Objectives And Techniques Of Fiscal Policy Economics Essay

Objectives And Techniques Of financial insurance polity Economics endeavorFiscal insurance insurance politys first sound out Fiscal is holdn fromFrenchword Fisc which means treasure of Govt. Fiscal constitution concerns itself with the aggregate perfume of giving medication activity disbursement and revenueation on income, recitation and production. It refers to the agents by which a brass tries to regulate or modify the scotch affairs of the economy belongings in view certain objectives. Thus, monetary insurance indemnity is a pile of economic measures of administ symmetryn regarding its humankind expenditure, earthly concern r aim offue and reality debt .Fiscal Policy is the most important part of Economic Policy .So ,we can rig pecuniary policy as the revenue and expenditure policy of Govt. of India .It induces the un occasiond duty of Government to frame monetary policy . By fashioning this policy , Govt. collects m 1y from his different re st arts and utilize it in different expenditure . Thus monetary policy is link up to development policy. Through this make-up the objectives , techniques, stances and limitations of a monetary policy be being discussed .An attempt is in addition been make to highlight the achievements and progress of the fiscal policy of India.IntroductionThe precondition fiscal has been derived from the greek word fisc, meaning a basket to correspond the public purse.. Fiscal policy thus means the policy related to the treasury of the political science.Fiscal policy is a part of general economic policy of the government which is in the main concerned with the cypher receipts and expenditures of the government. completely welf atomic number 18 projects atomic number 18 completed under this policy .It also suggests measures to accommodate economic fluctuations which may become violent and create great upheavals in the socio-economic structure of the economy. It also outlines the influenc e of resource utilization on the level of aggregate demand through affecting the level of aggregate theatrical role and investment expenditure.DefinitionsAccording to U. Hicks Fiscal policy is concerned with the manner in which all the different elements of public finance , while still primarily concerned with stationing out their own duties, may collectively be gear to forward the aims of economic policy.According to Arthur Smithies Fiscal policy is a policy under which the government uses its expenditure and revenue programmes to produce desirable do and avoid undesirable effects on the national income ,production and employment.Objectives of Fiscal PolicyThere are hobby objectives of fiscal policy -1.Development of unpolished -Every orbit has to make fiscal policy for development of outlandish . With this policy , all work like govt. planning and proper use of investment companys for development functions is done . If govt. does not make fiscal policy , accordingly it c an happen that revenues are mis applywithout come inedexpenditure of Government.2. use of entires and services -Getting the full-of-the-moon employment is also the objective of fiscal policy . Govt. can take many actions for increase employment. Government can hol grim certain nitty-gritty which can beutilizedfor creation of invigorated employment opportunities for unemployed people .3. Inequality -In development country like India , we can see the difference one basis of earning . 10% of people are earning more than Rs. 100000 per day and other are earning less than Rs . 100 per day . By make a good fiscal policy , govt. can reduce this difference if govt makes it as its target .4. Fixation of Govt. Responsibility-It is the duty of Govt. to effective use of resources and by making of fiscal policy different ministers accountability can be checked . I was seeing the Episode of Chanakya onYouTubein which I raise that in old time fiscal policy was made and treasury officer and even prime minister are also credi cardinalrthy for any shortage of govt .fundTechniques of Fiscal Policy1. Taxation PolicyIt is one of the powerful instruments of fiscal policy in the hands of public regimen which greatly affects changes in useable income ,consumption and investment. Taxation policy is relates to refreshed amendments in direct tax and indirect tax . Every year Govt. of India passes the finance bill . In this policy govt. determines the rate of taxes . Govt. can increase or decrease these tax rates and amend previous rules of taxation .Govt.s bread main source is taxation . But more tax on public leave behind adverse effect on the development of economy. If Govt. allow increase taxes , more burden entrust be on the public and it ordain reduce production and purchasing power of public . If Govt. resultant decrease taxes , then publics purchasing power provide increase and it will increase the inflation.Govt. analyzes both the situation and will make his ta xation policy more progressive .2. Govt. Expenditure PolicyThere are capacious number of public expenditure like opening of govt schools , colleges and universities , making of connect , roads and new railway tracks . For the above projects govt has paid bad cadence for purchasing and honorariuming wages and salaries ,however ,all these expenditures are paid after making govt. expenditure policy . Govt. can increase or decrease the measure of public expenditure by changing govt. budget . So , govt. expenditure