Fiscal Policy is the government's use of taxation and spending to influence economic activity.
Key Tools:
- Taxation: Direct (income tax) and Indirect (GST) taxes
- Government Spending: Public investment (infrastructure, education, healthcare) and social welfare programs
Objectives:
- Economic Growth: Stimulate demand
- Price Stability: Control inflation
- Income Distribution: Reduce inequality
- Full Employment: Create jobs
Types:
- Expansionary: Increased spending or reduced taxes
- Contractionary: Decreased spending or increased taxes
- Neutral: Balanced budget
Recent Trends:
- Infrastructure Push: Increased public investment in infrastructure.
- Fiscal Consolidation: Efforts to reduce fiscal deficit and debt.
- Tax Reforms: GST implementation and other tax reforms.
- Social Welfare: Continued focus on social welfare programs.
Challenges:
- Fiscal Deficit: Maintaining a sustainable fiscal deficit.
- Revenue Mobilization: Increasing tax revenue.
- Public Spending Efficiency: Improving the efficiency of public spending.
Importance for UPSC:
- Economic Development: Understanding government's role.
- Current Affairs: Analyzing Union Budget and economic surveys.
- Policy Analysis: Evaluating the effectiveness of fiscal policies.