11/11/22, 7:55 PM Fiscal Policy of India: Objectives and Types of Fiscal Policy

Search for a topic SIGNUP LOGIN

LEARN

Home > General Awareness > Public Finance and Budget > Fiscal Policy

EXAMS

Public Finance and Budget

Fiscal
ASK Policy

CONCEPTS

The means by which the government adjust its spending levels along with tax
rates to influence and monitor the nation’s economy it is known as fiscal policy.
Let us learn the Fiscal Policy of India here. 

Table of content

1
Fiscal Policy of India
1.1
Objectives of a Fiscal Policy
1.2
Various Types of Fiscal Policies
1.3
Contractionary Fiscal Policy
1.4
Expansionary Fiscal Policy
1.5
Neutral Fiscal Policy
1.6
Types of Fiscal Policy
1.7
Expenditure Policy
1.8
Taxation Policy
1.9
Surplus and Debt Management
2
Practice Questions on Fiscal Policy

Fiscal Policy of India 

https://www.toppr.com/guides/general-awareness/public-finance-and-budget/fiscal-policy/ 1/7
11/11/22, 7:55 PM Fiscal Policy of India: Objectives and Types of Fiscal Policy

                                             Fiscal Policy

There are several component policies or a mix of policies that contribute to the
fiscal policy. These include subsidy, taxation, welfare expenditure, etc. Also,
there are a certain investment and disinvestment policies and debt and surplus
management that contributes to fiscal policies.

Objectives of a Fiscal Policy

In order to stabilize the pricing level in the economy.

The main objective is to achieve and maintain the level of full

employment in the country.

Also, to stabilize the growth rate in the economy.

Also, promote the economic development in a country.

In order to maintain the level of balance of payment in the economy.

Various Types of Fiscal Policies

Contractionary Fiscal Policy

This involves cutting government spending or raising taxes. Thus, the tax
revenue generated is more than government spending. Also, it cuts on the
aggregate demand in the economy. So, the economic growth leading to the
reduction in inflationary pressures of the economy.

Expansionary Fiscal Policy

https://www.toppr.com/guides/general-awareness/public-finance-and-budget/fiscal-policy/ 2/7
11/11/22, 7:55 PM Fiscal Policy of India: Objectives and Types of Fiscal Policy

This is generally used to give a boost to the economy. Thus, it speeds up the
growth rate of the economy. Also, during the recession period when the growth
in national income is not enough to maintain the current living of the population.

So, a tax cut and an increase in government spending would boost economic
growth and decrease the unemployment rates. Although this is not a sustainable
solution. Because this can lead to a budget deficit. Thus, the government should
use this with caution.

Neutral Fiscal Policy

This policy implies a balance between government spending and  Furthermore, it

means that tax revenue is fully used for government spending. Also, the overall
budget outcome will have a neutral effect on the level of economic activities.

Types of Fiscal Policy

There are major components to the fiscal policies and they are

Expenditure Policy

Government expenditure includes capital expenditure and revenue expenditure.

Also, the government budget is the most important instrument that embodies
government expenditure policy. Furthermore, the budget is also for financing the
deficit. Thus, it fills the gal between income and government spending.

Taxation Policy

The government generates its revenue by imposing both indirect taxes and direct
taxes. Thus, it is important for the government to follow a judicial system for
taxation and impose correct tax rates. This is because of two reasons. The higher
the tax, the reduction in the purchasing power of the people.

This will lead to a decrease in investment and production. Furthermore, the lower
tax will leave more money with people that lead to high spending and thus higher
inflation.

https://www.toppr.com/guides/general-awareness/public-finance-and-budget/fiscal-policy/ 3/7
11/11/22, 7:55 PM Fiscal Policy of India: Objectives and Types of Fiscal Policy

Surplus and Debt Management

When the government receives more amount than it spends than it is known as
surplus. Also, when the spending is more than the income than it is known as a
deficit. In order to fund the deficits, the government needs to borrow from
domestic or foreign sources.

Practice Questions on Fiscal Policy

Q. Who/What formulates the fiscal policy in India?

A. The planning commission

B. Finance ministry

C. The reserve bank of India

D. SEBI

Answer: B. Finance ministry

Share with friends

BROWSE

Public Finance and Budget

Employment, Poverty, Rural and Urban Development Programmes

Health-Oriented Programs Fiscal Policy Introduction to Budget

Finance Commission Committees on Tax Reforms Non Tax Revenue

Tax Revenue in India Women Empowerment Programmes

https://www.toppr.com/guides/general-awareness/public-finance-and-budget/fiscal-policy/ 4/7
11/11/22, 7:55 PM Fiscal Policy of India: Objectives and Types of Fiscal Policy

Customize your course in 30 seconds

Which class are you in?

5 th 6 th 7 th 8 th

9 th 10 th 11 th 12 th

GET STARTED

Get ready for all-new Live Classes!

Now learn Live with India's best teachers.
Join courses with the best
schedule and enjoy fun and interactive classes.

Ashhar Firdausi Dr. Nazma Shaik Gaurav Tiwari

IIT Roorkee VTU APJAKTU
Biology Chemistry Physics

GET STARTED

https://www.toppr.com/guides/general-awareness/public-finance-and-budget/fiscal-policy/ 5/7
11/11/22, 7:55 PM Fiscal Policy of India: Objectives and Types of Fiscal Policy

BROWSE

Public Finance and Budget

Employment, Poverty, Rural and Urban

Development Programmes

Health-Oriented Programs

Fiscal Policy

Introduction to Budget

Finance Commission

Committees on Tax Reforms

Non Tax Revenue

Tax Revenue in India

Women Empowerment Programmes

Download the App

Watch lectures, practise questions and take tests on the go.

Download Previous Years QUESTION PAPERS

Quick TIPS AND TRICKS for Successful Exam Preparation

Download NCERT Notes and Solutions

Learn from VIDEO lectures

https://www.toppr.com/guides/general-awareness/public-finance-and-budget/fiscal-policy/ 6/7
11/11/22, 7:55 PM Fiscal Policy of India: Objectives and Types of Fiscal Policy

CLASSES BOARDS EXAMS

CLASS 5 CBSE MADHYA PRADESH JEE MAIN NEET NTSE

CLASS 6 ICSE MAHARASHTRA JEE ADVANCED AIIMS NSO

CLASS 7 IGCSE PUNJAB UPSEE AFMC NSTSE

CLASS 8 ANDHRA PRADESH RAJASTHAN BITSAT AP EAMCET KVPY

CLASS 9 BIHAR TAMIL NADU TS EAMCET COMEDK HBBVS

CLASS 10 GUJARAT TELANGANA WBJEE JIPMER IMO

CLASS 11 JHARKHAND UTTAR PRADESH VITEEE BCECE IEO

CLASS 12 KARNATAKA MHT-CET KCET IJSO

CLASS 12+ KERALA SAT KEAM NDA

About Us • Press • Customer Stories • Jobs • Educators • Blog • Bytes •

Contact Us • FAQs

Terms Of Service • Privacy Policy

heap.identify('unique_identifier');

https://www.toppr.com/guides/general-awareness/public-finance-and-budget/fiscal-policy/ 7/7