Effectiveness Of Fiscal Policy In Indian Economy With Special Reference To Taxation

Presented By: Abhishek Sunnak 09104003 Lovish Singla 09104031 Vishal Sarkar 09104073

FISCAL POLICY
Fiscal policy is the means by which a government adjusts its levels of spending in order to monitor and influence a nations economy.

Fiscal policy is that part of government policy which is concerned with raising revenue through taxation and other means and deciding on the level and pattern of expenditure

Objectives of Fiscal Policy

To achieve desirable price level To achieve desirable consumption level To achieve desirable employment level To achieve desirable income distribution Increase in capital formation To control degree of inflation

Instruments of Fiscal Policy

Budget Taxation- direct and indirect Government Borrowing Deficit financing Public Debt

Policy Changes over last 5 years

Basic exemption limits for Income Tax enhanced
Rate of Service Tax increased from 10% to 12%.

Duplication of education cess and secondary and higher education cess on imported goods removed.
Certain class of importers required to pay Customs Duty electronically.

Wealth Tax

Policy Changes over last 5 years

Excise Duty Exemptions are allowed to tax payers
engaged in the manufacture of bio-diesel, processed food, water treatment etc.

Banking Cash transaction Tax was introduced on cash

withdrawals in 2005 which was later withdrawn in 2009

Securities Transaction Tax has been reduced from

0.125% to 0.1% in 2012

Revenue From Taxes

16000 14000 12000 10000 8000 6000 4000 2000 0 2006-07 2007-08

14594.61 12410.04 7240.23 8774.96 9263.04

9877.71

4561.84

5218.44

5483.18 3779.86

5628.97 4248.74

7358.2

8620.01

2678.39

3556.52

5051.84

5974.6

2008-09 2009-10 2010-11 2011-12

Direct Taxes

Indirect Taxes

Tax Revenues

Fiscal Deficit
Governments total expenditure exceeds the revenue generated. At this stage the government is forced to borrow money from domestic and international organisations. Inflation can be controlled if money borrowed is utilised in a productive manner.

Overview of current economic scenario

Since the financial crisis in 2008, India has prided itself in being largely insulated from global recessionary shocks. Against a backdrop of an uncertain global environment, the Indian economy faced twin macroeconomic challenges of managing growth and containing inflation during the fiscal 201112.

GDP Growth in Major Sectors

9.3 8.6
10.3

8 6.8
10.1 9.3

6.5
8.1 6.9

9.5

10.1

7.96 5.8 4.4 0.1 2007-08 2008-09 0.4 2009-10 2010-11 5.4

3.9 2.5 2011-12

Agriculture

Industry

Services

GDP

INFLATION
10 9 8.05 8 7 Inflation(%) 6 5 4.74 3.8 9.4 9.11

4
3 2 1 0 2007-08 2008-09

2009-10

2010-11

2011-12

INFLATION
18.41 2010-11
13.67

12.24
9.91

2011-12 9.55 9.11

7.58

5.46

Primary Articles

Fuel and Power

Manufactured Products All Commodoties

Fiscal Deficit Sustainability

The fiscal deficit target of 5.1 % of GDP in 201213 works out to Rs. 493,947 crore. The extent of borrowings required to finance this deficit is Rs. 4.12 lakh crore for 2012-13.

Impact of Govt. Policy on Economy

Economic growth dropped to 5.5% Expected growth in next year is 7.6% Increase in fuel Prices and reduction in subsidies. Fiscal Deficit Targeted to be reduced to 5.1% from 5.9% Number of cylinders at subsidized rate reduced from 12 to 6

CONCLUSION
Fiscal policies stimulated the growth of Indian economy during financial crisis of 2008. But due to recent Eurozone crisis the growth came down significantly, which forced the government to modify various tax reforms. The effectiveness of these tax reforms will be visible in 4-5 years from now.

Thank You