Effects Of Fiscal Policy in

India
By Utkarsh Tewari
Roll Number-48
What is Fiscal Policy?

 “Changes in taxes and expenditure which aim at short run goals of full time
employment price level and stability.”-Otto Eckstein.
 In simple terms ,fiscal policy is the use of government revenue collection
(mainly taxes) and expenditure (spending) to influence the economy
Concept and Meaning

When the government receives more than it spends ,it has a surplus. When the
government spends more than it receives ,it runs a deficit. To meet external
expenditures it needs to borrow from domestic or foreign sources , draw upon
its foreign exchange reserves or print an equivalent amount of money.
This tends to influence other economic variables. On a broad generalization,
excessive printing of money leads to inflation.
If the government borrows too much from abroad it leads to debt crisis.
Excessive domestic borrowing by the government may lead to higher real
interest rates and the domestic private sector being unable to access funds
resulting in the “crowding out “ of private investment.
Objectives

 To mobilize adequate resources for economic development.

 To raise the rate of savings and investment.
 To promote necessary development in private sector through fiscal
incentive.
 To arrange optimum utilization of resources
 To control inflation and to attain economic stability
 To remove poverty and unemployment
 To attain growth of public sector
 To eliminate regional disparities
 To maintain equal distribution of wealth
Techniques Of Fiscal Policy In India

 Taxation Policy
 Public Expenditure Policy
 Public Debt Policy
 Deficit financing Policy
Policy Of Taxation

 It is one of the important source of revenue for the government

 It is collected in the form of direct and indirect taxes
 The total tax revenue collected by the Government of India stands at 72.13
per cent of the total revenue of the government.
 Mobilization of these taxes is around 15 to 16 per cent of the national
income of the country.
Public Expenditure Policy

 Development of infrastructural facilities like power plants,railways,roads,etc.

 Development of Public Enterprises like heavy and basic industries.
 Providing necessary support to private sector.
 Attaining various social welfare and employment generation programmes
Public Debt Policy

 Internal Debt indicates the amount of loan raised by the government from
within the country.
 External Debt is the loan collected from external sources like World
Bank,IMF,etc.
 India’s total public debt rose to Rs63.35 trillion till June-end as released in
RBI report.
Policy Of Deficit Financing

 Deficit financing in India indicates loan taking by the government from the
RBI in the form of issuing fresh dose of currency.
 During the first Four Plans deficit financing was in the range form 13 to 20
percent but due to adverse consequences of deficit financing through
inflationary rise in price level it was reduced to only 3 percent in the Fifth
Plan.
 Facing resource constraint ,it again rose to 16 percent in the later plans.
Goods and Services Tax-GST

 Over 40 per cent of the 54 lakh businesses which filed GST returns in July
claimed 'nil' tax liability and paid no tax.
 This means that around 22 lakh did not pay even one rupee GST.
 Of the remaining 60 per cent or 32 lakh businesses that filed returns on the
GST Network (GSTN), the IT backbone for the indirect tax, many did not
have a cash liability as they opted to use the credits available for service
tax or excise that they had paid before GST kicked in on July 1.
 Data available with the government showed that apart from those with "nil"
returns, close to 70 per cent of the 32 lakh businesses which had a tax
liability paid anywhere between Re 1 and Rs 33,000 in taxes.
Effect of GST
In contrast, just around 0.3 per cent,
which is a little over 10,000 companies
accounted for almost two-thirds of the
GST mopped up by the government in
July. The government had said that it
had mopped up around Rs 94,000
crore during July.
Finance Minister Arun Jaitley said that
around 94 - 95 per cent of the
collection is from large assessees or
those with a turnover of over Rs 1.5
crore, who make up around 10 per
cent of the registered base of
taxpayers.
Positive Outcomes

 The gross domestic capital formation as per cent of GDP has increased
form 10.2 per cent in 1950-51 to 35% in mid 2000’s
 The extent of Internal Resource Mobilization has increased from 70 per cent
in 1965-66 to around 90 per cent in 1997-1998
 Savings rate in India has increased from 10.4 per cent in 1950-51 to 28.9 per
cent in 2016.
 India’s export grew fastest by 4.7% last year
 Alleviation of poverty and unemployment through programmes like
IRDP(Integrated Rural development Programme),JRY(Jawahar Rozgar
Yojna),etc
Shortcomings

 The growing volume of deficit financing has led to inflation.

 Fiscal policy has failed to provide a suitable tax structure for the country.
 The disequilibria in its balance of payments has also affected external
stability of the country.
 Negative return of the Public Sector despite making huge investments.
 Failed to contain growing inequality and distribution of wealth.
“Economy does not consist in saving
the coal, but in using the time while it
burns.”-Ralph Waldo Emerson

Thank You