fiscal policy in india finance a.pptx

8/12/2019 FISCAL POLICY IN INDIA FINANCE A.pptx

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FISCAL POLICY

IN INDIA

PRESENTED BY :-

PANKAJ KUMARPOOJA BYAKOD

PALASH SINGH

SANJANA AGARWAL

ARPITA GUPTA

S.VENKATESAN



FISCAL POLICY

• ‘Fisc’ means state treasury

• Fiscal policy refers to the use of state treasury

or government finances to achieve themacroeconomic goals



OBJECTIVES OF FISCAL

POLICY• Fiscal consolidation.• To achieve desirable price level

• To achieve desirable consumption level

• To achieve desirable employment level

• To achieve desirable income distribution level

• Increase in capital formation

• Degree of inflation level



INSTRUMENTS OF FISCAL

POLICY

• Taxation Policy

•

Public Expenditure Policy

• Public Debt Policy



TAXATION POLICY

1. Direct Tax.

Ex: corporate taxes, personal income taxes, etc.

2. Indirect Tax

Ex: service tax, excise duty, etc.



Sources of Income of Govt. of India based on Budget Estimates 2012-13

Source: http://valueofdissent.blogspot.in/2012/05/public-expenditure-defence-budget-

of.html



PU LIC EXPENDITURE

POLICY

Public Expenditure:

1. Developmental Expenditure

(Infrastructure (power, Transport Network-Road,

Railway, Airport), Irrigation projects, hospital,

Educational Institute)Agriculture, Social Sector

2. Non-Developmental Expenditure

(Maintenance of Law and Order, Defense,

Administrative Services)



Source: RBI Handbook of Statistics on Indian Economy



PUBLIC DEBT POLICY

• Internal borrowings

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

2. Borrowings from central bank

• External borrowings

1. Foreign investments

2. Borrowings from international organizations like world bank &

IMF3. Market Borrowings



Source: RBI Handbook of Statistics on Indian Economy



Expansionary Policy



Contractionary Policy



CROWDING IN AND

CROWDING OUT• Crowding in — If expansionary fiscal policy raises the

general level of prosperity in the economy, private investors

may expect greater investment-related profits, causing

private investment to increase.

• Crowding out--When the government undertakes

expansionary fiscal policy, interest rates increase due to

competition for borrowed funds and increased transactions

demand for money. As a result, private investment is“crowded out” due to increases in public investment.



LAFFER CURVE• The Laffer Curve was developed in 1979 by economist

Arthur Laffer.

• According to Laffer's theory, changes in tax rates affectgovernment revenues in two ways.

• One is immediate, which Laffer describes as"arithmetic." Every rupee in tax cuts translates directlyto one less dollar in government revenue.

• The other effect is longer-term, which Laffer describes

as the "economic" effect. This works in the oppositedirection. Lower tax rates put more money into thehands of taxpayers, who then spend it. This createsmore business activity to meet consumer demand.



• The chart shows how, at the bottom of the curve, zero taxes

results in no government revenue and, thus, no government.

Of course, increasing taxes from zero immediately boostsgovernment revenue.

• In the beginning, raising taxes still does a good job of

increasing total revenue, as shown by the flatness of the

curve. As the government keeps raising taxes, the payoff inadditional revenue becomes less, and the curve steepens.



• At some point, additional taxes really start to become a

burden on economic growth. Demand is inhibited so much

that the long-term decline in the tax base more than offsetsthe immediate increase in tax revenue. This is where the

curve boomerangs backwards. This section is shaded, and

Laffer calls it the "Prohibitive Range.“

• Beyond this point, additional taxes actually result in reducedgovernment revenue. At the top of the curve, when tax rates

are 100%, then government revenue is zero. If the

government takes all personal income and business profit,

then no one works or produces goods, so the tax base

disappears.

LIMITATIONS OF THE FISCAL



LIMITATIONS OF THE FISCAL

POLICY1. Lack of Elasticity

2. Non Monetised Sector

3. Inadequate Statistics

4. Illiteracy

5. Limited Sector6. Delay in decision

7. Limitations regarding full employment

8. Defective Tax Structure

9. Inflation10. Huge investment with negative return in public sector

FISCAL POLICY FROM BUDGET



FISCAL POLICY FROM BUDGET

2013-14

•

According to the budget there will be reduction of fiscaldeficit to 4.8 in 2013-14 compared to 5.2 of 2012-13.

• This possibility of lower deficit will allow governorsubbabrao to cut interest rate that could spur the growth

forecast at 5% of this fiscal.• RBI is expected to cut policy rates by 50 basis points by

June and step up bond purchases to improve liquiditywith government delivering of fiscal consolidation.

• Chidambaram has cut down plans expenses drasticallyover the last 4 months to meet his fiscal deficit.

• Fiscal constraints force government to slow down on

hiring.



UNION BUDGET AT A GLANCE1. Items that would be costlier

• Mobile handsets above Rs.2000

• SUVs, luxury bikes, luxury cars, imported yachts and motor boats

• Dining at AC restaurants

• Staying at luxury hotels

• Cigarettes

• Sale of immovable property above 50 lakhs (sale of plots, house,flats etc.)

• Home/flats with a carpet area of 2,000 sq ft or more or of a valueof Rs 1 crore

• Marbles for flooring

• Silver ornaments

• Silk clothes produced using imported raw materials

• Set top boxes

• Parking fees



2. Items that would be cheaper

• Branded apparels

• Precious stones

• Carpets and other textile floor coverings

• Branded Non-Allopathic medicines

• Environment-friendly vehicles, like electric and

hybrid vehicles

• Leather goods including footwear

• Books on vocational courses

• Lower Securities Transaction Tax on mutual funds



3. Other important facts

• No change in income tax slabs

• Raised duty-free limit on imported jewellery to Rs 50,000 in

the case of a male passenger and Rs 100,000 in the case of afemale passenger

• Person taking home loan for the first time to get tax cut of Rs.1 lakh

• At least one LIC office and one public sector insurancecompany in all towns with more than 10000 people

• India's first all-women public sector bank to be set up

• “Nirbhaya Fund” for women’s safety in memory of the Delhi

brave heart with Rs.1000 crore corpus will support initiatives by the government and NGOs working towards protecting thedignity and ensuring safety of women.

• Reduction in fuel subsidies, which may further increase fuel

prices

fiscal policy in india finance a.pptx

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