FISCALPOLICY

BY GAZALGANDHI ASSISTANTPROFESSOR MBA

FISCALPOLICY
Fisc itmeanstreasureofGovt. FiscalPolicyisapolicyunderwhichthe governmentusesitsrevenueandexpenditure g p programmes toproducedesirableeffectsandavoid production undesirableeffectsonnationalincome,p andemployment. FiscalPolicyisusedasabalancingdeviceinan economy

OBJECTIVESOFFISCALPOLICY
.DevelopmentbyeffectiveMobilisation of Resources EmploymentGeneration ReductionininequalitiesofIncomeandWealth FixationofGovt.Responsibility EfficientallocationofFinancialResources PriceStabilityandControlofInflation

 BalancedRegionalDevelopment ReducingtheDeficitintheBalanceof Payment ReducingtheDeficitintheBalanceof Payment IncreasingNationalIncome DevelopmentofInfrastructure ForeignExchangeEarnings

TypesofFiscalPolicy
Thediscretionary yp policy y istheg government(federal) ( ) changingspending,changingtaxes(onhouseholds),or somecombinationofthetwo.Thelogicofthechange istoinfluencetheperformanceoftheeconomy economy.Back in1946thefederalgovernmentpledgedtohave economicgrowth,pricestabilityandfullemployment. Nondiscretionarypolicy isreallytheoverall frameworkanddesignofthegovernmentspending andtaxingauthority. authority Asanexample, example havinga progressivetaxsystem,oncesetup,works automaticallyintheeconomy.

THREEMAINSTANCESOFFISCAL POLICY
NEUTRALSTANCE:Thisresultsinlargetax revenueGovernment.Spendingisfullyfunded byTaxrevenuesandoverallbudgethasa neutraleffectonlevelofeconomicactivity. EXPANSIONARYSTANCE:government expenditureismorethantaxesreciepts. CONTRATIONARYSTANCE:Government expenditureislessthanthetaxesand revenuesreceived

InstrumentsofFiscalPolicy
Budgetarysurplusanddeficit Governmentexpenditure Taxation i direct di and d i indirect di Publicdebt Deficitfinancing

TAXATION
Classifiedinto: Directtaxes Corporatetax,Div.Distribution Tax PersonalIncomeTax Tax, Tax,FringeBenefittaxes taxes, BankingCashTransactionTax Indirect I di taxes Central C lSales S l Tax, T Customs, C ServiceTax,exciseduty.

EFFECT
IfGo Govt. t.willincrease c easeta taxes, es,more o ebu burdens de swill beonthepublicanditwillreduceproductionand purchasingpowerofpublic. IfGovt.willdecreasetaxes,thenpublic's purchasingpowerwillincreaseanditwill i increase the th inflation. i fl ti Govt.analyzesboththesituationandwillmake histaxationpolicymoreprogressive.

PUBLICEXPENDITURE
Itincludes: Governmentspendingonthepurchaseof goods&services. services Paymentofwagesandsalariesof governmentservants Publicinvestment Transferpayments

EFFECT
Govt Govt.canincreaseordecreasetheamountof publicexpenditurebychanginggovt.budget. So,govt govt.expenditureistechniqueoffiscal policybyusingthis,govt.usehisfund firston verynecessarysectorandotherwillbedone afterthis.

Budgetarysurplusanddeficit
A Abudgetisadetailedplanofoperationsfor somespecificfutureperiod Keepingbudgetbalanced(R=E)ordeficit(R<E) orsurplus(R>E)asamatter ofpolicyisitselfa fiscalinstrument. Anaccumulateddeficitoverseveralyears(or centuries)isreferredtoasthegovernmentdebt Adeficitisaflow.Andadebtisastock.Debtis essentiallyanaccumulatedflowofdeficits

DeficitFinancingPolicy
IfGovt.'sexpenditures p aremorethanhis revenue,thengovt.shouldhavetocollectthis amount.Thisamountisdeficitanditcanbe fulfilledbyissuingnewcurrencybycentralbank ofcountry.But,itwillreducethepurchasing powerofcurrency.Morenewcurrencywill i increase inflation i fl ti and dafter ft inflation i fl ti value l of f currencywilldecrease.So,deficitfinancingis very yseriousissueinthefrontofg govt.Govt. shoulduseit,ifthereisnoothersourceofgovt. earning.

Publicdebt
Internalborrowings g 1.Borrowingsfromthepublicbymeansoftreasurybills andgovt.bonds 2.Borrowingsfromthecentralbank(monetizeddeficit financing) Externalborrowings 1.foreigninvestments 2.internationalorganizationslikeWorldBank&IMF 3.marketborrowings

EFFECT
IfGovt.thinksthatdeficitfinancingisnotsufficientfor fulfillingthepublicexpenditureorifgovt.doesnotuse deficitfinancing,thengovt.cantakeloanfromWorld Bank,ortakeloanfromp publicby yissuing ggovt. g securitiesandbonds.Butitwillalsoincreasethecost ofdebtintheformofinterestwhichgovt.hastopay ontheamountofloan.So,g govt.hastomakesolid budgetforthisandafterthisamountisfixedwhichis takenasdebt.Thispolicycanalsouseasthetechnique offiscalp policy yforincreasethetreasureofg govt.