Times pro batch 23- fiscal policy

1. Presented by-
Batch 23; PGDBM+
Group 5
 Gunjan Roy chaudhuri
 Supravat Pramanik
 Saurav das
 Pratip Paul
Fiscal policy
& twoinvestment options when government
spendingincreases

2.  About fiscal policy
 Tools of fiscal policy
 Expenditure & revenue after Union Budget 2016-17
 Kinds of fiscal policy
 Limitations & affecting factors
 Various deficit components
 Investment options
 Bond
 Treasury bill
 Conclusion
 References
 Acknowledgement
Overview

3.  The word fisc means ‘ state treasury ’ & fiscal policy refers to policy concerning
the use of ‘state treasury’ or the govt. finances to achieve the macroeconomic goals.
 Concerned with the raising of government revenue and incurring of government
expenditure.
 AD = C+ I + G + X – M
 Development by effective Mobilisation of Resources.
 Reduction in inequalities of Income and Wealth
 Price Stability and Control of Inflation
 Employment Generation
 Capital Formation
 Development of Infrastructure
About fiscal policy

4. Tools of fiscal policy

5. Expenditure & revenue after Union Budget 2016-17

6. Kinds of fiscal policy
 Expansionary Fiscal Policy
 Involves increasing AD.
 Govt will increase spending (G) & cut Taxes.
 Lower taxes will increase consumers spending
because they have more disposable income(C).
 This will worsen the govt. budget deficit.
 Risk of High Inflation due to huge demand &
increase in money supply.
 Contractionary Fiscal Policy
 Involves decreasing AD.
 Govt will cut spending (G) & increase Taxes.
 High taxes will decrease consumers spending
because they have less disposable income(C).
 This will help in improving the govt budget
deficit.
 Not Easy to achieve this.

7. Limitations
 Lack of adequate data
 Time lag
 Budget deficit
 Small proportion of population in taxable income groups
Factors affecting fiscal policy
 Tax policies
 Government subsidies
 Government borrowings, lending's & investments
Limitations & affecting factors

8.  Revenue deficit = revenue expenditure – revenue income.
 Budgetary deficit = total expenditure – total income.
 Fiscal deficit = budgetary deficit + borrowing.
 Primary deficit = fiscal deficit – interest payment.
 Current account deficit = balance of trade + net factor income + net cash transfers.
 Reasons :
 Increase in Subsidies.
 Unproductive expenditure by the government.
 Huge Borrowings.
 Defense Expenditure.
 Poor Performance of Public Sector.
 Payment of Interest.
 Tax Evasion.
Various deficit components

9. Investment options
(when government spending increases)
 When governments increase their spending, crowding out can occur.
 Government spending reduces available funds and increases the cost of capital.
 Crowding out effect - The government competes with private borrowers for funds, and
could drive up interest rates; the government may “crowd out” private borrowing, and this
offsets the government expansion.
 Involves selling government bonds or bills.
 Bonds are long term securities that pay a fixed rate of return over a long period until
maturity, and are bought by financial institutions looking for a safe return.
 Treasury bills are issued into the money markets to help raise short term cash.

10.  Fixed income securities.
 A debt investment in which an investor loans money to an entity (typically corporate or
governmental) which borrows the funds for a defined period of time at a variable
or fixed interest rate.
 Used by companies, municipalities, states and governments to raise money.
 Owners of bonds are debtholders, creditor of the issuer.
 Not taxed.
 Inversely proportionate to interest rates.
 Selling price< face value, that is discount bond.
 Selling price> face value, that is premium bond.
Bond

11.  Represent short-term borrowings of the Government.
 A treasury bill is nothing but a promissory note issued by the Government under
discount for a specified period stated therein.
 Issued only by the RBI on behalf of the Government. Treasury bills are issued for
meeting temporary Government deficits.
 91 DAYS TB ,184 DAYS TB ,364 DAYS TB (On basis of periodicity).
 Importance:
 Safety.
 Ideal short term investment.
 Ideal fund management.
 Non-inflationary monetary tool.
Treasury bill

12.  The objectives of fiscal policy such as economic development, price stability, social
justice, etc. can be achieved only if the tools of policy are effectively used.
 Though there are gaps in India's fiscal policy, there is also an urgent need for making
India's fiscal policy a rationalised and growth oriented one.
 The success of fiscal policy depends upon taking timely measures and their effective
administration during implementation.
 Fiscal deficit has been pegged at Rs 5.33 lakh crore, or 3.5 per cent of GDP, in 2016-17
(As per data released by the Controller General of Accounts).
 Previous RBI Governor Raghuram G. Rajan said after government's 2016/17 budget had
been "fiscally prudent", and the establishment of a monetary policy committee to set
interest rates would help the central bank fight inflation.
Conclusion

13.  The Economics Times Finpro.
 General Awareness book for banking by Mahendra’s publication.
 Government of India: Ministry of Finance- http://finmin.nic.in/
 Employment news -
http://employmentnews.gov.in/writereaddata/11032016356271UNION%20BUDGET%2
02016-17.png
 The Economics Times :
http://economictimes.indiatimes.com/news/economy/finance/rbi-governor-raghuram-
rajan-says-governments-budget-fiscally-prudent/articleshow/51373176.cms
 Mercatus center - https://www.mercatus.org/publication/does-government-spending-
affect-economic-growth
 India :http://www.india.com/topic/fiscal-deficit/
References

14.  The team is indebted to the Times-pro for providing the infrastructural
facilities.
 Sincere thanks are due to our sir, Mr. Suvashis Halder , for providing
guidance.
 Lastly, the co-operation received from the classmates, our loving parents
whose moral supports helped us to complete the work & specially all team-
members whose equal contribution gave a shape is also acknowledged.
Acknowledgement