Fiscal Policy

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 BUDGET/FISCAL
POLICY

• Since Government plays a crucial role in the working of an

economy, understanding of its budget is of great importance.

• Budget is the statement of the estimates of revenue and

expenditure of the government for a year.

• The year for which the government presents its annual budget is
called the fiscal year.

• In India, both for the central and state governments the fiscal year
starts from April 1 of a year and ends on March 31, next year.

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 Union Budget
• Who prepares the budget ?
• Dept. of Economic Affairs, Ministry of
Finance.
• Along with the budget, economic survey is
presented.
• Budget is for the next year and Economic
Survey is for the previous years.

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Sequence of Preparation
• Dept. of Economic Affairs
• CSO (for inputs)
• Chief economic Advisor to
FM- Krishnamurthy
Subramanian
• Finance Secretary + FM
(Rajiv Kumar + Nirmala
Sitharaman)
Union Budget
Sequence of Announcements
• Economic Survey
• Railway Budget
• General Budget
• 2015-16- Theme: “Creating
Opportunity and reducing
Vulnerability”
• 2020-21- Theme?
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 Budget Documents

• 112- Annual financial statement (AFS)- president

• 265- Finance bill- parliamentary approval for
tax-to collect taxes.
• 266-Appropriation bill for CFI spent – for the
usage of Consolidated Fund of India (CFI)

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 Types of Accounts
with GOI

• Consolidated Fund- direct-indirect tax, loans received, Swach-bharat

cess, Krishi kalyan cess, loans provided to states etc. (Parliament
approval). Article-266

• Public Account- Disinvestment money- National Investment fund (NIF),

National small savings fund, Prarambhik shiksha Kosh, MNREGA fund,
Defence fund. Article-266

• Contingency fund (under President- Rs. 500 crore). Operated by Fin.

Secretary. Article-267

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 Interim budget vs.
Vote on Account
Vote on Account- Interim budget –
• every year between feb Only in election years or
extreme situation
and April fund AFS-last year’s
requirements, Finance bill-to collect taxes
• Valid from feb to the Appropriation bill-to spend
appropriation budget money from CFI
(2-4 months). Vote on Account
• Only expenditure e.g. Piyush Goyal on Feb 1 2019
permission (both expenditure and receipts)

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 Corporate tax
Income tax
Security
Transaction tax

GST,
Excise duty

Services
provided
without
taxes-
Postal,
Railways,
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 Loan, Finance,
and
Investment

+ Investment
(Recapitaliza
tion of banks
etc.)
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The Government Budget

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Types of Budgets

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 Surplus budget is a situation in which the revenue
earned by the government exceeds its expenditure.
The surplus might occur either due to decrease in
spending and increased taxation or due to growth in
revenue gaining activity.

A budget deficit occurs when expenses exceed

revenue, and it is an indicator of financial health.
The government generally uses this term in
reference to its spending rather than business or
individuals. Accrued government deficits form the
national debt.

A balanced budget is a budget in which revenues are

equal to expenditures. Thus, neither a budget deficit
nor a budget surplus exists. 
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Expansionary vs Contractionary

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 Fiscal Policy

• Measures employed by governments to stabilize the

economy, specifically by adjusting the levels and
allocations of taxes and government expenditures
• When the economy is sluggish, the government may
cut taxes, leaving taxpayers with extra cash to spend
and thereby increasing levels of consumption.
• An increase in public-works spending may likewise
pump cash into the economy, having an
expansionary effect.

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• Conversely, a decrease in government
spending or an increase in taxes tends to
cause the economy to contract.
• Fiscal policy is often used in tandem with
monetary policy.

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 Instruments of Fiscal Policy
A. Budget: The budget of a nation is a useful instrument to
assess the fluctuations in an economy.
B. Taxation: Taxation is a powerful instrument of fiscal policy
in the hands of public authorities which greatly effect the
changes in disposable income, consumption and investment.
C. Public Expenditure: The active participation of the
government in economic activity has brought public
spending to the front line among the fiscal tools. 
D. Public Debt – Money owned by the government either to
other countries, or ECB or to the WB and IMF etc.

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