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Fiscal Policy: change in government spending or taxing designed to influence economic activity.

Budget deficit: The receipts minus total expenditure on both revenue and capital accounts.


Fiscal deficit: It represents the total amount of borrowed funds required by the economy. The difference between revenue receipts plus non-debt capital receipts on one side and total expenditure including loans, net of repayments, on the other side. In other words, this is the budget deficit borrowings and other liabilities.

Primary deficit: The fiscal deficit minus interest payments.

After the targets for the fiscal deficits and the overall budget deficit have been decided by the government any remaining shortfall is filled through a revision in tax rates Subsequently adjustments are made in expenditures, should it be required, to ensure that the fiscal and overall deficit remain at targeted levels.

The Budget Policy Instruments

Finance Bill: The government proposals for the levy of new taxes, alterations in the present tax structure or continuance of the current tax structure beyond the period approved by the Parliament. The Parliament approves the Finance Bill for a period of one year at a time, which becomes the Finance Act.

Consolidated Fund: All revenues received by government, loans raised by it, and also its receipts from recoveries of loans granted by it, form the consolidated fund. All expenditure of the government is incurred from the consolidated fund and no amount can be withdrawn from the fund without authorization from Parliament.

Contingency Fund: As the name suggests, this fund is placed at the disposal of the President to enable the government to meet urgent unforeseen expenditure pending authorization from Parliament.

Public Account: Besides the normal receipts and expenditure of the government which relates to the consolidated fund, certain other transactions enter government accounts in respect of which government acts more as a banker, for example, transactions relating to provident funds, small savings collections, other deposits, etc.

Appropriation bills: After the demands for grants are voted by the Lok Sabha, Parliament's approval to the withdrawal from the consolidated fund of the amounts so voted and the amount to meet the expenditure charged on the consolidated fund, is sought through the Appropriation Bill.

The Lok Sabha has one month to review and modify the government's budget proposals. If by April 1, the beginning of the fiscal year, the parliamentary discussion of the budget has not been completed, the budget as proposed by the minister of finance goes into effect, subject to retroactive modifications after the parliamentary review. On completion of its budget discussions, the Lok Sabha passes the annual appropriations act, authorizing the executive to spend money, and the finance act, authorizing the executive to impose and collect taxes. Supplemental requests for funds are presented during the course of the fiscal year to cover emergencies, such as war or other catastrophes. The bills are forwarded to the Rajya Sabha (Council of States--the upper house of Parliament) for comment. The Lok Sabha, however, is not bound by the comments, and the Rajya Sabha cannot delay passage of money bills. When signed by the president, the bills become law.

Concluded.

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* Contributed by: -
Prof. M. Guruprasad is Senior Faculty for Economics, Finance and Research, with AICAR Business School Raigad / Mumbai. He has more than 15 years of experience in research and educating / training management students. He was research scholar with the University of Mumbai. Worked as Executive in the Marketing research industry. Also Conducted Workshops and Training programmes. He has published articles in various industry magazines, newspapers and has initiated many discussions on academics.