2. 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

3. 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)

4. 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

5. 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).

6. Revenue receipt are those which neither decreases the asset nor
increases the liability of the government
Classification of revenue receipts:

7. Revenue Receipts (Tax Revenue)
10 9.3
8.8
9 8.5
8 7.5
7.1
Revenue Receipts
7
6
5
4
3
2
1
0
2004-05 2005-06 2006-07 2007-08 2008-09
Year
website: http//indiabudget.nic.in DEV 27/07/12

8. Direct Taxes
4.5 4.1 4.2
4
3.5
personal/corporation taxes
3.5
3 2.8
2.6
2.5 2.2 2.3 PersonaL Income Taxes
2 1.8 1.8 Corporation Tax
1.6
1.5
1
0.5
0
2004-05 2005-06 2006-07 2007-08 2008-09
years
website: http//indiabudget.nic.in

9. Indirect Taxes
3.5
Custom/Excise/Service taxes
3
2.5
Customs
2
Excise
1.5
Service Taxes
1
0.5
0
2004-05 2005-06 2006-07 2007-08 2008-09
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
Years
website: http//indiabudget.nic.in

10.  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%.

11.  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.

12. 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 65000
website: http//indiabudget.nic.in

13. Comparision between Direct Tax & Indirect Tax
7
6
5
4 Direct Tax
DT/IT
3 Indirect Tax
2
1
0
2004-05 2005-06 2006-07 2007-08 2008-09
Direct Tax 4.2 4.6 5.3 6.3 6.5
Indirect Tax 5.4 5.6 5.8 5.9 5.3
Years
website: http//indiabudget.nic.in
GAGANJEET PHOGAAT 27/07/12

14. Non Tax Revenue
3
2.6
2.5 2.2
2.1
Non Tax Revenue
2
2 1.8
1.5 Non Tax Revenue
1
0.5
0
2004-05 2005-06 2006-07 2007-08 2008-09
Year
website: http//indiabudget.nic.in

15. Revenue Expenditure
16 15.1
14 12.5 12.6
12.2 12.2
12
RE as % of GDP
10
8 Series1
6
4
2
0
2004-05 2005-06 2006-07 2007-08 2008-09
Years
website: http//indiabudget.nic.in

16. Revenue expenditure
5.0
Components of RE
4.0
Interest Payment
3.0 Major Subsidies
2.0 Defense Expenditure
1.0
0.0
2004-05 2005-06 2006-07 2007-08 2008-09
Interest Payment 4.0 3.7 3.6 3.6 3.6
Major Subsidies 1.4 1.2 1.3 1.4 2.3
Defense 1.4 1.3 1.3 1.1 1.4
Expenditure
Years
website: http//indiabudget.nic.in

17. Revenue Defecit
5
4.5
Revenue Deficit (as % of GDP)
4.5
4
3.5
3 2.6
2.5
2.5 Series1
1.9
2
1.5 1.1
1
0.5
0
2004-05 2005-06 2006-07 2007-08 2008-09
Years
website: http//indiabudget.nic.in
GAGAN ANAND 27/07/12

18. Capital Receipts
8.0
Capital Receipts
Recovery of Loans
6.0
Other Receipts (PSU
4.0
Diisinvestment)
2.0 Borrowings and other
Liabilities
0.0
2004-05 2005-06 2006-07 2007-08 2008-09
Recovery of Loans 2.0 0.3 0.1 0.1 0.2
Other Receipts 0.1 0 0 0.8 0
(PSU
Diisinvestment)
Borrowings and 4.0 4.1 3.5 2.7 6.1
other Liabilities
Years
website: http//indiabudget.nic.in

19. Capital Expenditure
capital Expenditure (as % of GDP)
4
3.6
3.5
3
2.5
2.5
1.9 1.8
2 1.7 Series1
1.5
1
0.5
0
2004-05 2005-06 2006-07 2007-08 2008-09
Years
website: http//indiabudget.nic.in

20. Comparision between RE & CE
16
14
12
10
Revenue Expenditure
RE/CE
8
Capital Expenditure
6
4
2
0
2004-05 2005-06 2006-07 2007-08 2008-09
Revenue Expenditure 12.2 12.2 12.5 12.6 15.1
Capital Expenditure 3.6 1.9 1.7 2.5 1.8
Years
website: http//indiabudget.nic.in

21. Plan Expenditure
6
Planned Expenditure (as % of
5.3
5
4.2 4.3
4.1
3.9
4
GDP)
3 Series1
2
1
0
2004-05 2005-06 2006-07 2007-08 2008-09
Years
website: http//indiabudget.nic.in
DEEPIKA 27/07/12

22. Non Plan Expenditure
12
Non Plan Expenditure (as % of
11.6 11.6
11.5
11
10.7
GDP)
10.5 Series1
10.2
10.0
10
9.5
9
2004-05 2005-06 2006-07 2007-08 2008-09
Years
website: http//indiabudget.nic.in

23. Fiscal Defecit
7.0
Fiscal defecit (as % of GDP)
6.0
5.0
4.0
Series1
3.0
2.0
1.0
0.0
2004-05 2005-06 2006-07 2007-08 2008-09
Years
website: http//indiabudget.nic.in

25. PRESENTED BY:
DEEPIKA GULATI(IB/08)
DEVKANT RATH(IB/09)
FATIK KHAN(IB/10)
GAGAN ANAND(IB/11)
GAGANJEET PHOGAAT(IB/12)