Name:- Raman Manglik

Symbiosis School Of Banking Management

Lavale campus ,

Tal. Mulshi,

Pune 411 042

Tel:- 020 39116022

Mobile Nos:- 9922794755

Email:- raman.manglik.batch10-12@ssbm.in
 Fiscal Stimulus a Boon or Bane.

India is seen as a rising phenomenon , but the basic is different . India, beyond doubt, had
the largest mass of deprived, be it in income, food, nutrition, health, gender and environment.
The government claim that there are about 230 million or so Indian in this category is appalling.
The focus of the government approach should ensure that the poorest of the poor are included in
government policies. Fiscal stimulus is a tool which the government can use effectively to
ensure that this happens.

Fiscal policies is also used to revive aggregate demand and hence growth. India, beyond doubt,
had the largest mass of deprived, be it in income, food, nutrition, health, gender and
environment.

Indian context the government of India had reduced excise duty and increased the
exemption limit for individual tax payers in the union budget. Increasing the disposable income
is another way to ensure that people spend money so as to ensure there is a healthy demand for
FMCG goods , consumer durables , passenger cars , housing ,etc . Social welfare scheme like
NREGS ( National Rural Employment Gurantee Scheme ) which ensures that every person in
rural India get 100 Days of employment. The aim of the government is to prevent excess
migrations of people from rural India (BHARAT) to urban India. Some years ago Rahul
Ghandhi accepted that the government distribution system like PDS is highly inefficient as Rs 20
has to spent to ensure that Rs 1 reaches the beneficiary .

The disinvestment and reduction of government holding is an important tool for the
government to raise additional funds needed to fund its social welfare schemes. The role of the
government is to formulate policies and ensure rightful implementations of the same on the
ground.

For any stimulus package to be successful corresponding expansionary monetary policy is

required.

Fiscal policies are often influence by political consideration which might result in completely
missing the objective of the stimulus package. The Rs 60,000 cores relief package given to
framers is a classic example in this regards. This decision results in a punishment to those
farmers who dutifully are paying the regular Emi installments. In a pursuit to correct this the
Government Of India gave incentives to farmer of further 1% discount on the interest rate
charged for timely repayment of the loan.

India needs to invest heavily in infrastructure and as a progressive step in this direction IDFC has
come out with tax – free infrastructure bonds. The FII interest in the India’s growth story will
ensure that there is healthy demand for such kind of bonds. The design of such tax and transfer
systems will ensure that fiscal policy act as automatic stabilizers. Active countercyclical fiscal
policy will be more helpful than monetary policy. The transition to Direct Tax Code (DTC) and
Goods Services Taxes ( GST ) is another example of the same.

State-run Steel Authority of India's upto Rs 8,700 cores share sale could be launched by end-
March. The funds raised through disinvestment route should be used to bridge the fiscal deficit .
The Fiscal Responsibility Act is a law which cast an obligation on the Government itself to
strengthen the institutional framework for conduct of prudent and accountable fiscal and pave the
way for promoting greater macro economic stability. This framework will help bring down the
fiscal deficit , contain the growth of the public debt and stabilize debt as a proportion of GDP
over the medium term. It binds future governments to a pre-specified path of fiscal consolidation.
This covers only the finances of the Central Government. The matter regarding similar
legislation at State level will be for State Governments to pursue. The Bill proposes elimination
of revenue deficit and progressive reduction of the fiscal deficit to not more than 2 per cent of
gross domestic product within a period of five financial years following the promulgation of the
law. This will ensure that the increasing interest paid (on fund borrowed) by the government is
brought under control.

India needs huge investment in Infrastructure and housing. In housing alone there is a
shortage of 4 core housing units in the country. The RBI is doing a commendable job in ensuring
that the financial sector is strong to help India maintain its 8% plus growth rate in coming
decade. India’s forex reserves currently stand at about $ 299.17 billion . therefore for India fiscal
stimulus is a boon as long as the following conditions are kept in mind :-

1. Fiscal space available and to the creditability of fiscal authorities.

2. Confidence or scepticism of the economy

3. Affordability in terms of adequate international reserves.