⚡ Topic 06 of 6 · Chapter 07 · Quick Revision
Fiscal Policy Tools & Quick Revision
Expansionary vs contractionary fiscal policy, automatic stabilisers, crowding out effect, and complete revision.
📊 Fiscal Policy Tools
| Tool | Expansionary (Boost Growth) | Contractionary (Control Inflation) |
|---|---|---|
| Government Spending | Increase spending → more demand → growth | Decrease spending → less demand → lower inflation |
| Taxation | Reduce taxes → more disposable income → more spending | Increase taxes → less disposable income → less spending |
| Fiscal Deficit | Allow higher deficit → more government spending | Reduce deficit → less government spending |
⭐ Automatic Stabilisers: Some fiscal tools work automatically without government action. During recession: tax revenues fall (less income = less tax) and welfare spending rises (more unemployment benefits). This automatically stimulates the economy. During boom: opposite happens. These are automatic stabilisers.
✅ Complete Chapter 07 Revision Checklist
✅ Union Budget constitutional basis: Article 112
✅ Budget presented on: February 1 (changed from last day of February in 2017)
✅ Budget first presented in: Lok Sabha
✅ Revenue receipts = Tax revenue + Non-tax revenue
✅ Capital receipts = Borrowings + Disinvestment + Recovery of loans
✅ Revenue expenditure = Salaries, interest, subsidies (no asset creation)
✅ Capital expenditure = Infrastructure, loans to states (asset creation)
✅ Revenue Deficit = Revenue Expenditure − Revenue Receipts
✅ Fiscal Deficit = Total Expenditure − Total Receipts (excl. borrowings)
✅ Primary Deficit = Fiscal Deficit − Interest Payments
✅ FRBM Act enacted: 2003; fiscal deficit target: 3% of GDP
✅ NK Singh Committee (2016): fiscal deficit target 2.5% of GDP
✅ COVID-19 fiscal deficit (2020-21): ~9.2% of GDP
✅ Finance Commission = Constitutional body (Article 280); set up every 5 years
✅ 15th Finance Commission: 41% of divisible pool to states
✅ Consolidated Fund (Article 266): needs Parliament approval for withdrawal
✅ Contingency Fund (Article 267): corpus ₹500 crore; President can withdraw
✅ Surcharges and cesses NOT shared with states
✅ Budget presented on: February 1 (changed from last day of February in 2017)
✅ Budget first presented in: Lok Sabha
✅ Revenue receipts = Tax revenue + Non-tax revenue
✅ Capital receipts = Borrowings + Disinvestment + Recovery of loans
✅ Revenue expenditure = Salaries, interest, subsidies (no asset creation)
✅ Capital expenditure = Infrastructure, loans to states (asset creation)
✅ Revenue Deficit = Revenue Expenditure − Revenue Receipts
✅ Fiscal Deficit = Total Expenditure − Total Receipts (excl. borrowings)
✅ Primary Deficit = Fiscal Deficit − Interest Payments
✅ FRBM Act enacted: 2003; fiscal deficit target: 3% of GDP
✅ NK Singh Committee (2016): fiscal deficit target 2.5% of GDP
✅ COVID-19 fiscal deficit (2020-21): ~9.2% of GDP
✅ Finance Commission = Constitutional body (Article 280); set up every 5 years
✅ 15th Finance Commission: 41% of divisible pool to states
✅ Consolidated Fund (Article 266): needs Parliament approval for withdrawal
✅ Contingency Fund (Article 267): corpus ₹500 crore; President can withdraw
✅ Surcharges and cesses NOT shared with states