V The word <
 ˜eans Ǯ



ǯ and fiscal
policy refers to policy concerning the use of
Ǯstate treasuryǯ or the govt. finances to achieve
the ˜acroecono˜ic goals.
V ¬any decision to change the level, co˜position
or ti˜ing of g

   or to vary the
burden ,the structure or frequency of the 
   is fiscal policy.dz
- G.K. Shaw
V t has 2 ˜ajor objectives:
i. GENERAL obj-. ai˜ed at achieving ˜acroecono˜ic
goals
ii. SPEC C obj-. relating to any typical proble˜s of
an econo˜y
V î   : By creating conditions for increase
in savings & invest˜ent.
V î  : By encouraging the use of labour-
absorbing technology
V {   : fight with depressionary trends and
boo˜ing (overheating) indications in the econo˜y
V î  î   : By reducing the inco˜e and
wealth gaps between the rich and poor.
V a 
   e˜ployed to contain inflationary and
deflationary tendencies in the econo˜y.
V Budgetary surplus and deficit
V Govern˜ent expenditure
V Taxation- direct and indirect
V Public debt
V Deficit financing
V ¬A budget is a detailed plan of operations for
so˜e specific future perioddz
V Keeping budget balanced (R=E) or deficit (R<E)
or surplus (R>E) as a ˜atter of policy is itself a
fiscal instru˜ent.
V An accu˜ulated deficit over several years (or
centuries) is referred to as the govern˜ent debt
V A deficit is a flow. And a debt is a stock. Debt is
essentially an accu˜ulated flow of deficits
Πt includes :
V Govern˜ent spending on the purchase of goods &
services.
V Pay˜ent of wages and salaries of govern˜ent servants
V Public invest˜ent
V Transfer pay˜ents
V ’eaning : Non quid pro quo transfer of private
inco˜e to public coffers by ˜eans of taxes.
V Classified into
£
 
 Corporate tax, Div. Distribution
Tax, Personal nco˜e Tax, ringe Benefit taxes,
Banking Cash Transaction Tax

  
 Central Sales Tax, Custo˜s,
Service Tax, excise duty.
V nternal borrowings
1. Borrowings fro˜ the public by ˜eans of treasury bills
and govt. bonds
2. Borrowings fro˜ the central bank (  <  
<   g
V External borrowings
1. foreign invest˜ents
2. international organizations like World Bank &
’

. ˜arket borrowings
nflation-
V decrease in public expenditure
V ncrease in public debt
V Delay in pay˜ent of public debt
V ncrease in taxes
V Surplus budget
deflation-
V increase in public expenditure
V decrease in public debt
V Price support policy
V decrease in taxes
V deficit financing
V Revenue receipts
V Capital receipts
V Revenue expenditure
V Capital expenditure
J
   J
J 
V Lack of accurate forecasting
V delay in decisions
V Conflicting trends in public and private sectors
V Li˜itation relating to full e˜ploy˜ent
V Conflict b/w social and econo˜ic goals
V ncrease in public debt
V Proble˜s of deficit financing
 

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V ntroduced in Lok Sabha in Dece˜ber 2000.
V Objectives include:
1. Long-ter˜ ˜acroecono˜ic stability
2. nter-generational equity in fiscal ˜anage˜ent.
V t ai˜ed at:
1. Reducing revenue deficit
2. Reducing gross fiscal deficit

. Reducing the Public debt
4. No Borrowing fro˜ the RB
 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