As we all know about Fiscal Policy because this is very common words which is being used during Budget formation. Here it is my efforts to make people well known with this words. I think people should know at least two subject– one to some extent about Economics and other about Law. The knowledge of these two subject will make people more strong and law abiding . The idea about Economics makes man more economically decisive . In this way , economically decisive people of any country will must change the economical strength of that country by their wise decision related to investment and saving. So it is my personnel view that people of every country should be well informed about economical nature and law of their country.
Fiscal Policy is one of the two major macro – economic policies used by the Govt. to regulate the economy , the other major policy being the Monetary policy. Today Fiscal policy is one of the key instruments used by the Govt. to achieve the objectives of full employment , price stability , economic growth and distributive justice. Often these goals are not only mutually incompatible but likely to differ in different countries. The compromise among the conflicting objectives of Fiscal polices therefore depends on the stage of development of the economy. For instance, faster economic growth is the overriding objective in an underdeveloped economy while price stability – internal as well as external and distributive justice are of primary concern in a developed economy.
Keynes argue that monetary policy alone is insufficient and therefore fiscal policy has an important role to play in the economic field of a country. But keynsian analysis are insufficient for underdeveloped economics . Due to growth economics and shift in economic thinking, it was discovered that long run stability was itself a factor contributing to the economic growth of a country . With the advent of planning and the insatiable concern to bring about a rapidly rising capital accumulation and economic growth , Fiscal policy assumed great importance in underdeveloped economics as well. In developed countries the objective of fiscal policy are weighted in favor of long run stability while in underdeveloped economics it is directed not only towards stability , but also towards promoting the growth of saving , investment and the reduction in income and wealth in -equality.
The role of Fiscal policy in Underdeveloped economics is slightly different and more complicated because the underdeveloped economics are characterized by rigidity , shortages and other impediments . Thus most vital objectives of Fiscal policy should be to break the vicious circle of poverty and to usher an era of rapid development in agriculture and industry . In light of this , the main role of Fiscal policy in an underdeveloped economy should be as follows : –  Raising the ratio of savings to National Income [NI] by checking consumption, Increasing the rate of investment in the economy. Encouraging the flow of investment into productive channels. reducing as well as possible , large inequalities of income and wealth . The fullfillment of the first three objectives shall result in an increase in the national product. The fourth objective relates to the distribution of the increased national product . The problem in an underdeveloped economy is not merely one of increased national product , but also one of just and equitable distribution of the raising national product among the various section of the community.
Since private investment in an underdeveloped economy is generally deficient . So to ensure adequate resources for public investment . Govt. has to play an important role in the process of economic development . The Govt. may have to use three important Fiscal means — taxation , public borrowing and deficit financing for ensuring adequate resources for public investment . These means should be in a harmonious combination so as to accelerate economic progress without inflation . Of these , taxation is of course the most important . It should be used by the Govt. to achieve the following objectives –  Reducing consumption with a view to making increased resources available for investment .  Transferring resources from the public to the state to ensure increased public investment. Increasing the incentive to save and to invest and  Reducing the inequalities of income and wealth.
The fiscal means namely deficit financing has to be used with a good deal of caution by the Govt. because a thoughtless and indiscriminate use of this method may create an explosive situation through reinforcing inflationary pressures in the economy. Used in limited and controlled dose , deficit financing can stimulate economic development but when carried to excess, it can also become poison for the economy . Deficit financing should therefore come in only as a last resort where adequate resources cannot be raised through taxation and borrowings to finance public investment .
It should be noted that , fiscal policy has its limitations too in an under- developed economy . Firstly there exists in under developed countries , a large non – monetized sector which is beyond the reach of taxation measures. Secondly , an underdeveloped country succumbs more easily and quickly to inflation than a developed economy because of the institutional rigidity and the general in-elasticity of supply.———————————————————————————————————————————————————————————————————————The End —————————————————————