What is the meaning of Fiscal Policy in India ?

                                                   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 : – [1] Raising  the  ratio  of savings to National Income [NI]  by  checking   consumption,[2]  Increasing  the  rate  of investment  in the  economy.[3]  Encouraging  the  flow  of  investment  into  productive channels.[4]  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 – [1]  Reducing  consumption   with  a  view   to  making   increased  resources  available  for  investment . [2]  Transferring  resources  from  the  public   to  the  state  to    ensure  increased  public  investment.[3]  Increasing  the  incentive  to save  and  to  invest  and [4] 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 —————————————————————


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