Fiscal policy


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Fiscal policy

  1. 1. Koppula.chandrasekher 1st M.B.A-13491E0037 QIS COLLEGE OF Engineering & Technology Venga mukala palem,ongole-523002, Prakasam (Dt), A.P 
  2. 2. Meaning  Fiscal policy deals with the taxation and expenditure decisions of the government. These include, tax policy, expenditure policy, investment or disinvestment strategies and debt or surplus management. - Kaushik Basu ( Former Chief Economic Adviser )
  3. 3. 1)Capital Formation: The Fiscal policy of the country has been playing an important role in raising the rate of capital formation in the public and private sectors. It has created a favorable impact on public and private sector investment of the country. 2) Mobilization of Resource: the Fiscal policy of the country has been helping to mobilize a considerable amount of resources through taxation, public debt and other sources for financing its various developmental projects. 3) Incentives to savings: the fiscal policy of the country has been providing various incentives to raise the savings rate both in household and corporate sector through various budgetary policy changes viz. tax exemption, tax concession etc…,
  4. 4. 4) Inducement to Private sector: The private sector of the country has been getting necessary inducements from the fiscal policy of the country to expand its activities. Tax concessions, tax exemptions, subsidies and so on incorporated in the budgets have been providing adequate incentives to the private sector units engaged in industry, infrastructure, and export of the country . 5) Reduction of inequality: the Fiscal policy of the country has been making constant Endeavour to reduce the inequality in the distribution of income and wealth. Progressive taxes on income and wealth tax exemption, grant and so on are making a concerted effort to reduce such inequalities. 6) Export Promotion: The Fiscal Policy has been making constant efforts to promote through its various budgetary policies in the form of concessions, subsidies and so on. 7) Alleviation of poverty and Unemployment: It makes constant efforts to alleviate poverty and unemployment through its various poverty eradication and employment generation programmers.
  5. 5. Demerits Instability Defective Tax Structure Inflation Negative Return of the Public Sector Growing Inequality
  6. 6. 1. Instability: The Fiscal Policy of the country has failed to help attain stability in various fronts of the economy. The growing volume of deficit financing has created inflationary rise in price levels. 2. Defective Tax Structure: The Fiscal policy has also failed to provide a suitable tax structure for the country. The tax structure has failed to raise the productivity of direct taxes. 3. Inflation:- The fiscal policy of the country has failed to contain the inflationary rise in price level. The increasing volume of public expenditure on non-development heads and deficit financing has resulted demand-pull inflation. 4. Negative Return of the Public Sector: The negative return on capital invested in the public sector units has become a serious problem for the Government of Indian. The government has to keep huge budgetary provisions and thereby creating a huge drainage of scarce resources of the country. 5. Growing Inequality: The fiscal policy of the country has failed to contain the growing inequality in the distribution of income and wealth throughout the country. The growing trend of tax evasion has made the tax machinery ineffective for the purpose while the growing reliance on indirect taxes has made the tax structure regressive
  7. 7. OBJECTIVES OF FISCAL POLICY • Increase in capital formation. • Degree of Growth. • To achieve desirable price level. • To achieve desirable consumption level. • To achieve desirable employment level. • To achieve desirable income distribution.
  8. 8. The Two Main instruments of fiscal policy Revenue Budget  Expenditure Budget 
  9. 9. Direct Tax    Individual Income Tax & Corporate Tax. Wealth Tax @ 1% Tax deducted at source Indirect Tax      central excise (a tax on manufactured goods) VAT @ 12.5% service tax @ 12% customs duty Educational cess @ 3%
  10. 10. Expenditure Budget  The central government is responsible for issues that usually concern the country as a whole like national defense, foreign policy, railways, national highways, shipping, airways, post and telegraphs, foreign trade and banking.  The state governments are responsible for other items including, law and order, agriculture, fisheries, water supply and irrigation, and public health.  Some items for which responsibility vests in both the Centre and the states include forests, economic and social planning, education, trade unions and industrial disputes, price control and electricity.
