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Fiscal policy refers to the overall effect of the budget outcome on economic activity.
The idea of using fiscal policy to combat recessions was introduced by John Maynard Keynes in the 1930s
Two main instruments of fiscal policy• Revenue Budget• Expenditure Budget
Three possible stances of fiscal policy are:
A neutral stance of fiscal policy implies a balanced budget where G = T (Government spending = Tax revenue).
An expansionary stance of fiscal policy involves a net increase in government spending (G > T).
A contractionary stance of fiscal policy (G < T)
1. To achieve desirable price level
2. To Achieve desirable consumption level
3. To Achieve desirable employment level
4. To achieve desirable income distribution
5. Increase in capital formation
6. Degree of inflation
METHODS OF FUNDING
Governments spend money on a wide variety of things, from the military to services like education and healthcare, as well as transfer payments.
This expenditure can be funded in a number of different ways:
Taxation Seignorage, the benefit from printing money Consumption of fiscal reserves. Sale of assets (e.g., land).
Revenue receipt are those which neither decreases the asset nor increases the liability of the government
Classification of revenue receipts:
Revenue Receipts (Tax Revenue)
7.17.5
8.59.3
8.8
0
1
2
3
4
5
6
7
8
9
10
2004-05 2005-06 2006-07 2007-08 2008-09
Year
Reven
ue R
eceip
ts
11/04/23DEVwebsite: http//indiabudget.nic.in
Direct Taxes
1.61.8 1.8
2.2 2.32.6
2.8
3.5
4.1 4.2
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2004-05 2005-06 2006-07 2007-08 2008-09
years
per
son
al/c
orp
ora
tio
n t
axes
PersonaL Income Taxes
Corporation Tax
website: http//indiabudget.nic.in
Indirect Taxes
0
0.5
1
1.5
2
2.5
3
3.5
Years
Cus
tom
/Exc
ise/
Ser
vice
taxe
s
Customs
Excise
Service Taxes
Customs 1.8 1.8 2.1 2.2 2.0
Excise 3.1 3.1 2.8 2.6 2.0
Service Taxes 0.5 0.6 0.9 1.1 1.2
2004-05 2005-06 2006-07 2007-08 2008-09
website: http//indiabudget.nic.in
Customs duty on nonagricultural products, reduced from 20% (2003-04)to 10%(2007-08)
Duty on steel melting scrap and aluminum scrap reduced to Nil (from 5 per cent earlier).
Customs duty on crude and non-refined sulphur reduced to 2% from 5% to boost domestic
fertilizer production. Customs duty on cigars, cheroots and cigarillos was
increased from 30% to 60%.
CENVAT rate on all goods from 16% to 14%
Excise duty was reduced from 16% to 8% on all drugs
In the automobiles sector, excise duties were reduced on small cars from 16% to 12%; hybrid cars from 24% to 14%; electric cars from 8% to Nil
In the food processing sector, excise duty was made fully exempt on packaged tender coconut water, paws, mudi (puffed rice), milk containing edible nuts and tea/coffee pre-mixes.
Year Number of services Tax rate (% ) Revenue (Crores)
2004-05 75 10 14200
2005-06 84 10 23055
2006-07 99 12 37598
2007-08 106 12 51301
2008-09 NA 12 65000website: http//indiabudget.nic.in
Comparision between Direct Tax & Indirect Tax
0
1
2
3
4
5
6
7
Years
DT
/IT Direct Tax
Indirect Tax
Direct Tax 4.2 4.6 5.3 6.3 6.5
Indirect Tax 5.4 5.6 5.8 5.9 5.3
2004-05 2005-06 2006-07 2007-08 2008-09
11/04/23 GAGANJEET PHOGAAT
website: http//indiabudget.nic.in
Non Tax Revenue
2.6
2.1 22.2
1.8
0
0.5
1
1.5
2
2.5
3
2004-05 2005-06 2006-07 2007-08 2008-09
Year
No
n T
ax R
even
ue
Non Tax Revenue
website: http//indiabudget.nic.in
Revenue Expenditure
12.2 12.2 12.5 12.6
15.1
0
2
4
6
8
10
12
14
16
2004-05 2005-06 2006-07 2007-08 2008-09
Years
RE
as
% o
f G
DP
Series1
website: http//indiabudget.nic.in
Revenue expenditure
0.0
1.0
2.0
3.0
4.0
5.0
Years
Co
mp
on
en
ts o
f R
E
Interest Payment
Major Subsidies
Defense Expenditure
Interest Payment 4.0 3.7 3.6 3.6 3.6
Major Subsidies 1.4 1.2 1.3 1.4 2.3
DefenseExpenditure
1.4 1.3 1.3 1.1 1.4
2004-05 2005-06 2006-07 2007-08 2008-09
website: http//indiabudget.nic.in
Revenue Defecit
2.5 2.6
1.9
1.1
4.5
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
2004-05 2005-06 2006-07 2007-08 2008-09
Years
Re
ve
nu
e D
efi
cit
(a
s %
of
GD
P)
Series1
11/04/23 GAGAN ANAND
website: http//indiabudget.nic.in
Capital Receipts
0.0
2.0
4.0
6.0
8.0
Years
Cap
ital
Receip
ts
Recovery of Loans
Other Receipts (PSUDiisinvestment)
Borrowings and otherLiabilities
Recovery of Loans 2.0 0.3 0.1 0.1 0.2
Other Receipts(PSUDiisinvestment)
0.1 0 0 0.8 0
Borrowings andother Liabilities
4.0 4.1 3.5 2.7 6.1
2004-05 2005-06 2006-07 2007-08 2008-09
website: http//indiabudget.nic.in
Capital Expenditure
3.6
1.91.7
2.5
1.8
0
0.5
1
1.5
2
2.5
3
3.5
4
2004-05 2005-06 2006-07 2007-08 2008-09
Years
cap
ital
Exp
en
dit
ure
(as %
of
GD
P)
Series1
website: http//indiabudget.nic.in
Comparision between RE & CE
0
2
4
6
8
10
12
14
16
Years
RE
/CE Revenue Expenditure
Capital Expenditure
Revenue Expenditure 12.2 12.2 12.5 12.6 15.1
Capital Expenditure 3.6 1.9 1.7 2.5 1.8
2004-05 2005-06 2006-07 2007-08 2008-09
website: http//indiabudget.nic.in
Plan Expenditure
4.23.9 4.1 4.3
5.3
0
1
2
3
4
5
6
2004-05 2005-06 2006-07 2007-08 2008-09
Years
Pla
nn
ed
Exp
en
dit
ure
(as %
of
GD
P)
Series1
11/04/23DEEPIKA
website: http//indiabudget.nic.in
Non Plan Expenditure
11.6
10.210.0
10.7
11.6
9
9.5
10
10.5
11
11.5
12
2004-05 2005-06 2006-07 2007-08 2008-09
Years
No
n P
lan
Exp
en
dit
ure
(as %
of
GD
P)
Series1
website: http//indiabudget.nic.in
Fiscal Defecit
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2004-05 2005-06 2006-07 2007-08 2008-09
Years
Fis
cal
defe
cit
(as %
of
GD
P)
Series1
website: http//indiabudget.nic.in
PRESENTED BY:DEEPIKA GULATI(IB/08)DEVKANT RATH(IB/09)
FATIK KHAN(IB/10)GAGAN ANAND(IB/11)
GAGANJEET PHOGAAT(IB/12)
