legal environment of business-fiscal policy and its instrument
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LEGAL ENVIRONMENT OF BUSINESS
RECENT CHANGES IN FISCAL POLICY
INSTRUMENTS AND ITS IMPACT ON
ECONOMY
Presented by :Amit Kumar Verma
(GM16009)
TOPICS TO BE COVERED..
WHAT IS FISCAL POLICY ?
FISCAL POLICY : OBJECTIVES
TYPES OF FISCAL POLICY
INSTRUMENTS OF FISCAL POLICY
CHANGE IN INSTRUMENTS OF FISCAL
POLICY
IMPACT ON INDIAN ECONOMY
WHAT IS FISCAL POLICY ?
• FISCAL POLICY INVOLVES THE DECISIONS THAT A GOVERNMENT MAKES
REGARDING COLLECTION OF REVENUE, THROUGH TAXATION AND
ABOUT SPENDING THAT REVENUE. IT IS OFTEN CONTRASTED
WITH MONETARY POLICY , IN WHICH A CENTRAL BANK OF ANY
COUNTRY SETS INTEREST RATES AND DETERMINES THE LEVEL OF MONEY
SUPPLY.
OBJECTIVES OF FISCAL POLICY
THE OBJECTIVE OF FISCAL POLICY IS TO MAINTAIN THE CONDITION OF FULL EMPLOYMENT, ECONOMIC STABILITY AND TO STABILIZE THE RATE OF
GROWTH.
FOR AN UNDER-DEVELOPED ECONOMY, THE MAIN PURPOSE OF FISCAL POLICY IS TO ACCELERATE THE RATE OF CAPITAL FORMATION AND
INVESTMENT.
GENERALLY FOLLOWING ARE THE OBJECTIVES OF A FISCAL POLICY IN A DEVELOPING ECONOMY:
• 1. FULL EMPLOYMENT
• 2. PRICE STABILITY
• 3. ACCELERATING THE RATE OF ECONOMIC DEVELOPMENT
• 4. OPTIMUM ALLOCATION OF RESOURCES
CONTINUED….
• 5. EQUITABLE DISTRIBUTION OF INCOME AND WEALTH
• 6. ECONOMIC STABILITY
• 7. CAPITAL FORMATION AND GROWTH
• 8. ENCOURAGING INVESTMENT
TYPES OF FISCAL POLICY
1. AUTOMATIC STABILIZER FISCAL POLICY
2. COMPENSATORY FISCAL POLICY
3. DISCRETIONARY FISCAL POLICY
AUTOMATIC STABILIZER FISCAL POLICY
POLICIES OR INSTITUTIONS (BUILT INTO AN
ECONOMIC SYSTEM) THAT AUTOMATICALLY
TEND TO DAMPEN ECONOMIC CYCLE
FLUCTUATIONS IN INCOME, EMPLOYMENT, ETC.,
WITHOUT DIRECT GOVERNMENT INTERVENTION.
COMPENSATORY FISCAL POLICY
• THE COMPENSATORY FISCAL POLICY AIMS AT
CONTINUOUSLY COMPENSATING THE ECONOMY AGAINST
CHRONIC TENDENCIES TOWARDS INFLATION AND
DEFLATION BY MANIPULATING PUBLIC EXPENDITURES
AND TAXES.
DISCRETIONARY FISCAL POLICY
• IT REFERS TO ACTIONS MADE BY THE
GOVERNMENT. THESE ACTIONS CAN INCLUDE
THINGS LIKE TAX CHANGES AND SPENDING.
INSTRUMENTS OF FISCAL POLICY
Tools of
Fiscal Policy
Revenue
Budget
Direct Tax Indirect Tax
Expenditure
Budget
REVENUE BUDGET
• REVENUE BUDGETS ARE FORECASTS OF A COMPANY'S SALES REVENUES AND
EXPENDITURES, INCLUDING CAPITAL-RELATED EXPENDITURES. IT IS ESSENTIAL
THAT YOU ESTABLISH WHETHER YOU POSSESS ENOUGH FINANCIAL MEANS TO
CONDUCT OPERATIONS, GROW YOUR BUSINESS AND ULTIMATELY MAKE A
PROFIT.
INDIRECT TAX
• CENTRAL EXCISE (A TAX ON MANUFACTURED GOODS)
• VAT.
• SERVICE TAX.
• CUSTOMS DUTY.
• EDUCATIONAL CESS.
NON-TAX REVENUE
NON-TAX REVENUE IS THE RECURRING INCOME EARNED
BY THE GOVERNMENT FROM SOURCES OTHER THAN
TAXES.
EXPENDITURE BUDGET
• THE CENTRAL GOVERNMENT IS RESPONSIBLE
FOR ISSUES THAT USUALLY CONCERN THE
COUNTRY AS A WHOLE LIKE NATIONAL
DEFENSE, FOREIGN POLICY, RAILWAYS,
NATIONAL HIGHWAYS, SHIPPING, AIRWAYS,
POST AND TELEGRAPHS, FOREIGN TRADE AND
BANKING.
IMPACT OF THE CHANGES IN INSTRUMENTS OF FISCAL POLICY
• BUDGET
• TAXATION
• PUBLIC EXPENDITURE
• PUBLIC WORKS
• PUBLIC DEBT
IMPACT OF FISCAL POLICY ON INDIAN ECONOMY
• THE IMPLIED CHANGE IN EXPECTATIONS OF THE US FISCAL AND MONETARYPOLICY WILL HAVE IMPACT ON INDIA'S CAPITAL FLOWS AND EXCHANGE
RATES .
• THE EFFECTS OF FISCAL POLICY ON ECONOMIC ACTIVITY IN INDIA OVER THE LAST DECADE AND HALF AND FINDS THAT FISCAL POLICY CAN PLAY AN
EFFECTIVE COUNTERCYCLICAL ROLE. THE RESULTS ALSO HAVE IMPLICATIONS FOR THE DESIGN OF FISCAL CONSOLIDATION PLANS GOING FORWARD.
IN PARTICULAR, OUR FINDING SUGGEST THAT EXPENDITURE REFORM AIMEDAT CURTAILING THE GROWTH OF SPENDING MAY BE PREFERABLE TO TAX
INCREASES BECAUSE THE LATTER MAY HAVE LARGER (NEGATIVE) EFFECT ON GROWTH OVER THE LONGER TERM.
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