  11. 11. The Expenditure budget includes four main revenue expenditures  Total expenditure is Rs.16,65,297 corers (11.5% increase)
  12. 12. Features of fiscal policy The features of fiscal policy can be explained as below Common according year for income tax: Taxation policy has adopted standard accounting year April march for the purpose of income tax. The change is intended to reduce the malpractices and raise revenue of tax. Long term fiscal policy Since 1986 budget the govt of India has introduced long term fiscal policy to provide greater certainties in its budgetary policies and to improve the overall environment of business. Impact on rural employment Generation of employment of India has introduced new employment schemes like jawahar rojgar yojna or strengthened the existing schemes like integrated rural development program or national rural employment program.
  13. 13. Block money Unaccounted money has been a constant feature of Indians economy. Fiscal measures have generally failed to reduce the certain of block money. Reliance on indirect taxes: The tax policy is increasingly becoming regressive in nature by large dependence on indirect taxes like excise duty (or) custom duty as compared to that on direct taxes like income Taxes, corporation tax etc Inadequate public sector contribution: Contrary to repeated assertion by the govt of India, public sector continues to be a drain on the meager resources of the govt. Introduction of MODVAT: In 1986 the introduction of MODVAT has helped to reduce cumulative impact of indirect taxes on manufactured products
  14. 14. Fiscal Deficit   Fiscal Deficit = Total Expenditure (that is Revenue Expenditure + Capital Expenditure) – (Revenue Receipts + Recoveries of Loans + Other Capital Receipts) Currently the deficit is 5.3 % of GDP
  15. 15. Major Changes in Budget(2013-14) to curb Deficit…      One year surcharge of 10 % on the Superrich. Increased Duties on Imported or domestic luxury vehicles such as SUV’s, Mobiles (>Rs.2000), set top boxes, A/c restaurants and Cigarettes.( bring in Rs.18,000 crores) Disinvestment Proceedings to be around Rs.55,000 Crore for this fiscal. No additional subsidy for fuel, food and fertilizer prices. Buyers of immovable property other than agriculture land will have to pay a tax of 1% of the sale where the value exceeds Rs.50 lakh.
  16. 16. Conclusion Fiscal deficit  Current account deficit  Currency depreciation  Lower growth  Supply side gap in Food (inflation)  ?????  Only 42800 earn more than 1 crore and 1.9 lakh people earn more than 10 lakhs!!!!!! 
  17. 17. Reviews Subbarao, RBI Governor (2012) explained that, India is unique in the sense that we are one of the economies in the world that is supply constrained. There is shortage of infrastructure both in quantum and quality. We need to improve that so that corporates become more competitive, so that economic production becomes more competitive. First on infrastructure, second, we need to improve supply of food, especially of protein foods. Third, is skilled labour. It is one thing to have a huge labour force but another to have a labour force that is not adequately skilled. The skill shortage is going to be a big threat.
  18. 18. REFERENCES: [1] Dr. Rajiv Kumar Bhatt: Associate Professor of Economics at Banaras Hindu University “Recent Global Recession and Indian Economy: An Analysis” International Journal of Trade, Economics and Finance, Vol. 2, No. 3, June 2011 [2] Dr. Kausik Basu: Former Chief Economic Advisor “Fiscal Policy in India: Trends and Trajectory” Supriyo De January, 2012 [3] Dr. Sunita Mishra “Has our monetary policy been successful in checking inflation?” International Journal of Research in Finance & Marketing, May 2012 [4] Reserve Bank of India – [5] Project on Monetary Policy of Reserve Bank of India [6] Shweta Punj “Who will blink first? Chidambaram-Subbarao differences erupt into the open after monetary policy review” November, 2012 [7] Sharanarthy Jaswanth “Inflation Vs Growth”, Business line, 2011 [8] Jagdish Bhagwati “RBI overplaying inflation; must focus on growth now”, PTI Nov 21, 2012 [9] Venky Vembu “Inflation vs growth: Stiglitz is wandering in the wrong continent”, Oct 18, 2012 [10] India’s Reserve Bank and Government Lock Horns in Growth vs. Inflation Debate, November 1, 2012 [11] D H Pai Panandiker “The growth versus inflation dilemma”, July 19, 2012 [12] “Should policy focus on growth or inflation?” DEBATE Business Standard / May 16, 2012 [13] RBI Governor Duvvuri Subbarao “People are making too much of the finance minister's response”
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