Fiscal Policy

 Public Finance (Fiscal Policy)

• Public finance is a much wider title which includes all those matters which are connected with public money, i.e., the money a government gets, spends, borrows, lends, raises or prints.
• Public finance, i.e., finances of the government not only discuss the issue that how much of the country’s resources the government should acquire for its own use but also discusses the ‘efficiency’ with which the money should be used.
• Fiscal policy deals with the government policy concerning changes in the taxation and expenditure overheads and components, while Monetary policy, deals with the changes in the factors and instruments that affect the supply of money in the economy and the rate of interest.
• These are routinely used by governments world over in various policy mix or combinations to have desired effects and to steer the broader aspects of the economy.
• In case of India as with most other economies, the government of India (Ministry of Finance) deals with fiscal policy (through Annual Budget and other timely interventions), ‘Fiscal policy is result of several component policies or mix of policy instruments.
• These include, policy on taxation, subsidy, welfare expenditure, etc.; investment or disinvestment strategies; and debt or surplus management.
• Fiscal policy is an important constituent of the overall economic framework of a country and is therefore intimately linked with its general economic policy strategy.’
• Budget is not a mere statement of government accounts, it reflects the government’s vision and signals policy that comes in future

Aims of Fiscal Policy

• Efficient allocation of resources (Ex: Spent to all Sector: Agriculture, Medical, Education, Infrastructure, Defence etc.,)
• Distribution of income (Ex: Progressive taxation System).
• Macroeconomic stability (Debt Management to maintain stability).

Budget in the Indian Constitution

• The term ‘Budget’ is not mentioned in the Indian Constitution; the corresponding term used is ‘Annual Financial Statement’ (article 112).

Constitutional Requirements for Budget

• Article 112: President shall, in respect of every financial year, cause to be laid before Parliament, Annual Financial Statement.
• Article 265: provides that ‘no tax shall be levied or collected except by authority of law’. [i.e. Taxation needs the approval of Parliament.]
• Article 266: provides that ‘no expenditure can be incurred except with the authorisation of the Legislature’ [i.e. Expenditure needs the approval of Parliament.]

Public Finance

• Annual Financial Statement (AFS) is an important tool by which fiscal policy is administered. Budget is presented by Minister of Finance in parliament for its approval. It consists of two parts.
1. Receipts (Finance Bill).
2. Expenditure (Appropriation Bill).

(Demand for grant given by all ministry, sent to parliamentary committee and verify – give data)

The document as provided under Article 112, consists of three sets of data,

1. Actual data of the preceding year (here preceding year means one year before the year in which the Budget is being presented. Suppose the Budget presented is for the year 2022–23, the Budget will give the final/actual data for the year 2021-22.
2. Provisional data of the current year (i.e., 2022–23) since the Budget for 2022–23 is presented at the end of the fiscal 2021–22, it provides Provisional Estimates for this year.
3. Estimated receipts and expenditure of the Government of India for next financial year (say, 2021-22) (upcoming year)

(Actual Data – previous year (2021 - 2022), Provisional Data – current year data (2022 – 2023, Till December (2022)), Estimated receipts and expenditure – Projected data for upcoming year (2023 - 2024)).

Other Example

Budget Account

• Budget account is divided into two segments based on type of receipts or expenditure made, they are
• Revenue Budget
• Capital Budget