Fiscal Policy and Budget
Presented By: Group 4 (Roll. No 46-60)
Fiscal Policy-Meaning
• The word fisc means ‘state treasury’ and fiscal
policy refers to policy concerning the use of
‘state treasury’ or the govt. finances to achieve
the macroeconomic goals.
• “any decision to change the level, composition
or timing of govt. expenditure or to vary the
burden ,the structure or frequency of the tax
payment is fiscal policy.”
- G.K. Shaw
Objectives of Fiscal Policy
• It has 2 major objectives:
ii. GENERAL obj-. aimed at achieving
macroeconomic goals
iii. SPECIFIC obj-. relating to any typical
problems of an economy
Fiscal Policy And
Macroeconomic Goals
• Economic Growth: By creating conditions for increase in
savings & investment.
• Employment: By encouraging the use of labour-
absorbing technology
• Stabilization: fight with depressionary trends and
booming (overheating) indications in the economy
• Economic Equality: By reducing the income and wealth
gaps between the rich and poor.
• Price stability: employed to contain inflationary and
deflationary tendencies in the economy.
Instruments of Fiscal Policy
• Budgetary surplus and deficit
• Government expenditure
• Taxation- direct and indirect
• Public debt
• Deficit financing
Budgetary surplus and deficit
• “A budget is a detailed plan of operations for
some specific future period”
• Keeping budget balanced (R=E) or deficit (R<E)
or surplus (R>E) as a matter of policy is itself a
fiscal instrument.
• An accumulated deficit over several years (or
centuries) is referred to as the government debt
• A deficit is a flow. And a debt is a stock. Debt is
essentially an accumulated flow of deficits
Government Expenditure
It includes :
• Government spending on the purchase of
goods & services.
• Payment of wages and salaries of
government servants
• Public investment
• Transfer payments
Taxation
• Meaning : Non quid pro quo transfer of
private income to public coffers by means
of taxes.
• Classified into
1. Direct taxes- Corporate tax, Div. Distribution
Tax, Personal Income Tax, Fringe Benefit taxes,
Banking Cash Transaction Tax
2. Indirect taxes- Central Sales Tax, Customs,
Service Tax, excise duty.
Public debt
• Internal borrowings
• Borrowings from the public by means of treasury bills
and govt. bonds
• Borrowings from the central bank (monetized deficit
financing)
• External borrowings
5. foreign investments
6. international organizations like World Bank &
IMF
7. market borrowings
BUDGET
• “A budget is a detailed plan of operations
for some specific future period”
• It is an estimate prepared in advance of the
period to which it applies.
COMPONENTS OF BUDGET
• Revenue receipts
• Capital receipts
• Revenue expenditure
• Capital expenditure
BUDGET FINANCIALS
2007-08
Where The Rupee Comes From
non-tax revenue service & other taxes
10% 7%
non-debt capital reciepts
1% excise
17%
borrowings
19%
customs
12%
corporation tax
income tax
21%
13%
Where Does The Rupee Goes To
state's share of
other non plan exp.
taxes & duties
11%
18%
subsidies
7%
non plan assistance
to states
5%
defence
12% planned state
assistance
7%
interest central plan
20% 20%
Fiscal Responsibility And Budget
Management (FRBM) Bill
• Introduced in Lok Sabha in December 2000.
• Objectives include:
3. Long-term macroeconomic stability
4. Inter-generational equity in fiscal management.
• It aimed at:
6. Reducing revenue deficit
7. Reducing gross fiscal deficit
8. Reducing the Public debt
9. No Borrowing from the RBI
Sticking to FRBM Targets
2005- 2006- 2007-
Items Units 06 07 08*
Central Government Finances
Revenue deficit/ GDP % 2.6 2 1.5
Fiscal deficit/ GDP % 4.1 3.7 3.3
Gross Tax/ GDP % 10.3 11.4 12.0
Expenditure/ GDP % 14.2 14.1 14.0**
Debt/ GDP % 65.1 64.4 58.6
*From Budget proposals ** SBI share transfer excluded
Thank You
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GROUP MEMBERS
• A-46 NEERAJ MENDIRATTA
• A-47 NEETU KUMARI
• A-48 NEHA GUPTA
• A-49 NIDHI SINGH
• A-50 PALLAVI DUTTA
• A-51 PANKAJ BANSAL
• A-52 PEARL RAMAN
• A-53 PRIYESH AGARWAL
• A-54 PULKIT GOSAIN
• A-55 PUNEET GERA
• A-56 RAGINI KAKKAR
• A-57 RAVI GUPTA
• A-58 RICHA KAPUR
• A-59 SAGAR NARULA
• A-60 SANTOSH
