Fiscal Policy & Features

Qis Engg. Technology

Koppula. Chandra Sekher1st –MBA-13491e0037

14/12/2013

A Study on

Fiscal Policy

Mini Project Report in Business Environment Submitted to JNTU, Kakinada in Partial

Fulfillment for the Award of the Degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted By

Koppula.Chandra sekher

(Reg. No. 13491E0037).

DEPARTMENT OF MASTER OF BUSINESS ADMINISTRATION

QIS COLLEGE OF ENGINEERING & TECHNOLOGY

An ISO 9001: 2008 Certified Institution and Accredited by NBA

(Affiliated to JNTU, Kakinada and Approved by AICTE)

Vengamukkapalem, Pondur Road

ONGOLE –523 272 .

Dec-2013

INDEX:

S. No Contents Page No’s

01 Abstract 03

02 Key wards 03

03 Introduction 03

04 Definition 03

05 Need for the study 04

06 Scope of the study 04

07 Objectives 04

08 Methodology 04

09 Review of literature 05

10 Fiscal policy Merits & Demerits 05,06

11 Fiscal policy objectives 07

12 Fiscal policy Features 08

13 Conclusion 08

References

Fiscal policy & Features

Abstract:

Fiscal discipline is as much needed as monetary discipline. Many countries have attempted to counter the deficit bias by adopting fiscal rules that typically set a limit to their annual budget deficits. The record is not satisfactory; rules are either too lax or too tight and then ignored. This article suggests that the solution is to adopt the approach followed by inflation targeting central banks, with great success. Independent and accountable Fiscal Policy Committees, given the task of achieving debt targets and the authority to decide - or recommend - annual deficits, will be free from the deficit bias. This will allow them to exercise discretion in the short run while delivering debt sustainability in the long run.

Resource; Journal of the National Institute of Economic Review & research

Key words:

National economy, Capital Formation, Mobilization of Resource, Mobilization resources, Reduction disparities of income, Economic development of country, Expansion of employment, Price stability

Introduction:

One of the important functions of the fiscal policy is to promote the welfare of people in general and particular the proper section for this purpose .modern govts are working in planned way. The govt mobilizes the funds from various sources like taxes, borrowings and debts. One of the popular sources is through taxes both direct and indirect .to removes the inequalities of the income and to establish socialistic of society direct taxes are important.

Definition:

Fiscal policy deals with the taxation and expenditure decisions of the government. Monetary policy, deals with the supply of money in the economy and the rate of interest. These are the main policy approaches used by economic managers to steer the broad aspects of the economy. In most modern economies, the government deals with fiscal policy while the central bank is responsible for monetary policy. Fiscal policy is composed of several parts. These include, tax policy, expenditure policy, investment or disinvestment strategies and debt or surplus management. Fiscal policy is an important constituent of the overall economic framework of a country and is therefore intimately linked with its general economic policy strategy..

Need for the Study:

The views expressed in this essay are purely personal and do not necessarily express the views of the institutions is the associated with. This is a technical, academic and research output.

Scope of the Study:

One of the important functions of the fiscal policy is to promote the welfare of people in general and particular the proper section for this purpose .modern govts are working in planned way. The govt mobilizes the funds from various sources like taxes, borrowings and debts. One of the popular sources is through taxes both direct and indirect .to removes the inequalities of the income and to establish socialistic of society direct taxes are important.

Objectives:

To know that Capital Formation To Study Mobilization of Resource

To Evaluate Incentives to savings To know that To know that

Methodology:

o This data collected from electronic sources collected from the electronic sources i.e., from the Google and the related websites and also Class subject materials.

Wikipedia, Fiscal Policy in India: Trends and Trajectory, Supriyo De* January, 2012

Review of literature:

Fiscal policy MeritsDemeritsObjectives of Fiscal policyFeatures of Fiscal policy

The fiscal policy is the part of govt policy which is concerned in raise in revenue through taxation and deciding the pattern of expenditure. The govt budget is an estimation of govt expenditure and revenue for ensuring financial year presented to the parliamentary financial ministers.

The budget is divided vertically into revenues and capital again they will be divided into revenue receipts and expenditure as well as capital receipts and expenditure.

The revenue expenditure includes all current expenditure of govt and capital includes all the capital transaction of govt.

The revenue receipts includes revenue from taxes while capital receipts include mkt loans, income from repayments and other receipts such as income from undertakings.

Fiscal policy Merits:

1) Capital Formation: The Fiscal policy of the country has been playing an important role in raising the rate of capital formation in the public and private sectors. It has created a favorable impact on public and private sector investment of the country.

2) Mobilization of Resource: the Fiscal policy of the country has been helping to mobilize a considerable amount of resources through taxation, public debt and other sources for financing its various developmental projects.

3) Incentives to savings: the fiscal policy of the country has been providing various incentives to raise the savings rate both in household and corporate sector through various budgetary policy changes viz. tax exemption, tax concession etc…,

4) Inducement to Private sector: The private sector of the country has been getting necessary inducements from the fiscal policy of the country to expand its activities. Tax concessions, tax exemptions, subsidies and so on incorporated in the budgets have been providing adequate incentives to the private sector units engaged in industry, infrastructure, and export of the country.

