Introduction

In this article you will know about "Objectives Of Fiscal Policy ", but firstly lets discuss about meaning of Fiscal Policy. Fiscal policy is defined as the policy under which the government uses the instrument of taxation, public spending and public borrowing to achieve various objectives of economic policy. It is the policy of government spending and taxation to achieve sustainable growth. The government of the country manages the flow of tax income and public expenditure to guide the economy by fiscal policy. A surplus occurs when the government collects more income than it spends, whereas a deficit occurs when the government spends more than the collection of tax and non- tax income. 

Fiscal policy is often inverse with the monetary policy which is regulated by the central bank. In India, fiscal policy is formulated by the Ministry of Finance through its budget proposals. RBI formulates monetary policy. 



Contractionary and Expansionary Fiscal Policy 


Contractionary fiscal policy is said to be in action when the government reduces spending and increases the taxes at the same time in the country. Thr result of such action is that there is very less money available in the market. It leads to reduction in the purchasing power which results in declining consumption. 

Expansionary fiscal policy is said to be in action when the government increases the spending and lowers tax rates for boosting economic growth. This increases consumption consumption as there is a rise in purchasing power. 

Read more:- Financial Market In India :Its Types And Functions https://theeducationtheory.blogspot.com/2023/09/financial-market-in-india-its-types-and.html?m=1

Objectives of Fiscal Policy 

The objectives of a fiscal policy may vary from spending on public asset creation to incentivize private sectors to scale up their operations that directly or indirectly influence the economy of a country. A government has several fiscal policy objectives in mind when making decisions. Main objectives of fiscal policy are :-

1. Economic growth:- 
Government promotes economic growth by setting up industries, developing infrastructures like roads, canals, railways, airports, education and health services, water, electricity supply etc. This all services helps in economic growth. Government use their tax and non- tax income for building industries and infrastructure facilities that are essential for economic growth in the country. 

2.To provide employment opportunities:-
Government increased employment opportunities in various ways. Like jobs are automatic created when government sets up public sector enterprises. Government  provides subsidies and other incentives like tax holidays, low rates of taxes etc. to private sector that encourages production and employment. Government also encourages setting up small scale, village industries so that employment increases and people from that area get work. 

3. Price stability:-
Government ensures price stability of essential goods and services by regulating their supplies. Government can change and manage spending and tax policies to influence the prices. When price are stable, everyone fulfilled their needs easily. Price stability supports economic growth and employment and allows people to make more reliable plans when taking decisions about borrowings, savings and investment.

4. To reduce income inequalities:-
Government reduces inequalities in income and wealth by taxing the rich more and spending more on the poor in the form of pensions, incentives, subsidies. Government also provide employment opportunities to poor by building up small scale industries in villages that help poor to earn. 

5. To correct balance of payments deficit:-
The balance of payments account of a country records its receipts and payment with foreign countries. Balance of payments is said to be in deficit when payments to foreigners are more than receipts from foreigners. In such a situation, to reduce the deficit in balance of payment account, the government discourages imports by increasing taxes on them and encourages exports by increasing subsidies and other export incentives. 


Conclusion 

In conclusion, Fiscal Policy is the policy of government spending and taxation to achieve Sustainable growth and development in the economy. It is the use of government revenue collection like taxes and non tax income and government expenditure like expenditure on  infrastructure for the development of country's economy. Fiscal and Monetary policy are the key strategies used by a country's government and central bank to achieve its economic objectives. Both policy target country's inflation, money supply, unemployment, economic growth. Governments use fiscal policy to promote strong and developed economy. 

Frequently Asked Questions


1. What are the types of fiscal policy in India? 

There are three types of fiscal policy in India. They are Neutral policy, Expansionary policy and Contractionary policy. 


2. Who control fiscal policy in India? 

In India, The Finance Ministry draft and control the fiscal policy. 


3. What is the difference between fiscal policy and monetary policy? 

Fiscal policy refers to the government's decisions about taxation and expenditure in the economy. Whereas Monetary policy refers to the decisions and activities of country's central bank toward influencing the money supply, credit creation in an economy. 


4. What are the instruments/tools of fiscal policy? 

The main instruments of fiscal policy are budget, public revenue, public expenditure and public debt.