Learn about Fiscal policy in India and its important terms and definitions useful for competitive exams. Download Fiscal policy in India 2018 PDF very useful for UPSC, BANKING & SSC EXAMS PDF.
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What is Fiscal Policy
Fiscal policy is defined as the policy that deals with the public expenditure & taxes inorder to achieve macroeconomic policy goals like employment,GDP, investment etc.The taxes & the government expenditure influence the overall economy of the country.
IMPORTANT TERMS IN FISCAL POLICY:
1.Revenue:
Every form of income which donot increase the financial liabilities of a government or an organisation i.e, tax-income ,non-tax income,grants.
2.Non-revenue:
Every form of income which increases the financial liabilities of a government or an organisation i.e, borrowings of an organisation.
3.Revenue Receipts:
                                            Revenue Receipts
Tax revenue receipts                                                    Non-Tax revenue receipts
a) Tax revenue receipts:
It includes all the money earned by the government through direct and non-direct taxes
b) Non – tax revenue receipts:
It comprises all the money received by the government through non-tax sources.
Non-tax sources:
i.Interests earned by the nation through all the loans it lent
ii.Profits & dividends from the public sector undertakings
iii.Grants – External grants from different parts of the world to the country
– Internal grants from the central government to the state governments
iv.Fees,fines levied by the government
v.Earnings from the fiscal services like currency printing & general services like   irrigation,power distribution etc
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4. Expenditure:
                                                 Expenditure
Revenue expenditure                                                           Capital expenditure
a) Revenue expenditure:
Revenue expenditure is a kind of consumptive expenditure that doesnot lead to creation of productive assets. It increases the financial liabilities or decreases the financial assets .It consists of
1.Subsidies given by the government in different sectors
2.Interests paid by the government for all the loans it has taken
3.Salaries,provident fund, pensions paid to the employees by the government
4.Expenditures towards social services like education,health care etc & non-capital defence expenditure
5.Grants extended by the government towards other nations & states
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b) Capital expenditure:
Capital expenditure is a kind of expenditure that increases the financial assets or decreases the financial liabilities.It consists of
1.Capital expenditure by the government on general services like infrastructure, railways etc
2.Capital defence expenditure like purchase of weapons, defence infrastructure etc.
3.Loans extended by the central government to the state governments, other countries etc.
4.Loans repaid by the government which have been previously received.
5.Deficit:
Important Types of Deficits
a]Fiscal deficit
b]Primary deficit
c]Revenue deficit
d]Effective revenue deficit
e]Monetised deficit
a]Fiscal deficit:
Fiscal deficit reflects the extent of market borrowings by the government.The more the government borrows the lower the credit worthiness of the government, the higher the interest burden . It also means the government is spending beyond its means i.e, more than its income.
Fiscal deficit = Total expenditure – ( revenue receipts + non-debt creating capital receipts)
Non-debt creating capital receipts = disinvestments from PSUs, sale of assets by the govt , recovery of past loans
b]Primary deficit:
Primary deficit shows what government’s fiscal deficit would have been if there was no burden of interest payments .A high primary deficit would mean that fiscal deficit is not on account of interest payments but due to some structural factors. A low primary deficit would mean that a large part of fiscal deficit is on account of interest payments.
Primary deficit = Fiscal deficit – interest payments
c] Revenue deficit:
If the balance of total revenue receipts and total revenue expenditures is negative , it is said to be the revenue deficit.Revenue deficit shows that the government is not able to meet its day to day expenditures.
Revenue deficit = Revenue expenditure – Revenue receipts
d] Effective Revenue deficit:
This concept is given by the former president of India Pranab Mukarjee in the Union budget 2012-13 in the context of ammendment of Fiscal Responsibility & Budget management Act.
Effective revenue deficit = Revenue deficit – those grants given to states that are used by the states for productive purposes
e] Monetised deficit:
Monetised deficit is the deficit which is plugged by the government through borrowing from the RBI. It means financing the deficit by printing more currency notes by the RBI.