is technique of fiscal policy by apply this , govt. use his fund first on very necessity sector and other will be done after this .3. Deficit Financing PolicyIf Govt.s expenditures are more than his revenue , then govt. should have to collect this amount . This amount is famine and it can be fulfilled by issuing new silver by central money box of country . But , it will reduce the purchasing power of bills . More new currency will increase inflation and after infla tion value of currency will decrease . So, deficit financing is very serious unloosen in the front of govt. Govt. should use it , if on that point is no other source of govt. earning .4. Public Debt PolicyIf Govt. thinks that deficit financing is not sufficient for fulfilling the public expenditure or if govt. does not resort to deficit financing , then govt. can take loan from gentlemans gentleman bank , or take loan from public by the way of issuing govt. securities and bonds . But it will also increase the cost of debt in the form of interest which govt. has to pay on the amount of loan . So, govt. has to necessarily make solid budget for this and after taking into consideration the amount which is taken as debt. This policy can also use as the technique of fiscal policy for increase the treasure of govt. Internal sources of debt include market loans, compensation bonds,15 days annuity certificates ,small private savings through various saving schemes. international sources includes in borrowing from the external market ,from international institutions such as the World bank, IMF IDA etc and the governments of other countries.5.Budget.Fiscal policy operates through the budget .Thus it is also called budgetary policy. The term budget is derived from a French word Bougette which means a leather bag or a wallet used to carry financial papers. The budget of a nation is a useful instrument to assess the fluctuations in an economy. Different budgetary principles have been formulated by the economists ,prominently known as the annual budget , rotary balanced budget and full y managed compensatory budget.Fiscal Consolidation With recovery taking root, there is a deal to review public flattening, mobilise resources and gear them towards building the productiveness of the economy. Fiscal policy shaped with reference to the recommendations of the Thirteenth Finance Commission, which has recommended a calibrated exit strategy from the expansionary fiscal stance of last two years. It would be for the first time that the Government would target an explicit decline in its domestic help public debt-gross domestic product ratio.Stances of fiscal policyThe three come-at-able stances of fiscal policy are sluggish, expansionary and contractionary. The simplest definitions of these stances are as followsA neutral stance of fiscal policy implies a balanced economy. This results in a large tax revenue. Government spending is fully funded by tax revenue and overall the budget outcome has a neutral effect on the level of economic activity.An expansionary stance of fiscal policy involves government spending exceeding tax revenue.A contractionary fiscal policy occurs when government spending is lower than tax revenue.However, these definitions can be misleading because, even with no changes in spending or tax laws at all, cyclical fluctuations of the economy cause cyclical fluctuations of tax revenues and of some types of government spending, mend t he deficit situation these are not considered to be policy changes. . Thus, for example, a government budget that is balanced over the course of the melodic line cps is considered to represent a neutral fiscal policy stance.Methods of fundingGovernments spend specie on a wide variety of things, from the military and legal philosophy to services like education and healthcare, as well as direct payments such as welfare benefits. This expenditure can be funded in a number of different waysTaxationSeigniorage, the benefit from stamp moneyBorrowing money from the population or from abroad inlet of fiscal reserves.Sale of fixed assets (e.g., land).All of these except taxation are forms of deficit financing.Some facts about fiscal policyGovernment revenues and expenditures dont need to balance every year but over one business cycleFunctional finance is the principle that government budgets should be pitch to the y other(a) needs of the economyDefenders of functional finance are those who mean fiscal policy is a powerful stabilization tool.The choice of fiscal policy guideline depends on the governments belief in fiscal policy as an effective tool for stabilizing the economy .In mid-seventies and 1980s Canada believed in functional finance but recently has made unsuccessful attempts to move toward cyclically balanced budgets.Government deficits were highest during recessions during the early 1980s and early 1990sTax revenues fell with slumping incomes during that time as a result of the automatic stabilizersDiscretionary expansionary policy also contributed since federal government increase purchases of goods and services to counteract the effects of sagging outputs and incomes.1990s downturn caused a concern over increased public debt and lowered confidence in discretionary fiscal policies to counteract a recession.Achievements of fiscal policy in IndiaThe fiscal policy has played an important role in the following fields.Mobilization of resourcesTo finance t he development need of India ,the government has extensively used the fiscal policy. The policy of public borrowing and deficit financing has enable the government to raise huge amounts of resources for development. Increasing tax GDP ratio is a good indication of the change magnitude mobilization of resources. The tax GDP ratio was only 6.7 percent in 1950-51 but it has reached to 17.3 % in 2006-07. profit in savingsThe fiscal policy has been successful in genteelness the rate of savings in the household sector, corporate sector and public sector. To encourage savings, prize based schemes to encourage savings, expansion of the network of savings bank, post office schemes.Increase in capital formation not bad(p) formation involves three stages-incentive to save, mobilization of savings and investment of savings .The fiscal policy has tried to influence all the three stages .A well get around network of postal banks ,savings bank, commercial banks, financial institutions and money market is there to collect peoples savings .The government has also been successful in using the savings of the public of the public sector for development.Incentives to investmentThe government has all used it to influence the government decisions of the private sector. Various tax concessions ,tax rebates, subsidies and fiscal incentives are given to investors. Cottage and small scale industries have survived ascribable to the support of the fiscal policy. The government is mobilizing increased amounts of resources through public borrowings and deficit financing to push up the level of investment in groundwork ,social sectors, exploration and development of natural resources.Reduction in Income and wealth InequalitiesTo create equitable conditions in the society ,a progressive tax system has been adoptive in the realm of direct taxes. The rate of taxes on income goes on increasing with the increase in income .Direct and indirect taxes are used to mop up more resources from the richer sections of the society. Luxuries are heavily taxed. The government has also launched several mendicancy eradication programmes to directly benefit the poor people. The poor sections of the society are provided with subsidized grains and other essential items of consumption.Reduction in inter regional variationsThe states like Bihar, U.P. ,Rajasthan ,Madhya Pradesh, Orissa etc. are given preference while transferring resources from the inwardness to the states .Both statutory and non statutory channels of resource transfer are being used for the purpose. The government of India also gives discretionary grants to economically poor states. In addition to this special incentives, subsidies and concessions are given for locating industrial units in backward regions.Limitations of Fiscal Policy1.Inadequate resource mobilizationThe fiscal policy has achieved a mixed success in mobilization of resources. The defective tax system ,limited base of direct taxes ,exemption of agricul ture from direct taxation ,evasion of taxes ,inefficient and get down tax accumulation machinery are some of the causes of poor tax collection in the country. Another cause of poor resource mobilization is the low share of non-tax revenue in the total revenue receipts.2. Inflation of India is increasing rapidly after issuing new notes for payment of govt. of expenses and in this inflation, prices of necessary goods are increasing very fastly. Living of poor people has become difficult due to this . So , these signs show the failure of Indian fiscal policy.3. Govt. fiscal policy has failed to reduce the black money . Even large amount of past minister is in the form of black money which is deposited in Swiss Bank.4. After taking loan from world bank under the fiscal policys debt technique , govt. has to follow the rules and regulations framed by world bank and IMF . These rules are more harmful for developing small domestic business of India. These organizations are inter related w ith WTO and they intend to stop Indian domestic Industry.5.After expending large amount for generating new employment under fiscal policy , rate of unemployment is increasing fastly and big lines on govt. employment exchange can be seen generally in works days . Database of employment exchanges are full from educated unemployed candidates .6. Fiscal policy and inflationThe direct taxes are the main instruments of the fiscal policy. The inception in the rates of direct taxes result in the reduction of the disposable income of the people .The indirect taxes contribute more than four-fifths of the tax revenue .Taxes on commodities, sales taxes ,excise duties, customs etc .add to the prices of commodities .Increase in the rates of sales taxes and excise duties immediately cause a rise in the price level.ConclusionThus, the fiscal policy encompasses two separate but related decisions public expenditures and the level and structure of taxes. It occupies the central place for maintaining full employment without inflationary forces in the economy. With its various instruments it influences the economic stability of an economy. The fiscal policy of the Indian government has been very successful in several fields such as mobilization of resources for economic development, increasing rate of savings and capital formation, developing cottage and small scale industries ,reducing the incidence of poverty etc. disrespect a few drawbacks of this policy, India has truly achieved a considerable level of fiscal maturity.