5) Reduction of inequality: the Fiscal policy of the country has been making constant Endeavour to reduce the inequality in the distribution of income and wealth. Progressive taxes on income and wealth tax exemption, grant and so on are making a concerted effort to reduce such inequalities.

6) Export Promotion: The Fiscal Policy has been making constant efforts to promote through its various budgetary policies in the form of concessions, subsidies and so on.

7) Alleviation of poverty and Unemployment: It makes constant efforts to alleviate poverty and unemployment through its various poverty eradication and employment generation programmes.

Demerits

1. Instability: The Fiscal Policy of the country has failed to help attain stability in various fronts of the economy. The growing volume of deficit financing has created inflationary rise in price levels.

2. Defective Tax Structure: The Fiscal policy has also failed to provide a suitable tax structure for the country. The tax structure has failed to raise the productivity of direct taxes.

3. Inflation:- The fiscal policy of the country has failed to contain the inflationary rise in price level. The increasing volume of public expenditure on non-development heads and deficit financing has resulted demand-pull inflation.

4. Negative Return of the Public Sector: The negative return on capital invested in the public sector units has become a serious problem for the Government of Indian. The government has to keep huge budgetary provisions and thereby creating a huge drainage of scarce resources of the country.

5. Growing Inequality: The fiscal policy of the country has failed to contain the growing inequality in the distribution of income and wealth throughout the country. The growing trend of tax evasion has made the tax machinery ineffective for the purpose while the growing reliance on indirect taxes has made the tax structure regressive.

Data source: Database on the Indian Economy, http://dbie.rbi.org.in (Reserve Bank of India, 2011)

Objectives of Fiscal policy:

The objectives of fiscal policy varied from country to country.they are based on eco.development of the country. The broad objectives of fiscal policy are as follows

Mobilization resources Reduction disparities of income Economic development of country Expansion of employment Price stability Correction of disequilibrium in BOP

Mobilization resourcesTo mobilize resources for investment govt may go for voluntary as well as compulsory savings it takes place through public taxations, borrowings, cum voluntary and compulsory savings. As the per capital income is very low the developing countries voluntary savings does not take place. The govt can distribute the money to various sectors where they have scarcity.

Economic development and growthOther objective of physical policy is to promote echo development of country the contribution of public expenditure to growth depends on its size as well as ratio of productive expenditure to total expenditure. This investment show positive impact for development of country.

Reduction of disparities of incomePhysical policy can be used be the govt to minimum the echo disparity in the society the disparity lead to political and social interest and generation instability in economy. Govt can

reduce the economic disparity more tax from the luxury people as well as harmful goods. These taxes is also called as progressive taxation and also take low taxes from poor people.

Expansion of employment After the great objective of Indian govt is to promote more employment for increasing per capita income. To increase the level of private expenditure and public expenditure and investment has to be increase thus physical policy can help in creating an atmosphere where people get more employment opportunities

Price StabilityFiscal policy helps in insuring price stability where economy is experiencing deflations, budget should aim at increasing expenditure and creating income for the people who have high income to consumer and also maintain price stability of commodities at the time of inflation. This is possible because of fiscal policy contribution.

Features of Fiscal policy

The features of fiscal policy can be explained as below Common according year for income tax:

Taxation policy has adopted standard accounting year April march for the purpose of income tax. The change is intended to reduce the malpractices and raise revenue of tax.

Long term fiscal policySince 1986 budget the govt of India has introduced long term fiscal policy to provide greater certainties in its budgetary policies and to improve the overall environment of business.

Impact on rural employmentGeneration of employment of India has introduced new employment schemes like jawahar rojgaryojna or strengthened the existing schemes like integrated rural development program or national rural employment program.

Block moneyUnaccounted money has been a constant feature of Indians economy. Fiscal measures have generally failed to reduce the certain of block money.

Reliance on indirect taxes The tax policy is increasingly becoming regressive in nature by large dependence on indirect taxes like excise duty (or) custom duty as compared to that on direct taxes like incomeTaxes, corporation tax etc

Inadequate public sector contribution Contrary to repeated assertion by the govt of India, public sector continues to be a drain on the meager resources of the govt.

Introduction of MODVAT In 1986 the introduction of MODVAT has helped to reduce cumulative impact of indirect taxes on manufactured products.

Conclusion:

The objectives of fiscal policy such as economic development, price stability, social justice, etc. can be achieved only if the tools of policy like Public Expenditure, Taxation, Borrowing and deficit financing are effectively used. Though there are gaps in India's fiscal policy, there is also an urgent need for making India's fiscal policy a rationalized and growth oriented one. The success of fiscal policy depends upon taking timely measures and their effective administration during implementation.

Resource: o Dasgupta, Dipak and Supriyo De. 2011. "Fiscal Deficit," in New Oxford Companion to

Economics in India. Kaushik Basu and Annemie Maertens eds. New Delhi: Oxford University Press.

o Empowered Committee of State Finance Ministers. 2009. "First Discussion Paper on Goods and Services Tax in India."

o Global Financial Crisis (2008-2010)." Asian Development Bank Institute, Working Paper No. 249.

o Ministry of Finance. 2011. "Fiscal Policy Strategy Statement (Budget 2011-12)."