Fiscal Policy

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admin
  • Government of India has many important roles to play for the overall economic development of the country.
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Role of GOI

 

  • To attain the above mentioned objectives, Government needs to generate revenue and incur expenditure in an efficient manner.
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  • Government receipts and expenditure is broadly divided in two groups namely Revenue and Capital receipts and expenditure.
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  • Government generates receipts through taxation, dividends, interest receipts, disinvestments, public borrowings etc.
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  • Government incurs expenditure on subsidy, interest on debt borrowed by government, infrastructure projects etc.
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  • For receipt generation and expenditure, government frames the fiscal policy.
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  • Fiscal policy refers to government’s financial management.
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  • When government spends more than it receives, it faces fiscal imbalance (deficit).
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  • To reduce the imbalance, government can either resort to public borrowing, printing currency, increasing tax etc. This in turn has different effects on different part of the economy.
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  • Increment in public borrowing can cause private sector crowding out effect, higher interest and repayment in future, increase in government debt etc while printing more currency via RBI can lead to inflation.
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  • Higher taxes can reduce consumption or impact certain sectors on which tax is imposed.
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  • Fiscal policy can also affect India’s trade balance thereby creating balance of payment crisis.
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  • Fiscal policy is an important part of the economic framework which refers to the prudent use of government receipts broadly taxation and government spending to influence the economy and attain government objectives.
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  • Government receipts and expenditure forms part of Budget which is announced end of every financial year in which the government provides guidance on fiscal policy for next financial year and accomplishment of its objectives in the current financial year.
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  • Chart below gives a snap shot on fiscal policy.
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Fiscal Policy Snap Shot

 

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