Macroeconomics

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MACROECONOMICS – CIA 2

Assessment of the Product Market and the


Impact of Fiscal Policy in India.

GROUP MEMBERS
008 221 SERA RODRIGUES
021 221149 GAVRILA
GONSALVES
026 221175 TANVI FARGOSE
080 221482 SUKIRTISHREE
DIMIRI
INDEX

SR. TOPIC PAGE


NO. NO.
1. ABSTRACT
2. INTRODUCTION
3. OBJECTIVES OF FISCAL POLICY
4. STATE AND NATURE OF FISCAL POLICY
5. EVALUTION OF FISCAL POLICY
6. FISCAL POLICY AND ITS CONNECTION WITH
AGGREGATE DEMAND
7. DATA COLLECTION
8. EFFECT OF FISCAL POLICY AFTER COVID-19
AND DEMONETISATION
9. WELFARE SCHEMES IMPLEMENTED BY THE
GOVERNMENT
10. FISCAL FRAMEWORK ANALYSIS
11. EXPENDITURE AND TAX MULTIPLIER
12. TARGET ACHIEVED BY IMPLEMENTING THE
FISCAL POLICIES
13. IMPORTANCE OF FISCAL POLICIES
14. PATTERN USED TO DEAL WITH PRODUCT
MARKET
15. CONCLUSION
ABSTRACT

The interplay between fiscal and monetary policies is vital for


maintaining macroeconomic stability, especially in an economy like
India facing both downward pressure and limited maneuvering room
for policy adjustments. Historically, fiscal and monetary measures
have been key tools for stabilizing the macro economy. As the largest
emerging economy, India differs from developed nations due to
factors like population and marketization, suggesting that the
dynamics of fiscal-monetary interactions in India may have unique
characteristics. Additionally, these interactions may vary over time.
Our research focuses on conducting a comparative analysis of India's
fiscal and monetary policies over the last decade, spanning from 2011
to 2023, chosen for its relevance in understanding the country's
overall economic landscape.
INTRODUCTION

India boasts a diverse economy, ranking as the world's 5th largest.


The Indian money market caters to short-term funds with durations
from overnight to one year, encompassing financial instruments seen
as close substitutes for money. The Reserve Bank in India formulates
and enacts monetary policies with specific objectives, including
regulating the money supply, maintaining price stability, fostering
economic growth, promoting savings and investments, bolstering
exports, reducing imports, and enhancing employment. Concurrently,
the government manages fiscal policy by steering the flow of tax
revenue and public spending. Unlike a deficit, where government
expenditure surpasses revenue, a surplus arises when the government
generates more funds than it spends. Key elements of India's fiscal
policies include ensuring price stability, achieving full employment,
and promoting economic growth through measures like consumption
control, increased investment rates, progressive taxation, and
imposing higher VAT on luxury items.
OBJECTIVES OF FISCAL POLICY.

- Achieving Rapid Economic Growth through Efficient


Resource Mobilization:
The primary objective of fiscal policy is to facilitate swift economic
growth, and effective resource mobilization plays a crucial role in
realizing this aim of economic development and progress.
- Efficient Allocation of Economic Resources:
Both national and regional governments strive to ensure efficient
allocation of economic resources. These funds are earmarked for
development initiatives, encompassing expenditures on infrastructure
projects like railways, while non-development activities cover
spending on defense, interest payments, and subsidies.
- Mitigation of Income and Wealth Disparities:
Fiscal policy seeks to promote equity and social justice by minimizing
financial disparities. Direct taxes, such as income tax, are levied more
on affluent individuals compared to other income brackets. Additional
indirect taxes apply to semi-luxury and luxury goods, predominantly
used by the upper and upper-middle class.
- Price Stability and Control of Inflation:
The constant objective of the government is to manage inflation
through measures such as reducing fiscal deficits, introducing tax-
saving plans, and ensuring the efficient utilization of economic
resources.
- Job Creation:
Investments in infrastructure result in both direct and indirect
employment. Reduced taxes and fees on small-scale industrial units
incentivize increased investment, leading to the creation of more
employment opportunities.
- Balanced Regional Development:
The government provides various incentives to promote projects in
underdeveloped areas, including financial subsidies, tax reductions,
tax holidays, and financing at reduced interest rates.
- Addressing Balance of Payments Deficiency:
Fiscal policy endeavors to boost exports through financial measures
such as exempting export revenues from taxation, waiving central
excise duties, and offering customs exemptions. Tariff and nuisance
tax exemptions also contribute to this effort.
- Capital Growth:
For a developing nation trapped in a cycle of poverty due to a lack of
capital, fiscal policy should be strategically designed to encourage
increased capital formation.
- Augmenting Gross Domestic Product:
Economic policy aims to enhance a nation's value, frequently
achieved as fiscal policy fosters capital formation. This, in turn, leads
to economic growth, raising the nation's overall worth, per capita
income, and gross domestic product.
- Enhancing Infrastructure:
Taxation, a fiscal policy counterpart, generates revenue for the state, a
portion of which is invested in infrastructure development, resulting
in overall economic improvement.
STATE AND NATURE OF FISCAL
POLICY

Fiscal policy involves the government's use of taxation, public


spending, and borrowing to achieve specific economic goals,
essentially utilizing taxes and expenditures for sustainable growth. It
encompasses governmental decisions on taxation and spending, with
key tools being taxation, public debt, the budget, public revenue,
fiscal deficit, and public expenditure. India's fiscal policy aims to
significantly boost tax revenue to fund various government programs,
intending to address wealth and income inequality by providing ample
incentives to the private sector. The overarching goals of India's fiscal
policy consistently focus on enhancing economic growth and ensuring
social justice for the population.

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