Fiscal Policy

1. Industrial development

Fiscal measures:
Tax policy:

Direct tax:

• Corporate Tax:
Stringent tax policy as the industries are generating profits and is
expected to grow even more in the near future

• Personal Income tax:

Tax slabs should be reduced or tax rates on each slab be increased as
person getting higher income in growth phase.

Indirect tax:

Relief on indirect taxes such as custom duty on import of raw material,

excise duties and service changes in order maintain balance between
corporate tax collection and indirect taxes

Deficit borrowing:

Govt. Should repay the principle debt when it collects more taxes and
other revenues in boom period, so that it will reduce burden of debt on
govt. It also can easily plan for future need of funds.

Public expenditure:

It should spend for development of nation, infrastructural development,

health and education, environmental pollution control, power plants,
water supply projects etc.

2. Balanced regional development:

Fiscal measures:
Tax policy:

Direct tax:

• Corporate Tax:
Tax relaxation, or lower taxes depending upon type of industry i.e. except
alcohol, drug, tobacco industries etc.
Use the financial resources optimally for increasing productivity and
improve efficiency.

• Personal Income Tax:

Slabs should be increased or tax rate should be curbed
Promote saving activities and are mobilised for industrial development

Indirect tax:
Cut duties on all essential items in order to ensure increase in purchasing
power.
Heavy duty on imports of all luxurious items to curb the demand for
foreign goods.

Deficit financing:

Govt. should borrow required funds temporarily from RBI to speed up the
economic activities. Or issue govt. Bonds to rich people facilitating enough
returns than market rates.

Public expenditure:

It should spend in infrastructural development to ensure growth of small

scale industries.

Reduce spending on social activities or on unproductive in nature.

3. Inflation:

Fiscal measures:
Tax Policy:

Direct tax:
 • Corporate Tax:
Taxes should be reduced.

• Personal Income tax:

Slabs are to increased or rate should be relaxed.

Indirect tax:
Duties on essential items shall be relaxed.

Deficit financing:

Infusion of additional funds in the economy, borrowing from public by

issue of bonds, borrowing from RBI, borrowing from IMF or from other
countries.

Public expenditure:

Reduction in public expenditure.

4. Economic Instability:

Fiscal measures:
Tax Policy:

Direct tax:

• Corporate Tax:
Taxes should be curbed
Subsidies to all sectors

• Personal Income tax:

Rates should be reduced

Indirect tax:
Essential items tax free, luxurious item will be taxed in order to arrest
their spending and same is mobilised through investment in real sector.

Deficit financing:

Infusion of additional funds from outside country

Public expenditure:

Basic infrastructural development for attracting foreign investors,

 5. Sound and Economic justice:

Fiscal measures:
Tax Policy:

Direct tax:

• Corporate Tax:
Turnover crossing 1 cr. Taxed higher
For Small scale no tax or tax relief, subsidies

• Personal Income tax:

Rich people taxed high.
Medium class taxed low.
Poor people below particular slab no tax.

Indirect tax:
Taxes on all article should be made equivalent except the items which are
disastrous for health and environment i.e. tobacco, alcohol, chemical etc.
Taxes on luxurious class of item should be justifiable. E.g. car priced
below R.s.2 lacs could tax low. Car priced above 2 lacs, 20 lacs could
charge high tax.

Deficit financing:

If any shortage of funds it shall increase borrowings

Public expenditure:

Provide health and medical services to poor people.

Facilitate free Education and scholarships to economically backward

people.