bms fiscal policy 2011

7/31/2019 Bms Fiscal Policy 2011

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DR. VASUDEV P. IYER

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FISCAL POLICY: MEANING, OBJECTIVES, INSTRUMENTSAND IMPACTS ON BUSINESS


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P l e a s e C o - o p e r a t e , T h a n k Y o u


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In the previous session

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Monetary Policy

Meaning

Objectives

Instruments

Impacts on business


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In this Session

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Meaning of f iscal pol icy

Objectives of f iscal policy

Instruments of f iscal policy

Impacts of f iscal pol icy on business


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MEANING OF FISCAL POLICY


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An attempt to inf luence th e level of

economic act ivity though changes

in government revenue and

expenditure.

Taxes: Direct and Indirect

Expenditure: Collective Goods


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OBJECTIVES OF FISCAL POLICY


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1) Economic growth

2) Mobilisation of financial resources

3) Capital formation

4) Price stability

5) Reducing income inequalities

6) Balanced regional development

7) Employment generation

8) Development of infrastructure: Physical and social

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INSTRUMENTS OF FISCAL POLICY


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A u t o c ra c y - r u l e b y a s i n g l e i n d i v i d u a l

( d e s p o t i s m ) M o n a r c h y r u l e b y h e r e d i t a r y k i n g s

O l i g a r c h y - r u l e b y a s m a l l g r o u p o f i n d i v i d u a l s

( m i l i t a r y l e a d e r s , o n e p a r t y )

A r i s t o c ra c y - r u l e b y a c l a s s o f p e o p l e( m e r c h a n t s , n o b i l i t y )

D e m o c r a c y r u l e b y t h e c o m m o n p e o p l e

A n d r o c ra c y - r u l e b y m e n

G y n a r c h y - r u l e b y w o m e n

A n a r c h y a b s e n c e o f g o v e r n m e n t

TYPES OF GOVERNMENT


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WHAT IS DEMOCRACY?


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I N D I A E L E C T S

I T S

K ING


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TAXATION

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T A X

D I R E C T

I N C O M E

W E A L T H

I N D I R E C T

COMMODITIES

S E R V I C E S


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CENTRAL GOVT. STATE GOVTs. LOCAL BODIES

INCOME TAX

SALES TAX (VAT)

CENTRAL EXCISE

CUSTOMS DUTIES

SECURITIES TRAN. TAX

SERVICE TAX

CAPITAL GAINS TAX

SALES TAX (VAT)

STAMP DUTY

STATE EXCISE

AGRI. INCOME TAX

ENTERTAINMENT TAX

PROFESSIONAL TAX

PROPERTY TAX

OCTROI DUTIES

TAX ON MARKETS

UTILITY TAX


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Source: Economic Survey, 2010-11


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The Direct Tax Code

Discussion paper in public domain in August, 2009

Three fold strategy To minimise tax exemptions

To remove ambiguities in tax laws

To check tax evasion

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EXPENDITURE


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44

54.5 48.8

35.2

28.1

36.7

0

10

20

30

40

50

60

E X P O N S A L A R Y

E X P O N S O C I A L

M A H A R A S H T R A S E X P E N D I T U R E O N S A L A R I E S A N D S O C I A L S E C T O R

( % O F T O T AL R E V E N U E )

S O U R C E : R B I , S T AT E F I N A N C E S : S T U D Y O F S T A T E B U D G E T S

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VOTE-ON-ACCOUNT

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T h e c o n s o l i d a t e d f u n d o f I n d i a

P r i o r a p p r o v a l o f t h e P a r l i a m e n t

V o te - o n - a c c o u n t c o v e r s o n l y t h e e x p e n d i t u r e s i d e o f t h e B u d g e t

N o d i s t i n c t i o n b e t w e e n c a r e t a k e r a n d n o r m a lg o v e r n m e n t

P o l i c y s t a t e m e n t c a n b e m a d e .

D u r a t i o n m a x . 6 m o n t h s o r t i l l t h e f u l l b u d g e t i sp r e s e n t e d w h i c h e v e r i s t h e e a r l i e s t .


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TYPES OF DEFICITS


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REVENUE DEFICIT: REVENUE EXPENDIUTRE LESS REVENUE RECEIPTS

FISCAL DEFICIT: TOTAL EXPENDIUTRE LESS {REVENUE RECEIPTS+RECOVERIES OF LOANS+ OTHER

RECEIPTS}

PRIMARY DEFICIT: FISCAL DEFICIT LESS INTEREST PAYMENTS


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IMPACTS ON BUSINESS


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Increase in fiscal deficit

Deficit must be financed

Borrowing from the market

Interest rate increases

Crowding out of private investment

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Vicious circle

Fiscal Deficit and

Monetization

Inflation and

downward pressureon exchange rate


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MONETARY-FISCAL POLICY INTERACTION


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Policy co-ordination must for successfully

outcome

Apparent trade-offs does exist.

The Phillips Curve Hypothesis

Trade-offs between Inflation and Unemployment


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The Philips curve is a

graphical representation

of the negative

relationship between

rates of unemployment

and rates of inflation

Inflation

Unemployment rate %5

4

8

10

The Philips curve

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Summary

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Meaning of f iscal policy

Objectives of f iscal policy

Instruments of f iscal policy

Impacts of f iscal policy onbusiness


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bms fiscal policy 2011

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