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Fiscal Policy Strategy Statement

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	The Fiscal Policy Strategy Statement, presented to Parliament under Section 3(4) of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, outlines the strategic priorities of the government in the fiscal area for the ensuing financial year relating to taxation, expenditure, lending and investments, administered pricing, borrowings and guarantees. The statement explains how the current policies are in conformity with sound fiscal management principles and gives the rationale for any major deviation in key fiscal measures.</div>
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	The Interim Budget did not outline such a statement. Here&#39;s what the government aimed to achieve in its Fiscal Policy Strategy Statement of Budget 2018:</div>
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	a) To target simultaneously on fiscal deficit and debt</div>
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	b) To target fiscal deficit as an operational target and to ensure that the fiscal deficit of 3 per cent of GDP is reached by the government by FY21.</div>
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	c) The central government shall endeavour to follow a declining debt trajectory and the reach a debt target of 40 per cent of GDP, as also to keep the general government debt at 60 per cent of GDP by FY25.</div>
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	d) Inserting adequately defined escape and buoyancy clauses to determine when the targets defined by the FRBM Act may be relaxed or tightened as the case may be.</div>
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What is Fiscal Policy Strategy Statement, Fiscal Policy Strategy Statement Meaning and Definition

What is Fiscal Policy Strategy Statement

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	The Medium-term Fiscal Policy Statement, presented to Parliament under Section 3(2) of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, sets out three-year rolling targets for four specific fiscal indicators in relation to gross domestic product (GDP) at market prices &mdash; (i) Revenue Deficit, (ii) Fiscal Deficit, (iii) Tax to GDP ratio and (iv) Total outstanding Debt at the end of the year. The statement includes the underlying assumptions, an assessment of sustainability relating to balance between revenue receipts and revenue expenditure and the use of capital receipts, including market borrowings for generation of productive assets.</div>
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	In Budget 2018, then finance minister Arun Jaitley did away with revenue deficit as a part of the fiscal consolidation road map. Instead, the central government debt and general government debt substituted revenue deficit as a more accurate indicator of fiscal trajectory.&nbsp;</div>
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	The Interim Budget 2019-20 pegged the fiscal deficit for the year 2019-20 at 3.4 per cent of GDP. According to the Medium Term Fiscal Policy cum Fiscal Policy Strategy Statement, non-debt capital receipts on the capital side are expected to be Rs 102,508 crore in Budgeted Estimates (BE) 2019-20, indicating an increase of Rs 9,353 crore over Revised Estimates (RE) 2018-19.</div>
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	Increase in non-debt capital receipts is mostly on account of disinvestment, which is budgeted at Rs 90,000 crore. Total net borrowings in 2019-20 are projected at Rs 703,999 crore, compared with Rs 634,398 crore in RE 2018-19. This reflects an increase of 11 per cent over the RE.</div>

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What is Medium-term Fiscal Policy Statement, Medium-term Fiscal Policy Statement Meaning, and Definition

Medium-term Fiscal Policy Statement

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	A country&rsquo;s fiscal balance is measured by its government&rsquo;s revenue vis-a-vis its expenditure in a given financial year. Fiscal deficit, the condition when the expenditure of the government exceeds its revenue in a year, is the difference between the two. Fiscal deficit is calculated both in absolute terms and as a percentage of the country&rsquo;s gross domestic product (GDP).</div>
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	The fiscal deficit of a country is calculated as a percentage of its GDP or simply as the total money spent by the government in excess of its income. In either case, the income figure includes only taxes and other revenues and excludes money borrowed to make up the shortfall.</div>
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	In her maiden Union Budget, Finance Minister Nirmala Sitharaman had revised the government&rsquo;s fiscal deficit target for 2019-20 to 3.3 per cent of GDP, 10 basis points lower than the target for the previous financial year.</div>
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	<strong>How is fiscal deficit calculated?</strong></div>
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	The fiscal deficit, in mathematical terms, is [total revenue generated &mdash; total expenditure]. The total revenue is the sum of revenue receipts, recovery of loans and other receipts of the government.</div>
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	While most countries continue to project a deficit in their economies, a surplus is a rare phenomenon. A high deficit at times also emerges if the government is spending on developmental works like construction of highways, ports, roads, airports which will later generate revenue for the government.</div>
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	<strong>What are components of the fiscal deficit calculation?</strong></div>
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	The fiscal deficit calculations are based on two components &mdash; income and expenditure.</div>
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	Income component: The income component is made of two variables, revenue generated from taxes levied by the Centre and the income generated from non-tax variables. The taxable income consists of the amount generated from corporation tax, income tax, Customs duties, excise duties, GST, among others. Meanwhile, the non-taxable income comes from external grants, interest receipts, dividends and profits, receipts from Union Territories, among others.</div>
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	Expenditure component: The government in its Budget allocates funds for several works, including payments of salaries, pensions, emoluments, creation of assets, funds for infrastructure, development, health and numerous other sectors that form the expenditure component.</div>
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	<strong>How is fiscal deficit balanced out?</strong></div>
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	While a rising deficit is a challenge for the government in the long term, to balance it out in short-term macroeconomics, the government looks at market borrowings by issuing bonds and selling them in through banks. Banks buy these bonds with currency deposits and then sell them to investors. Government bonds are considered an extremely safe investment instrument, so the interest rate paid on loans to the government represents risk-free investment.</div>
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	The government also sees a deficit situation as an opportunity to expand policies and schemes, including welfare programmes, without having to raise taxes or cut spending in the Budget.</div>

