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 level2. To Achieve desirable consumption level3. To Achieve desirable employment level4. To achieve desirable income distribution5. Increase in capital formation6. Degree of inflation
METHODS OF FUNDINGGovernments 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 governmentClassification of revenue receipts:
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