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FISCAL POLICY

Contents 1. Introduction and Definition 2. Instruments of Fiscal Policy 2.1. Government or Public Expenditure 2.1.1. Capital and Revenue Expenditure 2.1.2. Development and Non-Development Expenditure 2.1.3. Direct Expenditure and Transfer Expenditure 2.1.4. Productive and Unproductive Expenditure 2.2. Government or Public Revenue 2.2.1. Revenue Receipts 2.2.1.2. Meaning of Taxes 2.2.1.3. Types of Taxes 2.2.1.4. Non Tax Revenue 2.2.1.5. Characteristics of Good Taxation Systems 2.2.1.6. Taxation Systems in Developing Economies 2.2.1.7. Characteristics of a Good Taxation System for Developing Countries 3. Cascading Effects of Taxation: MODVAT and CENVAT 4. Budgetary Deficits 4.1. Revenue Deficit Revenue Deficit = Revenue Expenditure – Revenue Receipts 4.2. Fiscal Deficit Gross fiscal deficit = Total expenditure – (Revenue receipts + Non-debt creating capital receipts)The fiscal deficit will have to be financed through borrowing. Thus, it indicates the total borrowing requirements of the government from all sources. From the financing side Fiscal Deficit = Revenue Deficit + Capital Expenditure - non-debt creating capital receipts 4.3. Primary Deficit Gross primary deficit = Gross fiscal deficit – Net interest liabilities 4.4. Deficit Financing 4.4.1. Whether Government Debt is Good or Bad?4.4.2. Ricardian Equivalence 4.4.3. Debt vs Inflation 4.5. Deficit Reduction 4.5.1. Fiscal Responsibility and Budget Management Act, 2003 (FRBMA)4.5.1.2. Lacunae in FRBM Act 5. Fiscal Policy in Action 5.1. Expansionary and Contractionary Fiscal Policy 5.2. Classical and Keynesian views of Fiscal Policy believed that the way to combat the prevailing recessionary climate was not to wait for prices and wages to adjust but to engage in expansionary fiscal policy instead.5.4. Fiscal or Economic Stimulus 5.5. Effects of Fiscal Policy on Macro Economy 5.6. Effects of Fiscal Policy on Consumer Spending 6. Drawbacks and Limitations of Fiscal Policy 7. Fiscal Federalism and Centre State Transfers 7.1. The Finance Commission 7.2. Changes in Indian Taxation System 8. Recent Developments in Taxation System 8.1. Goods and Services Tax (GST)Taxes subsumed under GST GST Administration GST Council IT Infrastructure for GST implementation Benefits of GST Significance lowering costs, improving competitiveness and improving liquidity of the businesses.8.2. The Direct Taxes Code Bill, 2010 Tax on Individuals Tax on Businesses 9. Miscellaneous 9.1. Tax Terrorism Examples of tax terrorism:9.2. Tax Evasion and Tax Avoidance 9.3. Tax Havens 10. GS Mains Test Series Questions 1. It is important for India to return to the path of fiscal consolidation while also increasing public investment. Explain why achieving both these objectives are important to revive the present economic environment in the country.Answer:B. Argument against Public Investment B. Challenges Way forward 2. It is argued that India’s fiscal centre of gravity has rapidly shifted from the Centre to the States. Analyse the statement in context of the debate on fiscal discipline. Also, enumerate the key recommendations of the N.K. Singh panel on Fiscal Responsibilty and Budget Management Act.Answer:3. Successive Finance Commissions have tried to balance the twin issues of fiscal discipline and regional disparities. Yet, they have been criticized by both the rich and poor states for neglecting their needs. Discuss. How far has the 14th Finance Commission been able to address this issue?Answer:4. What are the objectives of public debt management in India? Examine the rationale for setting up an independent agency to manage government debt. Also highlight the issues that need to be addressed to ensure successful debt management by an agency other than the RBI.Answer:11. Previous Years UPSC Mains questions

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