Download Meaning and scope

Meaning and scope
Arthur Smithies “ a ploicy under which government uses
its expenditure and revenue programs to produce
desirable effects and avoid undesirable effects on the
national income, production and employment.”
Fiscal policy is the government program of making
discretionary changes in the pattern and level of its
expenditure , taxation and borrowings in order to achieve
certain economic goals such as economic growth ,
employment, income equality, and stabilization of the
economy on a growth path.
The scope of fiscal policy
The scope of fiscal policy comprises the fiscal instruments and the target
variables.
Fiscal Instruments
a. Budgetary policy deficit or surplus budgeting
b. Expenditure
c. Taxation
d. Public borrowing
Target Variables
The variables which are sought to be changed through fiscal instruments
a. Private disposable incomes.
b. Consumption expenditure
c. Savings and investment
d. Export and imports
e. Level and a structure of prices
Objectives of Fiscal Policy
• Economic Growth
• Mobilization of resources through taxation
• Resource mobilization through public
borrowings
• Employment
• Stabilization
• Economic equality
• External balance
Kinds of Fiscal Policy
• Automatic stabilization - Built in flexibility
• Compensatory fiscal policy - Deliberate
budgetary action taken by the government in
form of surplus or deficit budgeting.
• Discretionary
Budgetary deficit and capital deficit
Budgetary deficit-It consists of the revenue
receipts both tax-revenue and non-tax revenue
and the expenditure met out of the revenue
receipts. Revenue expenditure is further divided
into plan and non plan revenue expenditure.
2. Capital Deficit:
The excess of capital disbursements over capital
receipts measures the capital deficit.
Capital Deficit = Expenditure on Capital Account
– Capital Receipts
Fiscal Deficit
• Fiscal Deficit:
• Fiscal deficit is the difference between revenue
receipts plus certain non-debt capital receipts and the
total expenditure including loans net of repayments.
• Fiscal Deficit = Total Expenditure – (Revenue Receipts +
Non-debt Capital Receipts)
• In short, fiscal deficit indicates the total borrowing
requirements of the government from all sources. This
may also be called Gross Fiscal Deficit (GFD). It
measures that portion of government expenditure
which is financed by borrowing and drawing down of
cash balances.
• Fiscal Deficit:
• Fiscal deficit was of the order of 4 per cent of gross
domestic product (GDP) at the beginning of 1980s, and was
estimated at more than 8 per cent in 1990-91. The growing
fiscal deficit had to be met by borrowing which led to a
mammoth internal debt of the government.
• The servicing of this debt has become a serious problem.
Public debt in India is mostly subscribed to by commercial
banks and financial institutions. A judicious macromanagement of the economy requires a progressive
reduction in the fiscal deficit and revenue deficit of the
government.
Primary deficit
• Primary deficit is defined as Fiscal Deficit less
net interest payments, (that is less interest
payments plus interest receipts).
Monetised deficit
• Monetised deficit indicates the level of support
extended by the Reserve Bank of India to the
government’s borrowing programme.
• Monetised deficit is defined as net increase in net
Reserve Bank of India credit to central
government. The rationale for this measure of
deficit flows from the inflationary impact which a
budgetary deficit exerts on the economy.