Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Fiscal policy and budget


Published on

Published in: Business, Economy & Finance

Fiscal policy and budget

  2. 2. Fiscal Policy <ul><li>Definition : </li></ul><ul><li>Fiscal policy is that part of government policy which is concerned with raising revenue through taxation and other means and deciding on the level and pattern of expenditure with a view to correct the situations of excess demand or deficient demand in the economy. </li></ul>
  3. 3. INSTRUMENTS OF FISCAL POLICY <ul><li>Instruments related to Government expenditure </li></ul><ul><li>Fiscal instruments related to government revenue </li></ul>
  4. 4. MEASURES OF FISCAL POLICY <ul><li>In case of deficient demand or deflationary gap </li></ul><ul><li>Decrease in taxes </li></ul><ul><li>Increase in public expenditure </li></ul><ul><li>Increase in deficit financing </li></ul><ul><li>Reduce public borrowing </li></ul>
  5. 5. MEASURES OF FISCAL POLICY <ul><li>2. In case of excess demand or inflationary gap </li></ul><ul><li>Increase taxes </li></ul><ul><li>Decrease government expenditure </li></ul><ul><li>Reduce deficit financing </li></ul><ul><li>Increase public borrowing </li></ul>
  6. 6. Role of Fiscal Policy in development of Economy Definition: Fiscal policy means the use of taxation, public borrowing & public expenditure by the government for purpose of ‘stabilization’ or ‘Development’
  7. 7. Role of Fiscal Policy in development of Economy <ul><li>Capital Formation </li></ul><ul><li>Increase the rate of investment </li></ul><ul><li>Encourage socially optimal investment </li></ul><ul><li>Increase employment opportunity </li></ul><ul><li>Economic stability in face of international instability </li></ul><ul><li>Counteract inflation </li></ul><ul><li>Flow of investment to socially desirable channels </li></ul><ul><li>Check imbalance in various sectors </li></ul><ul><li>Reduce inequality of income and wealth </li></ul>
  8. 8. Budget <ul><li>Definition </li></ul><ul><li>Annual statement of the estimated receipt and expenditure of the government </li></ul><ul><li>over the fiscal year </li></ul>
  9. 9. Budget Revenue Budget Capital Budget Revenue Budget consist of revenue receipt and the expenditure met from such revenues.
  10. 10. Revenue Receipts Tax Revenue Non Tax Revenue Direct Tax Indirect Tax Commercial Revenue Interest & Dividend Administrative Revenue Fees License fees Forfeiture Fines & Penalties Escheat
  11. 11. Capital Budget <ul><li>Capital Budget consist of </li></ul><ul><li>Capital Receipt </li></ul><ul><li>Capital Expenditure </li></ul>
  12. 12. Capital Receipts <ul><li>Loans raised by the government from the public </li></ul><ul><li>Borrowings by the government from the RBI & other parties through sale of Treasury Bills </li></ul><ul><li>Loans received from foreign government and bodies </li></ul><ul><li>Recoveries of loans granted to state & union territory government & other parties </li></ul><ul><li>Small savings & deposits in Public Provident Funds </li></ul>
  13. 13. Capital Expenditure <ul><li>Expenditure on acquisition of assets and loans and advances </li></ul>
  14. 14. Budget Surplus <ul><li>The amount by which a government income exceeds its spending </li></ul><ul><li>Effective tool to achieve the objective of price stability </li></ul>
  15. 15. Budget Deficit <ul><li>It occurs when an entity spends more money than it takes in </li></ul><ul><li>It consists of two elements </li></ul><ul><li>1. Cyclical deficit </li></ul><ul><li>2. Structural Deficit </li></ul>
  16. 16. BALANCED BUDGET <ul><li>A balanced budget in the public sector is achieved when the government has enough fiscal discipline to be able to equate the revenues with expenditure over the business cycles. In other words, a government's budget is balanced if its income is equal to its expenditure. This allows for a deficit in periods of low economic prospects that however needs to be matched by a surplus in periods of high economic activity. </li></ul>
  17. 17. This year Budget (2007-08) <ul><li>Objective </li></ul><ul><li>Budget is a anti-inflationary as the objective is to check inflation & sustain high growth of the economy. </li></ul>
  18. 18. Provision in Budget <ul><li>Increasing personal Income Tax exemption limit </li></ul><ul><li>1% increase in education cess. </li></ul><ul><li>Custom duty reduced from 12.5% to 10% </li></ul><ul><li>Reduce in excise duty on number of critical items </li></ul><ul><li>Ban on future trading in wheat and rice </li></ul><ul><li>Increase in Dividend Distribution Tax. </li></ul><ul><li>Allocation for the National Rural Health Mission </li></ul><ul><li>Allocation for HIV/AIDS prevention </li></ul><ul><li>Allocation for Education </li></ul><ul><li>Allocation of Defence Expenditure </li></ul>
  19. 19. <ul><ul><ul><ul><ul><li>Figures in Crore </li></ul></ul></ul></ul></ul>Sector Wise Allocation Of Budget Last year Present year Sector Agriculture 7391 8558 Industry & Mineral 12588 20434 Social Services 59143 80315 Rural Development 18268 20342 Irrigation & Flood Control 462 507 Transport 49819 71589 General Economic Services 2566 3632 Communication 17851 25812 General Services 542 829 Energy 68825 79158 Science, Technology & Environment 6774 8816 Total 244229 319992