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Fiscal Policy

>> November 14, 2009




Definition of Fiscal Policy 

Fiscal Policy is the main part of Economic Policy and Fiscal Policy's first word Fiscal is taken from French word Fisc  it means treasure of Govt. So we can define fiscal policy as the revenue and expenditure policy of Govt. of India .It is prime duty of Government to make fiscal policy . By making this policy , Govt. collects money from his different resources and utilize it in different expenditure . Thus fiscal policy is related to development policy . All welfare projects are completed under this policy
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Objectives of Fiscal Policy

There are following objectives of fiscal policy :-

1. Development of Country :-
For development of Country , every country has to make fiscal policy . With this policy , all work work is done govt. planning and proper use of fund for development functions . If govt. does not make fiscal policy , then it may happen that revenue may be  misused  without targeted expenditure of govt.

2. Employment :-

Getting the full employment is also objective of fiscal policy . Govt. can take many action for increase employment. Government can fix certain amount which can be utilized for creation of new employment for unemployed peoples .

3. Inequality :-

In developing 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 making a good fiscal policy , govt. can reduce this difference . If govt makes it as his target .

4. Fixation of Govt. Responsibility :-

It is the duty of Govt. to effective use of resources and by making of fiscal policy different minister's accountability can be checked . I was seeing the Episode of Chanakya on YouTube in which I found that in old time fiscal policy was made and treasury officer and even prime minister are also responsible for any shortage of govt .fund .
See the video





Techniques of Fiscal Policy 


1. Taxation Policy 


Taxation policy is relating to new amendments in direct tax and indirect tax . Govt. of India passes finance bill every year . 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 earning's main source is taxation . But more tax on public will adverse effect on the development of economy.

→ If Govt. will increase taxes , more burden will be on the public and it will reduce production and purchasing power of public .

→ If Govt. will decrease taxes , then public's purchasing power will increase and it will increase the inflation.

Govt. analyzes  both the situation and will make his taxation policy more progressive .


2. Govt. Expenditure Policy 

There are large number of public expenditure like opening of govt schools , colleges and universities , making of bridges , roads and new railway tracks . In all above projects govt has paid large amount for purchasing  and paying wages and salaries all these expenditure are paid after making govt. expenditure policy . Govt. can increase or decrease the amount of public expenditure by changing govt. budget . So , govt. expenditure is technique of fiscal policy by using this , govt. use his fund  first on very necessary sector and other will be done after this .

3. Deficit Financing Policy 


If Govt.'s expenditures are more than his revenue , then govt. should have to collect this amount . This amount is deficit and it can be fulfilled by issuing new currency by central bank of country . But , it will reduce the purchasing power of currency . More new currency will increase inflation and after inflation value of currency will  decrease . So, deficit financing is very serious issue in the front of govt. Govt. should use it , if there is no other source of govt. earning .

4. Public Debt Policy

If Govt. thinks that deficit financing is not sufficient for fulfilling the public expenditure or if govt. does not use deficit financing , then govt. can take loan from  world bank , or take loan from public by 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 make solid budget for this and after this amount is fixed which is taken as debt. This policy  can also use as the technique of fiscal policy for increase the treasure of govt.


Limitation of Fiscal Policy 

1. After issuing new notes for payment of govt. of expenses , inflation of India is increasing rapidly and in this inflation , prices of necessary goods are increasing very fastly. Living of poor person has become difficult . So , these sign shows the failure of Indian fiscal policy.

2. 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.

3. After taking loan from world bank under the fiscal policy's debt technique , govt. has to obey the rules and regulations of world bank and IMF . These rules are more harmful for developing small domestic business of India. These organisation are inter related with WTO and they want to stop Indian domestic Industry.


4. 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 working days . Database of employment exchanges are full from educated unemployed candidates .




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