Fiscal Policy in India
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Questions and Answers

What is the primary goal of fiscal policy in India?

  • To reduce poverty and inequality
  • To reduce government expenditure
  • To promote economic stability
  • To achieve high and sustainable economic growth (correct)

    • What is the difference between the government's expenditure and its revenue?

  • Revenue Deficit
  • GDP
  • Fiscal Deficit (correct)
  • Primary Deficit

    • What is the main objective of increasing government expenditure in fiscal policy?

  • To reduce inflation
  • To stimulate economic growth (correct)
  • To promote economic stability
  • To reduce poverty

    • What is the main challenge in India's fiscal policy?

    <p>All of the above</p> Signup and view all the answers

    What is the purpose of the Goods and Services Tax (GST) in India?

    <p>To simplify the tax system and increase revenue</p> Signup and view all the answers

    What is the Fiscal Responsibility and Budget Management (FRBM) Act aimed at?

    <p>To ensure fiscal discipline and reduce fiscal deficits</p> Signup and view all the answers

    What is the impact of expansionary fiscal policy on inflation?

    <p>It potentially leads to higher inflation</p> Signup and view all the answers

    What is the purpose of the Union Budget in India?

    <p>To present the government's fiscal policy and expenditure plans</p> Signup and view all the answers

    Study Notes

    Overview

    Fiscal policy in India refers to the use of government spending and taxation to influence the overall level of economic activity.

    Objectives

    • To achieve high and sustainable economic growth
    • To reduce poverty and inequality
    • To promote economic stability and reduce inflation

    Instruments

    • Fiscal Deficit: The difference between the government's expenditure and its revenue. India's fiscal deficit is around 3-4% of GDP.
    • Revenue Deficit: The difference between the government's revenue expenditure and its revenue receipts.
    • Primary Deficit: The difference between the government's fiscal deficit and the interest payment.

    Fiscal Policy Tools

    • Government Expenditure: Increase in government expenditure to stimulate economic growth.
    • Taxation: Reduction in taxes to increase disposable income and stimulate consumption.
    • Subsidies: Provision of subsidies to support specific industries or groups.

    Fiscal Policy in India: Challenges

    • Fiscal Discipline: India has struggled to maintain fiscal discipline, with high fiscal deficits.
    • Revenue Mobilization: India's tax-GDP ratio is low, making it challenging to generate revenue.
    • Subsidy Reform: India's subsidy regime is complex, and reform is essential to ensure efficient allocation of resources.

    Recent Developments

    • ** Goods and Services Tax (GST)**: Introduced in 2017 to simplify the tax system and increase revenue.
    • Fiscal Responsibility and Budget Management (FRBM) Act: Introduced in 2003 to ensure fiscal discipline and reduce fiscal deficits.
    • Union Budget: Presented annually, outlining the government's fiscal policy and expenditure plans.

    Impact of Fiscal Policy on the Economy

    • GDP Growth: Fiscal policy can stimulate or contract economic growth, depending on the tools used.
    • Inflation: Fiscal policy can influence inflation, with expansionary policies potentially leading to higher inflation.
    • Employment: Fiscal policy can impact employment, with government expenditure and subsidies influencing job creation.

    Fiscal Policy in India

    • Fiscal policy uses government spending and taxation to influence economic activity.
    • Objectives include achieving high economic growth, reducing poverty and inequality, and promoting economic stability and reducing inflation.

    Fiscal Deficits

    • Fiscal deficit is the difference between government expenditure and revenue, currently around 3-4% of GDP.
    • Revenue deficit is the difference between revenue expenditure and revenue receipts.
    • Primary deficit is the difference between fiscal deficit and interest payment.

    Fiscal Policy Tools

    • Government expenditure can be increased to stimulate economic growth.
    • Taxation reduction increases disposable income and stimulates consumption.
    • Subsidies support specific industries or groups.

    Challenges

    • India struggles with fiscal discipline, resulting in high fiscal deficits.
    • The tax-GDP ratio is low, making revenue generation challenging.
    • Subsidy reform is essential for efficient resource allocation.

    Recent Developments

    • Goods and Services Tax (GST) was introduced in 2017 to simplify the tax system and increase revenue.
    • The Fiscal Responsibility and Budget Management (FRBM) Act was introduced in 2003 to ensure fiscal discipline.
    • The Union Budget outlines the government's fiscal policy and expenditure plans.

    Impact on the Economy

    • Fiscal policy can stimulate or contract GDP growth, depending on the tools used.
    • Fiscal policy can influence inflation, with expansionary policies potentially leading to higher inflation.
    • Fiscal policy impacts employment, with government expenditure and subsidies influencing job creation.

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    Description

    Explore the use of government spending and taxation to influence economic activity in India, covering objectives, instruments, and more.

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