Fiscal Policy

Fiscal policy refers to the overall effect of the budget outcome on economic activity. The idea of using fiscal policy to combat recessions was introduced by John Maynard Keynes in the 1930s Two main instruments of fiscal policy Revenue Budget

Three possible stances of fiscal policy are:

A neutral stance of fiscal policy implies a balanced budget where G = T (Government spending = Tax revenue). An expansionary stance of fiscal policy involves a net increase in government spending (G > T). A contractionary stance of fiscal policy (G < T

OBJECTIVES

1. To achieve desirable price level 2.ToAchieve desirable consumption level 3. ToAchieve desirable employment level 4.To achieve desirable income distribution 5. Increase in capital formation 6.Degree of inflation

Governments spend money on a wide variety of things, from the military to services like education and healthcare, as well as transfer payments. This expenditure can be funded in a number of different ways: Taxation the benefit from printing money Consumption of fiscal reserves. Sale of assets (e.g., land).

CHANGES IN EXCISE DUTY

CENVAT rate on all goods from 16% to 14% Excise duty was reduced from 16% to 8% on all drugs In the automobiles sector, excise duties were reduced on small cars from 16% to 12%; hybrid cars from 24% to 14%; electric cars from 8% to Nil In the food processing sector,

CHANGES IN CUSTOM DUTY

Customs duty on nonagricultural products, reduced from 20% (200304)to 10%(2007-08) Duty on steel melting scrap and aluminum scrap reduced to Nil (from 5 per cent earlier). Customs duty on crude and nonrefined sulphur reduced to 2% from 5% to boost domestic fertilizer production.

CHANGES IN SERVICE TAX

YEAR 04-05 05-06 06-07 07-08 08-09 65000

SERVICES# REVENUE 75 14200 84 23055 99 37598 106 51301 130+

Fiscal Policy Statement

The gross tax to GDP ratio increased to an all time high of 11.9 % in 200708 thanks to high growth in the economy. This has declined to 10.8% in 08-09 and 9.5% to 09-10 The total expenditure as a % of GDP has gone up from 15.1 in 07-08 to 17.6%

Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment. Monetary theory provides insight into how to craft

Monetary policy is referred to as either being expansionary or contractionary, where an expansionary policy increases the total supply of money in the economy more rapidly than usual, and contractionary policy expands the money supply more slowly than usual or even shrinks it. Expansionary policy is traditionally

Contractionary policy is intended to slow inflation in hopes of avoiding the resulting distortions and deterioration of asset values. Monetary policy differs from fiscal policy, which refers to taxation, government spending, and associated borrowing