ECO Fiscal Policy

8/3/2019 ECO Fiscal Policy

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FISCAL POLICYAND

ITS ROLE IN

ECONOMIC & SOCIAL DEVELOPMENTOF THE COUNTRY

PRESENTED BY:

DEEPAK BHADANA

APARNA RATHORE

AKSHAY GAMBHIR

SHANT KUMAR

MOHIT GAMBHIR


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Fiscal Policy's first word Fiscal is taken from French word Fisc which means treasure of Government. So, we can define fiscal policy as the revenue andexpenditure policy of Government.

Fiscal policy (or Budgetary Policy ) refers to the taxation, expenditure andborrowing by the government.

It is a part of government policy, which is concerned with raising revenuethrough taxation and other means and deciding on the level and pattern of

expenditure. Fiscal policy is a great equipment in the hand of any countrys government to make better tax system and to manage the public loan andexpenditures.

According to G. K. Shaw - any decision to change the level, composition ortiming of govt. expenditure or to vary the burden ,the structure or frequency

of the tax payment is fiscal policy.

In short, Fiscal Policy is the policy which is concerned with the management oftaxation system, public expenditure and public debt, with a view to achievedefinite objective.
http://www.svtuition.org/2010/02/treasury-management-and-its-functions.htmlhttp://www.svtuition.org/2010/02/treasury-management-and-its-functions.htmlhttp://www.svtuition.org/2010/02/treasury-management-and-its-functions.htmlhttp://www.svtuition.org/2010/02/treasury-management-and-its-functions.html


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OBJECTIVES

OFFISCAL POLICY


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Mobilization of resources for economicdevelopment of the country.

To increase the rate saving in the countryso that sufficient financial resources can

be obtained from within the economy.

To increase the rate of investment in theeconomy, so as to promote capital

formation.

Removal of poverty & unemployment

Reduction of income inequality


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Reduction in regional disparity

To achieve economic stability

Optimum utilization ofresources

To support private sector

To achieve favourable balanceof payments


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TECHNIQUES OF FISCAL POLICY

FiscalPolicy

Taxation

Policy

Govt.ExpenditurePolicy

DeficitFinancing

Policy

PublicDebtPolicy


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1 . Taxation Policy

By amendment in Indian tax law 1961, government of India has power tomake new taxation policy according to the current Indian economic situation.Either government can increase the tax rate or decrease exemption forcollecting more tax for previous year income .

2. Government Expenditure Policy

Govt. can increse or decrease te amount of public expenditure by changinggovt. budget


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3. Deficit Financing Policy

If above two equipment does not work to createbalance in government budget, government can getloan from central bank to adjust deficiency or deficit.

4. Public Debt Policy

Public debt means, loan is taken by government tofulfil government expenditures .
http://www.svtuition.org/2010/03/government-debt.htmlhttp://www.svtuition.org/2010/03/government-debt.html


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FISCAL POLICY CAN BE DIVIDED INTO TWO TYPES


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DISCRETIONARY FISCAL POLICY FOR STABILISATION

Fiscal policy is an important instrument to stabilize the economy, that is, to

overcome recession and control inflation in the economy. By discretionarypolicy we mean deliberate change in the Government expenditure and taxesto influence the level of national output and prices. Fiscal policy generallyaims at managing aggregate demand for goods and services.

NON-DISCRETIONARY FISCAL POLICY : AUTOMATIC STABILIZERS

In the Non-discretionary fiscal policy, the tax structure and expenditure are sodesigned that taxes and government spending vary automaticallyinappropriate direction with the changes in National Income. That is, thesetaxes and expenditure pattern without any special deliberate action by thegovernment and parliament automatically raise aggregate demand in times ofrecession and reduce aggregate demand in times of boom and inflation andthere by help in insuring economic stability.

These fiscal measures are therefore called automatic stabilizers or built-instabilizers.


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ROLE OF FISCAL POLICY IN ECONOMIC & SOCIAL DEVELOPMENT OF THECOUNTRY

FiscalPolicy

CapitalFormation Effective

Mobilizationof

resources

EfficientAllocation of

FinancialResources

Reduction inInequalities of

Income &Wealth

Price stability &Control ofInflation

EmploymentGeneration

BalancedRegional

Development

Reducing thedeficit in theBalance ofPayment

IncreasingNationalIncome

Developmentof

Infrastructure

ForeignExchangeEarnings


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1. Development by effective Mobilisation of Resources

The principal objective of fiscal policy is to ensure rapid economic growthand development. This objective of economic growth and development canbe achieved by Mobilisation of Financial Resources.

