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MONETRY AND FISCAL POLICY, UNION BUDGET, STATE BUDGET AND FINANCE COMMISION. CONTENT. MONETRY POLICY.
- Affect total quantity of credit and affect economy generally
- Affect certain select sectors
"Fiscal policy is the part of the government policy which is concerned with the raising revenue through taxation and other means to decide on the level and pattern of expenditure“
It operates through budget – which is estimate of government revenue and expenditure for financial year.
Fiscal Policy is the main part of Economic Policy and Fiscal Policy\'s first word Fiscal is taken from French word Fisc it means treasure of Govt. So we can define fiscal policy as the revenue and expenditure policy of Govt. of India .It is prime duty of Government to make fiscal policy . By making this policy , Govt. collects money from his different resources and utilize it in different expenditure . Thus fiscal policy is related to development policy . All welfare projects are completed under this policy
→ If Govt. will increase taxes , more burden will be on the public and it will reduce production and purchasing power of public .→ If Govt. will decrease taxes , then public\'s purchasing power will increase and it will increase the inflation.
Govt. Expenditure Policy There are large number of public expenditure like opening of govt schools , colleges and universities , making of bridges , roads and new railway tracks . In all above projects govt has paid large amount for purchasing and paying wages and salaries all these expenditure are paid after making govt. expenditure policy . Govt. can increase or decrease the amount of public expenditure by changing govt. budget .
So , govt. expenditure is technique of fiscal policy by using this , govt. use his fund first on very necessary sector and other will be done after this .
3. Deficit Financing Policy If Govt.\'s expenditures are more than his revenue , then govt. should have to collect this amount . This amount is deficit and it can be fulfilled by issuing new currency by central bank of country . But , it will reduce the purchasing power of currency . More new currency will increase inflation and after inflation value of currency will decrease . So, deficit financing is very serious issue in the front of govt. Govt. should use it , if there is no other source of govt. earning .
The three possible stances of fiscal policy are neutral, expansionary and contractionary. The simplest definitions of these stances are as follows:
THUS A BUDGET HAS TWO MAIN COMPONENTS :[A] RECEIPTS ,[B] EXPENDITURE.
A. REVENUE RECEIPTS [1+2 ]
B. CAPITAL RECEIPTS [3+5]
1. Direct taxes- Corporate tax, Div. Distribution Tax, Personal Income Tax, Fringe Benefit taxes, Banking Cash Transaction Tax
2. Indirect taxes- Central Sales Tax, Customs, Service Tax, excise duty.