FISCAL POLICY IN INDIA

FISCAL POLICY TARGETS and KEY TERMS UPSC

WHAT IS FISCAL POLICY?

FISCAL POLICY KEY TERMS

Fiscal policy refers to policy of ministry of finance that influences mobilization, allocation & use of resources, bring about desired results towards promoting equity & price stability, create needed employment & balanced and desired regional and sectoral growth & in the end achieve high and optimum growth rates by investing in infrastructure. All of the above policies should boost exports, create a healthy stock of Foreign exchange reserves while maintaining currency exchange rate stability.

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Budget importance and obligation

FISCAL POLICY KEY TERMS

What is budget?

Budget is the common jargon for Annual financial statement.

 

What is Constitutional obligation regarding Annual financial statement?

Art. 112 of the constitution makes it obligatory on the part of the president to assure the presentation of an annual statement of receipts and expenditure, which would be referred as Annual financial statement.

Understanding Indian budget:

Components of Annual financial statement, presented in February 2023:

  1. Advanced estimates for the next financial year - 2023-24
  2. Provisional/Revised estimates of the current year--- 2022-23
  3. Actual/Final figures/ results for the last complete year. - 2021-22

### In india, yearly budget is applicable for a period between 1st april of a particular year to 31st march of the following year.

Purpose of budget making:

  1. To efficiently allocate resources
  2. Reduce misuse
  3. Balance growth, inflation and job creation
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BUDGET KEY TERMS

 

Budget making is a complex process, as it involves a balancing act between conflicting demands of society, which may all be logical but have to be prioritized one over the other because of paucity of resources. Policy, political & social priorities are used to favour one over the other. Elections are fought based on this decision making.

There are many ways follow in making budgets, following are the ones most used. Various approaches to budget allocation planning:

Line-item budgeting – involves allocating money to individual departments rather to the individual activity. This makes comparison easy as same departments previous experiments can be compared with. Disadvantage  connected to this process is lack of impetus on outcomes.

 

Zero base budgeting – model involves thinking from scratch & every new allocation has to pass the rigorous test of suitability and priority over other competing claims.

 

Performance budgeting – better performance is the test that ebery new allocation has to pass through.

 

Reasons behind need for a budget:

  1. Transparency in financial management of government.
  2. To make govt. accountable.
  3. Advance planning.
  4. To ensure legislative control over permanent executive

 

Budget heads of Indian budget:

Total Budget receipts = capital receipts + Revenue receipts

Total Budget expenditure = capital expenditure + revenue expenditure

 

Revenue receipts = Tax revenue + non-tax revenue

Capital receipts = Recovery of loans + Govt borrowings +other receipts

 

Tax Revenue receipts  - All those receipts of the government that are recurring in nature & create no liability are considered revenue receipts.   Excise & customs duty, income tax, corporate tax, Goods and Services Tax (GST) are part of revenue receipts of the Government.

Capital receipts - All those receipts of the government that are not recurring in nature & create liability are considered capital receipts. Capital receipts can be debt or non-debt but they eventually lead to either increase in liability or reduction in assets. Capital receipts include loans taken by government from the public, foreign governments, banks and other institutions as IMF & IBRD & loans from RBI.

Capital expenditure – refers to creation of physical assets that increases the standard of living, incomes, social welfare of the masses, it includes expenditure on creating Dams, bridges, highways, irrigation projects, transport infrastructure, etc.

Revenue expenditure – is that part of government spending that does not result in creation of assets, one part of this goes into regular running of the government like salaries of government employees & another part is connected to certain liabilities like pensions, interest on loans taken, subsidies to the general population, etc.

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