โก Topic 06 of 6 ยท Chapter 07 ยท Quick Revision
Fiscal Policy Tools & Quick Revision
Expansionary vs contractionary fiscal policy, automatic stabilisers, crowding out effect, and complete revision.
๐ Fiscal Policy Tools
| Tool | Expansionary (Boost Growth) | Contractionary (Control Inflation) |
|---|---|---|
| Government Spending | Increase spending โ more demand โ growth | Decrease spending โ less demand โ lower inflation |
| Taxation | Reduce taxes โ more disposable income โ more spending | Increase taxes โ less disposable income โ less spending |
| Fiscal Deficit | Allow higher deficit โ more government spending | Reduce deficit โ less government spending |
โญ 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.
โ Complete Chapter 07 Revision Checklist
โ
Union Budget constitutional basis: Article 112
โ Budget presented on: February 1 (changed from last day of February in 2017)
โ Budget first presented in: Lok Sabha
โ Revenue receipts = Tax revenue + Non-tax revenue
โ Capital receipts = Borrowings + Disinvestment + Recovery of loans
โ Revenue expenditure = Salaries, interest, subsidies (no asset creation)
โ Capital expenditure = Infrastructure, loans to states (asset creation)
โ Revenue Deficit = Revenue Expenditure โ Revenue Receipts
โ Fiscal Deficit = Total Expenditure โ Total Receipts (excl. borrowings)
โ Primary Deficit = Fiscal Deficit โ Interest Payments
โ FRBM Act enacted: 2003; fiscal deficit target: 3% of GDP
โ NK Singh Committee (2016): fiscal deficit target 2.5% of GDP
โ COVID-19 fiscal deficit (2020-21): ~9.2% of GDP
โ Finance Commission = Constitutional body (Article 280); set up every 5 years
โ 15th Finance Commission: 41% of divisible pool to states
โ Consolidated Fund (Article 266): needs Parliament approval for withdrawal
โ Contingency Fund (Article 267): corpus โน500 crore; President can withdraw
โ Surcharges and cesses NOT shared with states
โ Budget presented on: February 1 (changed from last day of February in 2017)
โ Budget first presented in: Lok Sabha
โ Revenue receipts = Tax revenue + Non-tax revenue
โ Capital receipts = Borrowings + Disinvestment + Recovery of loans
โ Revenue expenditure = Salaries, interest, subsidies (no asset creation)
โ Capital expenditure = Infrastructure, loans to states (asset creation)
โ Revenue Deficit = Revenue Expenditure โ Revenue Receipts
โ Fiscal Deficit = Total Expenditure โ Total Receipts (excl. borrowings)
โ Primary Deficit = Fiscal Deficit โ Interest Payments
โ FRBM Act enacted: 2003; fiscal deficit target: 3% of GDP
โ NK Singh Committee (2016): fiscal deficit target 2.5% of GDP
โ COVID-19 fiscal deficit (2020-21): ~9.2% of GDP
โ Finance Commission = Constitutional body (Article 280); set up every 5 years
โ 15th Finance Commission: 41% of divisible pool to states
โ Consolidated Fund (Article 266): needs Parliament approval for withdrawal
โ Contingency Fund (Article 267): corpus โน500 crore; President can withdraw
โ Surcharges and cesses NOT shared with states