The financial resources can be mobilised by :-

Taxation : Through effective fiscal policies, the government aims to mobilise

resources by way of direct taxes as well as indirect taxes because mostimportant source of resource mobilisation in India is taxation.

Public Savings : The resources can be mobilised through public savings byreducing government expenditure and increasing surpluses of public sector

enterprises.

Private Savings : Through effective fiscal measures such as tax benefits,the government can raise resources from private sector and households.Resources can be mobilised through government borrowings by ways oftreasury bills, issue of government bonds, etc., loans from domestic andforeign parties and by deficit financing.


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2. Efficient allocation of Financial Resources

The central and state governments have tried to make efficient allocation offinancial resources. These resources are allocated for DevelopmentActivities which includes expenditure on railways, infrastructure, etc. WhileNon-development Activities includes expenditure on defence, interestpayments, subsidies, etc.

But generally the fiscal policy should ensure that the resources are allocated

for generation of goods and services which are socially desirable .

3. Reduction in inequalities of Income and Wealth

Fiscal policy aims at achieving equity or social justice by reducing income

inequalities among different sections of the society. The direct taxes such asincome tax are charged more on the rich people as compared to lowerincome groups. Indirect taxes are also more in the case of semi-luxury andluxury items, which are mostly consumed by the upper middle class and theupper class. The government invests a significant proportion of its taxrevenue in the implementation of Poverty Alleviation Programmes toimprove the conditions of poor people in society.


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4. Price Stability and Control of Inflation

One of the main objective of fiscal policy is to control inflation and stabilizeprice. Therefore, the government always aims to control the inflation by

Reducing fiscal deficits, introducing tax savings schemes, Productive useof financial resources, etc.

5. Employment Generation

The government is making every possible effort to increase employment inthe country through effective fiscal measure. Investment in infrastructurehas resulted in direct and indirect employment. Lower taxes and duties onsmall-scale industrial (SSI) units encourage more investment andconsequently generates more employment. Various rural employmentprogrammes have been undertaken by the Government of India to solveproblems in rural areas. Similarly, self employment scheme is taken toprovide employment to technically qualified persons in the urban areas.


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6 . Balanced Regional Development

Another main objective of the fiscal policy is to bring about a balancedregional development. There are various incentives from the government

for setting up projects in backward areas such as Cash subsidy,Concession in taxes and duties in the form of tax holidays, Finance atconcessional interest rates, etc.

7. Reducing the Deficit in the Balance of Payment

Fiscal policy attempts to encourage more exports by way of fiscalmeasures like Exemption of income tax on export earnings, Exemption ofcentral excise duties and customs, Exemption of sales tax etc.

The foreign exchange is also conserved by Providing fiscal benefits to

import substitute industries, Imposing customs duties on imports, etc.

The foreign exchange earned by way of exports and saved by way ofimport substitutes helps to solve balance of payments problem. In thisway adverse balance of payment can be corrected either by imposingduties on imports or by giving subsidies to export.


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8. Capital Formation

The objective of fiscal policy in India is also to increase the rate of capital formationso as to accelerate the rate of economic growth. An underdeveloped country is

trapped in vicious (danger) circle of poverty mainly on account of capital deficiency.In order to increase the rate of capital formation, the fiscal policy must be efficientlydesigned to encourage savings and discourage and reduce spending.

9. Increasing National Income

The fiscal policy aims to increase the national income of a country. This is becausefiscal policy facilitates the capital formation. This results in economic growth, whichin turn increases the GDP, per capita income and national income of the country.

10. Development of Infrastructure

Government has placed emphasis on the infrastructure development for thepurpose of achieving economic growth. The fiscal policy measure such as taxationgenerates revenue to the government. A part of the government's revenue isinvested in the infrastructure development. Due to this, all sectors of theeconomy get a boost.


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11. Foreign Exchange Earnings

Fiscal policy attempts to encourage more exports by way ofFiscal Measures like, exemption of income tax on exportearnings, exemption of sales tax etc. Foreign exchangeprovides fiscal benefits to import substitute industries. Theforeign exchange earned by way of exports and saved by wayof import substitutes helps to solve balance of paymentsproblem.


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CONCLUSION

The objectives of fiscal policy such as economic

development, price stability, social justice, etc. can beachieved only if the tools of policy like Public Expenditure,Taxation, Borrowing and deficit financing are effectivelyused.

Though there are gaps in India's fiscal policy, there is alsoan urgent need for making India's fiscal policy arationalised and growth oriented one.

The success of fiscal policy depends upon taking timelymeasures and their effective administration duringimplementation.


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ECO Fiscal Policy