current Fiscal Policy
• The state of world economy has been the most decisive
factor affecting the fortunes of every developing
countries.
• Roadmap to achieve Fiscal deficit of 3% of GDP in three
years: Target is 3.9% in 2015-16, 3.5% in 2016-17, 3% in
2017-18.
• The current financial year will end on a satisfactory note
with the fiscal deficit at 4.6 percent (below the red line of
4.8 percent) and the revenue deficit at 3.3 percent.
• Fiscal Deficit in 2014-15 estimated to be 4.1 percent
which will be below the target set by new Fiscal
Consolidation Path and Revenue Deficit is estimated at
3.0 percent.
Conclusion
• Thus, the fiscal policy encompasses two separate but related
decisions; public expenditures and the level and structure of
taxes. It occupies the central place for maintaining full
employment without inflationary forces in the economy.
With its various instruments it influences the economic
stability of an economy. The fiscal policy of the Indian
government has been very successful in several fields such
as mobilization of resources for economic development,
increasing rate of savings and capital formation, developing
cottage and small scale industries ,reducing the incidence of
poverty etc.
Thank you