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What is Fiscal Deficit, Fiscal Deficit News, Budget 2020 News, Fiscal Deficit Calculation

Fiscal Deficit

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	Fiscal policy, in simple terms, is an estimate of taxation and government spending that impacts the economy.</div>
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	<strong>Types of fiscal policy</strong></div>
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	There are two types of fiscal policy:</div>
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	<strong>Expansionary fiscal policy:</strong> This policy is designed to boost the economy. It is mostly used in times of high unemployment and recession. It leads to the government lowering taxes and spending more, or one of the two. The aim is to stimulate the economy and ensure consumers&#39; purchasing power does not weaken.</div>
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	<strong>Contractionary fiscal policy: </strong>As the term suggests, this policy is designed to slow economic growth in case of high inflation. The contractionary fiscal policy raises taxes and cuts spending.</div>
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	<strong>What are the tools of fiscal policy?</strong></div>
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	There are two key tools of the fiscal policy:</div>
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	<strong>Taxation:</strong> Funds in the form of direct and indirect taxes, capital gains from investment, etc, help the government function. Taxes affect the consumer&#39;s income and changes in consumption lead to changes in real gross domestic product (GDP).</div>
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	<strong>Government spending: </strong>It includes welfare programmes, government salaries, subsidies, infrastructure, etc. Government spending has the power to raise or lower real GDP, hence it is included as a fiscal policy tool.</div>
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	<strong>Fiscal policy objectives</strong></div>
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	Some of the key objectives of fiscal policy are economic stability, price stability, full employment, optimum allocation of resources, accelerating the rate of economic development, encouraging investment, and capital formation and growth.</div>
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	<strong>Who sets fiscal policy?</strong></div>
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	In India, the Union finance minister formulates the fiscal policy.</div>
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	<strong>What is the importance of fiscal policy?</strong></div>
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	Fiscal policy is a crucial part of the economic framework. In India, it plays a key role in elevating the rate of capital formation, both in the public and private sectors.</div>
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	The fiscal policy helps mobilise resources for financing projects. The central theme of fiscal policy includes development activities like expenditure on railways, infrastructure, etc. Non-development activities include spending on subsidies, salaries, pensions, etc. It gives incentives to the private sector to expand its activities.</div>
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	Fiscal policy aims to minimise income and wealth inequalities. Income tax is charged on all salaried persons directly proportioned to their income. Likely indirect taxes are also more in the case of semi-luxury and luxury items than that of necessary consumable items. In this way, the government generates a good amount of revenue and that also leads to a reduction in wealth inequalities.</div>
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	A prudent fiscal policy stabilises price and helps control inflation.</div>
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	Fiscal policy planning gives the larger chunk of funds for regional development so as to achieve a balanced regional development. It aims to reduce the deficit in the balance of payment.</div>
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	<strong>Difference between monetary policy and fiscal policy</strong></div>
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	Monetary policy is concerned with the management of interest rates and the total supply of money in circulation. It is generally carried out by the RBI.</div>
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	Fiscal policy, on the other hand, estimates taxation and government spending. It should ideally be in line with the monetary policy, but since it is created by lawmakers, people&#39;s interest often takes precedence over growth.</div>

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Fiscal Policy Strategy Statement

What is Fiscal Policy Strategy Statement

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