SSC CGL Preparation – Day 8

Economy: Fiscal Policies

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✅ What is Fiscal Policy?

Fiscal policy refers to the government’s use of revenue (taxation) and expenditure (spending) to influence a country’s economic activity. It is a crucial tool used to maintain economic stability, stimulate growth, and control inflation/unemployment.

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🏛️ Objectives of Fiscal Policy in India

1. Economic Growth: Promote development and GDP expansion.
2. Price Stability: Control inflation and deflation.
3. Redistribution of Income: Reduce income inequality via progressive taxation and welfare schemes.
4. Employment Generation: Encourage job creation through government schemes.
5. Stability in Economic Cycles: Manage demand in periods of boom and bust.

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🔁 Types of Fiscal Policy

Type	Description	Example
Expansionary	Increases government spending or reduces taxes to boost economic activity.	Useful during recession.
Contractionary	Decreases spending or increases taxes to reduce inflation.	Useful during high inflation.

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💰 Components of Fiscal Policy

1. Revenue Collection (Receipts):
   • Tax Revenue: Income Tax, GST, Customs Duty, etc.
   • Non-Tax Revenue: Dividends from PSUs, interest, fees, fines, etc.
2. Expenditure:
   • Capital Expenditure: Asset creation (infrastructure, roads, buildings).
   • Revenue Expenditure: Salaries, subsidies, interest payments, defense.

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📊 Types of Budget Based on Fiscal Policy

1. Balanced Budget: Revenue = Expenditure
2. Surplus Budget: Revenue > Expenditure
3. Deficit Budget: Expenditure > Revenue (common in developing nations like India)

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📉 What is Fiscal Deficit?

Fiscal Deficit = Total Expenditure − Total Revenue (excluding borrowings)

A high fiscal deficit indicates borrowing and can lead to inflation and debt burden.

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🧾 Fiscal Responsibility and Budget Management (FRBM) Act

• Introduced in 2003
• Objective: Ensure fiscal discipline by limiting deficit
• Targets:
  • Reduce fiscal deficit to manageable levels (e.g., 3% of GDP)
  • Maintain transparency in fiscal operations

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⚙️ Tools of Fiscal Policy

Tool	Purpose
Taxation	Control inflation or increase spending capacity
Public Spending	Boost demand and employment
Subsidies	Support weaker sections or key sectors
Public Borrowing	Finance deficit or large projects

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Recent Fiscal Measures in India (for Current Affairs relevance)

• Increase in capital expenditure to stimulate infrastructure.
• Introduction of corporate tax cuts for new manufacturing units.
• PM Garib Kalyan Yojana and Atmanirbhar Bharat package during COVID-19.
• Use of GST compensation cess to manage shortfalls.
• Subsidy reforms in fuel, fertilizer, and food sectors.

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🔍 Difference Between Fiscal and Monetary Policy

Fiscal Policy	Monetary Policy
Managed by Ministry of Finance	Managed by RBI
Involves taxes, spending, and borrowing	Involves repo rate, CRR, SLR, etc.
Slower implementation	Quicker implementation

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📝 Important Terms

• Primary Deficit: Fiscal Deficit − Interest Payments
• Revenue Deficit: Revenue Expenditure − Revenue Receipts
• Capital Receipts: Loans, disinvestment, recoveries
• Budgetary Deficit: Total Expenditure − Total Receipts

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📚 For SSC CGL – Focus Areas

• Fiscal Deficit, Revenue Deficit
• FRBM Act
• Recent Union Budget highlights
• Differences in expenditure types
• Major tax components and reforms (like GST)