final business environment_fiscal policy

8/8/2019 Final Business Environment_Fiscal Policy

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Fiscal Policy and Budget



Objectives of Fiscal Policy :

It has 2 major objectives:

I. GENERAL-. aimed at achieving macroeconomic goals

II. SPECIFIC-. relating to any typical problems of aneconomy

y



Fiscal policy and Macroeconomic

Goals

y Economic Growth: By creating conditions for increasein savings & investment.

y Employment: By encouraging the use of labor-absorbing technology

y Economic Equality: By reducing the income and

wealth

gaps between th

e rich

and poor. Price stability:employed to contain inflationary and deflationary tendencies in the economy



Instruments of Fiscal Policy

y Budgetary surplus and deficit

y

Government expenditurey Taxation- direct and indirect

y Public debt

y Deficit financing



Budgetary surplus and deficity A budget is a detailed plan of operations for some

specific future period

y Keeping budget balanced (R=E) or deficit (R<E) orsurplus (R>E) as a matter of policy is itself a fiscalinstrument.

y An accumulated deficit over several years (or

centuries) is referred to as the government debty A deficit is a flow. And a debt is a stock. Debt is

essentially an accumulated flow of deficits



Government Expenditure

It Includes

y

Government spending on th

e purch

ase of goods &services.

y Payment of wages and salaries of government servants

y Public investment

y Transfer payments



Taxationy Meaning :

Classified into

1. Direct taxes- Corporate tax, Div. Distribution Tax,Personal Income Tax, Fringe Benefit taxes, Banking

Cash TransactionTax2. Indirect taxes- Central Sales Tax, Customs, ServiceTax, excise duty



Public Debt

A. Internal borrowings

1. Borrowings from the public by means of treasury bills and govt. bonds

2. Borrowings from the central bank (monetized deficitfinancing)

B. External borrowings

1. Foreign investments2. International organizations like World Bank & IMF

3. Market borrowings



Budgety A budget is a detailed plan of operations for some

specific future period It is an estimate prepared in

advance of th

e period to wh

ich

it applies



Components of Budget

y COMPONENTS OF BUDGET

1. Revenue receipts2. Capital receipts

3. Revenue expenditure

4. Capital expenditure



Thank You

y We need faster growth because, at our level of incomes,there can be no doubt that we must expand the production

base of the economy if we want to provide broad-basedimprovement in the material conditions of living of ourpopulation, .......... But growth alone is not enough if it doesnot produce a flow of benefits that is sufficiently wide-spread. We, therefore, need a growth process that is much more inclusive, .......... and which also ensures access to

essential services such as health and education for allsections of the community. -Dr. Manmohan Singh, PrimeMinister

y

final business environment_fiscal policy

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