Fiscal Policy in India
Fiscal policy is the force that guides the government in deciding how much money it should spend to support economic activities and how much revenue it must earn from the system, to keep the economy running smoothly.
Recently, the significance of fiscal policy has been increasing to achieve economic growth, both in India and across the world.
Why Fiscal Policy Found The Place in Core
As per Government of India, fiscal policy is the key to attain rapid economic growth.
Fiscal policy plays a crucial role in managing a country’s economy activities. The government of a country uses fiscal policy to control the flow of tax revenues and public expenditure to navigate the economy.
If the government receives more revenue than it what has been spent , it counts as a surplus, while if it spends more than the revenue, it runs a deficit.
To meet additional expenses, the government needs to borrow domestically or from overseas or the government may also choose to draw upon its foreign exchange reserves or print additional money
Objectives of Fiscal Policy in India
1. Effective Mobilization of Resources: The main objective of fiscal policy as used by the government is to ensure economic growth and development. The central and state governments in India are using fiscal policy to mobilize resources.
The financial resources can be mobilized by:-
2. Reducing inequality: Fiscal policy aims at achieving equity or social justice by charging less tax from poor e.g taxes such as income tax are charged more on the rich people as compared to lower income groups and Indirect taxes are also more in the case of semi-luxury and luxury items which are mostly consumed by rich people.
3. Price Stability and Control of Inflation: The government aims to control the inflation by reducing introducing tax savings schemes and by productive use of financial resources.
4.Generating Employment: The government tries to make every possible effort to increase employment in the country through effective fiscal measures. It Invests in infrastructure which results in direct and indirect employment and charges Lower taxes and duties on small-scale industrial (SSI).
5. Balanced Regional Development: Government undertakes various projects like building up dams on rivers, electricity, schools, roads, industrial project to imitigate the regional imbalances in the country.
6. Reducing the Deficit in the Balance of Payment: Governments promotes exports and adopt import curbing measures to avoid deficit in BOP.
7. Increasing National Income: When the government wants to increase the income of the country it increases tax rates in the country. There are some other measures like that of reduction in tax rate so that more people get motivated to deposit actual tax.
8. Developing Infrastructure: When the government of a country spends money on the projects like railways, schools, dams, electricity, roads etc to increase the welfare of the citizens, it improves the infrastructure of the country. An improved infrastructure is the key to further accelerate the economic growth of the country.
Fiscal policy plays a crucial role in managing a country’s economy activities. The government of a country uses fiscal policy to control the flow of tax revenues and public expenditure to navigate the economy.
If the government receives more revenue than it what has been spent , it counts as a surplus, while if it spends more than the revenue, it runs a deficit.
To meet additional expenses, the government needs to borrow domestically or from overseas or the government may also choose to draw upon its foreign exchange reserves or print additional money
Objectives of Fiscal Policy in India
1. Effective Mobilization of Resources: The main objective of fiscal policy as used by the government is to ensure economic growth and development. The central and state governments in India are using fiscal policy to mobilize resources.
The financial resources can be mobilized by:-
- Taxation: Through effective fiscal policies, the government aims to mobilize resources by way of direct and indirect taxation.
- Public Savings: By reducing government expenditure and increasing surpluses of public sector enterprises.
- Private Savings: The government can raise resources from private sector and households by ways of treasury bills and issuance of government bonds
2. Reducing inequality: Fiscal policy aims at achieving equity or social justice by charging less tax from poor e.g taxes such as income tax are charged more on the rich people as compared to lower income groups and Indirect taxes are also more in the case of semi-luxury and luxury items which are mostly consumed by rich people.
3. Price Stability and Control of Inflation: The government aims to control the inflation by reducing introducing tax savings schemes and by productive use of financial resources.
4.Generating Employment: The government tries to make every possible effort to increase employment in the country through effective fiscal measures. It Invests in infrastructure which results in direct and indirect employment and charges Lower taxes and duties on small-scale industrial (SSI).
5. Balanced Regional Development: Government undertakes various projects like building up dams on rivers, electricity, schools, roads, industrial project to imitigate the regional imbalances in the country.
6. Reducing the Deficit in the Balance of Payment: Governments promotes exports and adopt import curbing measures to avoid deficit in BOP.
7. Increasing National Income: When the government wants to increase the income of the country it increases tax rates in the country. There are some other measures like that of reduction in tax rate so that more people get motivated to deposit actual tax.
8. Developing Infrastructure: When the government of a country spends money on the projects like railways, schools, dams, electricity, roads etc to increase the welfare of the citizens, it improves the infrastructure of the country. An improved infrastructure is the key to further accelerate the economic growth of the country.
Importance of Fiscal Policy in India
Instruments of Fiscal Policy in India
There are Three instruments of fiscal policy:
Fiscal policy involves using these three instruments to do the best for the public and still be in a favorable position.It is a way of achieving economic growth and financial stability.
- In a country like India, fiscal policy plays a major role in raising the rate of capital formation both in the public and private sectors.
- The fiscal policy helps to mobilize resources for financing its numerous projects through taxation.
- Fiscal policy also helps in increasing savings rate in a country.
- The fiscal policy gives opportunities to the private sector to expand its activities.
- Fiscal policy aims to reduce the imbalance in the dispersal of income and wealth.
Instruments of Fiscal Policy in India
There are Three instruments of fiscal policy:
- Public Revenue- Public revenues are the funds of the government used to finance its expenditure. The main sources of public revenue are taxes, fees, fines penalties etc. For example, the income tax paid by our parents, electricity bills , the house tax, the entertainment tax on our leisure activities are all examples of public revenue.
- Public Expenditure- Public expenditure is the expense that the government incurs on the maintenance of the country or for the welfare of the society.For example, expenditure on parks , footpath, water works, education and health, defense, law and order etc are all examples of public expenditure.
- Public Debt- Public debt is the debt made by the government when it is unable to meet its expenditure with current revenue. The government can borrow from the public by issuing bonds or take a loan internationally. This happens when public expenditure exceeds public revenue. Debt can be required by a country to pay interest on previous loans or to finance new construction projects or to make public welfare schemes etc.
Written By: Hamna Khan
Edited By: Komal Jha
.JPG)
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