Fiscal policy

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Meaning

Fisc means State Treasury

Fiscal policy may be defined as that part of governmental economic policy which deals with taxation, expenditure, borrowing and the management of public debt in an economy.

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Fiscal instruments

1) Taxation

1) Government Expenditure

2) Public Borrowing

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Taxation

A tax is a compulsory contribution imposed by a public authority , irrespective of the exact amount of service rendered to the taxpayer in return, and not imposed as a penalty for any legal offence.

Compulsory contribution Common benefits to all No direct benefits

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Trends in gross tax revenue

Year Tax revenue % of GDP

1990-91 57,576 10.1

Budget 2011-12 9,32,440 9.9

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Direct and Indirect taxes

Direct taxes is one which the state demands from those very people who are expected to bear its burden eventually.

An indirect taxes is one which is demanded from the people who can shift its burden to others

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Types

Direct taxes Income tax Corporate tax

Indirect taxes Excise duty Custom duty Service tax

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Share of direct and indirect taxes

Year Direct taxes Indirect taxes

1990-91 16 84

2012-13 53 43

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Public expenditure

Public expenditure refers to the expenses of public authorities like the Central,state and Local governments

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Classification of public expenditure

1) Capital and revenue expenditure2) Productive and unproductive

expenditure3) Transfer and non-transfer

expenditure

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Causes of public expenditure

1) Defence2) Population3) National income4) Subsidies5) Public debt6) Administrative machinery7) Democracy

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Causes of public expenditure

2012-13

Interest Payments 3,19,759

Defence 1,13,829

Subsidies 1,90,015

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Public debt

Public debt implies the borrowings by the government from banks, business organizations and individuals.

Public debt is one of the instruments to cover deficits in the budget.

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Components of internal debt

1) Market borrowings2) Treasury bills3) Bonds4) Ways and Means advances 5) Securities against small savings6) Small savings7) Provident funds8) Reserve funds and deposits9) External debt

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Budget

A budget is a description of the spending and financing plans of an individual, a company or a government.

The government budget shows the planned expenditure programme of the government and the expected revenues from taxes and other sources during the given year.

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Components of the budget

Budget

Revenue budget

Capital budget

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Revenue budget

Revenue budget

Revenue Receipts

Tax revenue Non tax revenue

Revenueexpenditure

Developmentexp

Non development exp

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Capital expenditure

Capital budget

Capital receipts

Capital expenditure

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Concepts of deficit

1) Revenue deficit: Revenue expenditure is more than revenue receipts

2) Fiscal deficit: It is defined as excess of total expenditure (TE),including net lending(Loan-recovery), over revenue receipts(RR) plus external grants(EG) plus non-debt capital receipts(NCDR)

GFD=(TE+NL)-(RR+EG+NDCR)3)PRIMARY DEFICIT: It is equal to fiscal deficit

minus interest payments

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Deficit

Deficit 2013-14 2014-15

Revenue deficit 3.3 3.0

Fiscal deficit 4.6 4.1

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Components of Union budget

1. The actuals for the year preceding the current year

2. The budget estimates and the revised estimates for the current year.

3. The budget estimates for the coming year.

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Actuals for preceding year

Budget estimates for current year

Revised estimate for current year

Budget estimate for coming year

1. Revenue receipts

a) Tax revenueb) b) Non-tax

revenue

2. Revenue expenditurea) interest paymentb) Major subsidiesc) Defense expenditure

3)Revenue deficit/surplus

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4) Capital receiptsa) Recovery of loanb) Borrowing and other liabilities

5) Capital expenditure

6)Total expenditure[2+5]

7) Fiscal deficit[6-1-4(a)-4(b)

8) Primary deficit[7-2(a)]

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