Public Finance: Public finance explains about the role of government in the economy.

This include government effects on 1. 2. 3. Allocation of resources Distribution of Income Macroeconomic stabilization

Conventionally, assessment of public finances was restricted to analysis of fiscal indicators, but the macroeconomy-wide impact of the crisis highlighted the importance of accounts data in tandem in such assessments. Higher tax revenues and expenditure compression helped India reduce its fiscal deficit during the global economic crisis during the period 2007-08. Expansionary fiscal policy: Government spending exceeding tax revenue undertaken during recession times. This policy continued during 2009-10 as the crisis impact continued to be felt. Given the relative levels of shares of private final consumption expenditure and government consumption expenditure, such expansion could only be a short-term measure and the Medium Term Fiscal Policy Statement presented along with the Budget for 2009-10 favoured a resumption of the fiscal consolidation process, though a gradual one, with fiscal deficit declining to 5.5 per cent of the gross domestic product (GDP) and 4.0 per cent of the GDP in 2010-11 and 2011-12, respectively. In its report, the thirteenth Finance Commission has traced the path of fiscal consolidation for the Centre and States. The resumption of the path of fiscal farsightedness would complement the recovery process in the near term and lay the foundation for reviving the growth momentum in the long term. As a proportion of gross tax revenue, direct taxes rose from a level of 19.1 per cent in 199091 to reach 49.9 per cent in 2007-08; in 2008-09, they were at 55.5 per cent. The front-loading of Plan expenditure was evident in the rise in its proportion to the GDP from a level of 4.1 per cent in2007-08 to 4.9 per cent in 2008-09. Thus, the reversal in major fiscal deficit indicators in 2008-09 and 2009-10 was a policydriven stimulus to counter the demand slowdown. While traditionally assessment of the trends in expenditure, particularly in the context of the fiscal consolidation process, had focused on the compression in terms of proportions of GDP, in view of the policydriven expansion process it would be useful to understand the magnitude and direction of the expansion. In 2009-10, the major components of the expansion were interest payments, defence, social services and economic services. The global commodity price shock (mainly in crude petroleum) that led the global financial crisis in 2008-09 directed to a growing of the subsidy bill and a sharp rise in the below-the line issuance of bonds to oil and fertilizer companies.

References:

http://www.scribd.com/doc/41794340/Public-Finance-and-Fiscal-Developments http://en.wikipedia.org/wiki/Public_finance