Fiscal policy refers to the overall effect of the

budget outcome on economic activity.

The idea of using fiscal policy to combat recessions
was introduced by John Maynard Keynes in the
1930s
Two main instruments of fiscal policy
• Revenue Budget
• Expenditure Budget
Three possible stances of fiscal policy are:

 A neutral stance of fiscal policy implies a balanced

budget where G = T (Government spending = Tax
revenue).

 An expansionary stance of fiscal policy involves a

net increase in government spending (G > T).

 A contractionary stance of fiscal policy (G < T)

1. To achieve desirable price level
2. To Achieve desirable consumption level

3. To Achieve desirable employment level

4. To achieve desirable income distribution
5. Increase in capital formation
6. Degree of inflation
 METHODS OF FUNDING

Governments spend money on a wide variety of things,

from the military to services like education and
healthcare, as well as transfer payments.

This expenditure can be funded in a number of

different ways:
 Taxation
 Seignorage, the benefit from printing money
 Consumption of fiscal reserves.
 Sale of assets (e.g., land).
Revenue receipt are those which neither decreases the asset nor
increases the liability of the government

Classification of revenue receipts:

 Revenue Receipts (Tax Revenue)

10 9.3
8.8
9 8.5
8 7.5
7.1
Revenue Receipts

7
6
5
4
3
2
1
0
2004-05 2005-06 2006-07 2007-08 2008-09
Year

website: http//indiabudget.nic.in DEV 04/11/21

 Direct Taxes

4.5 4.1 4.2

4
3.5
personal/corporation taxes

3.5
3 2.8
2.6
2.5 2.2 2.3 PersonaL Income Taxes
2 1.8 1.8 Corporation Tax
1.6
1.5
1
0.5
0
2004-05 2005-06 2006-07 2007-08 2008-09
years

website: http//indiabudget.nic.in
 Indirect Taxes

3.5
Custom/Excise/Service taxes

3
2.5
Customs
2
Excise
1.5
Service Taxes
1
0.5
0
2004-05 2005-06 2006-07 2007-08 2008-09
Customs 1.8 1.8 2.1 2.2 2.0
Excise 3.1 3.1 2.8 2.6 2.0
Service Taxes 0.5 0.6 0.9 1.1 1.2
Years

website: http//indiabudget.nic.in
 Customs duty on nonagricultural products, reduced
from 20% (2003-04)to 10%(2007-08)
 Duty on steel melting scrap and aluminum scrap
reduced to Nil (from 5 per cent earlier).
 Customs duty on crude and non-refined
sulphur reduced to 2% from 5% to boost domestic
fertilizer production.
 Customs duty on cigars, cheroots and cigarillos was
increased from 30% to 60%.
 CENVAT rate on all goods from 16% to 14%

 Excise duty was reduced from 16% to 8% on all drugs

 In the automobiles sector, excise duties were reduced on

small cars from 16% to 12%; hybrid cars from 24% to
14%; electric cars from 8% to Nil

 In the food processing sector, excise duty was made

fully exempt on packaged tender coconut water, paws,
mudi (puffed rice), milk containing edible nuts and
tea/coffee pre-mixes.
 Year Number of services Tax rate (% ) Revenue (Crores)

2004-05 75 10 14200

2005-06 84 10 23055

2006-07 99 12 37598

2007-08 106 12 51301

2008-09 NA 12 65000
website: http//indiabudget.nic.in
 Comparision between Direct Tax & Indirect Tax

7
6
5
4 Direct Tax
DT/IT

3 Indirect Tax

2
1
0
2004-05 2005-06 2006-07 2007-08 2008-09
Direct Tax 4.2 4.6 5.3 6.3 6.5
Indirect Tax 5.4 5.6 5.8 5.9 5.3
Years

website: http//indiabudget.nic.in
GAGANJEET PHOGAAT 04/11/21
 Non Tax Revenue

3
2.6
2.5 2.2
2.1
Non Tax Revenue

2
2 1.8

1.5 Non Tax Revenue

0.5

0
2004-05 2005-06 2006-07 2007-08 2008-09
Year

website: http//indiabudget.nic.in
 Revenue Expenditure

16 15.1

14 12.5 12.6
12.2 12.2
12
RE as % of GDP

10

8 Series1

0
2004-05 2005-06 2006-07 2007-08 2008-09
Years

website: http//indiabudget.nic.in
 Revenue expenditure

5.0
Com ponents of RE

4.0
Interest Payment
3.0 Major Subsidies
2.0 Defense Expenditure

1.0

0.0
2004-05 2005-06 2006-07 2007-08 2008-09
Interest Payment 4.0 3.7 3.6 3.6 3.6
Major Subsidies 1.4 1.2 1.3 1.4 2.3
Defense 1.4 1.3 1.3 1.1 1.4
Expenditure
Years

website: http//indiabudget.nic.in
 Revenue Defecit

5
4.5
Revenue Deficit (as % of GDP)

4.5
4
3.5
3 2.6
2.5
2.5 Series1
1.9
2
1.5 1.1
1
0.5
0
2004-05 2005-06 2006-07 2007-08 2008-09
Years

website: http//indiabudget.nic.in
GAGAN ANAND 04/11/21
 Capital Receipts

8.0
Cap ital Receip ts

Recovery of Loans
6.0
Other Receipts (PSU
4.0
Diisinvestment)
2.0 Borrowings and other
Liabilities
0.0
2004-05 2005-06 2006-07 2007-08 2008-09
Recovery of Loans 2.0 0.3 0.1 0.1 0.2
Other Receipts 0.1 0 0 0.8 0
(PSU
Diisinvestment)
Borrowings and 4.0 4.1 3.5 2.7 6.1
other Liabilities
Years

website: http//indiabudget.nic.in
 Capital Expenditure

4
capital Expenditure (as % of GDP)

3.6
3.5

3
2.5
2.5
1.9 1.8
2 1.7 Series1

1.5

0.5

0
2004-05 2005-06 2006-07 2007-08 2008-09
Years

website: http//indiabudget.nic.in
 Comparision between RE & CE

16
14
12
10
Revenue Expenditure
RE/CE

8
Capital Expenditure
6
4
2
0
2004-05 2005-06 2006-07 2007-08 2008-09
Revenue Expenditure 12.2 12.2 12.5 12.6 15.1
Capital Expenditure 3.6 1.9 1.7 2.5 1.8
Years

website: http//indiabudget.nic.in
 Plan Expenditure

6
Planned Expenditure (as % of

5.3
5
4.2 4.3
4.1
3.9
4
GDP)

3 Series1

0
2004-05 2005-06 2006-07 2007-08 2008-09
Years

website: http//indiabudget.nic.in
DEEPIKA 04/11/21
 Non Plan Expenditure

12
Non Plan Expenditure (as % of

11.6 11.6
11.5

11
10.7
GDP)

10.5 Series1
10.2
10.0
10

9.5

9
2004-05 2005-06 2006-07 2007-08 2008-09
Years

website: http//indiabudget.nic.in
 Fiscal Defecit

7.0
Fiscal defecit (as % of GDP)

6.0

5.0

4.0
Series1
3.0

2.0

1.0

0.0
2004-05 2005-06 2006-07 2007-08 2008-09
Years

website: http//indiabudget.nic.in
 PRESENTED BY:
DEEPIKA GULATI(IB/08)
DEVKANT RATH(IB/09)
FATIK KHAN(IB/10)
GAGAN ANAND(IB/11)
GAGANJEET PHOGAAT(IB/12)