Fiscal Consolidation Road Map

Only available on StudyMode
  • Download(s) : 42
  • Published : March 15, 2013
Open Document
Text Preview
[Economy] Fiscal Consolidation, Fiscal Deficit : Meaning, Implications, Explained Why Vijay Kelkar Committee was formed? 1. Parts of Budget= Revenue + Expenditure
2. Types of Budget= Deficit/Surplus/Balanced
3. Why printing more money=Bad idea?
4. When fiscal deficit NOT BAD?
5. When & Why is fiscal deficit BAD?
1. Creates inflation
2. Black Money
3. Bond Yield increased
4. Crowding out investment
5. Twin deficit hypothesis
6. Current Account Deficit
7. Subsidy Burden = fiscal deficit increased
8. Interest Payment
9. Vicious circle: Trade to Fiscal deficit
6. Fiscal Consolidation: What is it?
7. Mock Questions
Continuing episodes of technical incorrect economy.
Set Location: Prime Minister’s Office (PMO), New Delhi.
Mohan is busy uploading (un)funny photos in his facebook album and tagging random friends in them to get more “likes”. Vijay Kelkar makes an entry in his office. Kelkar| Sir, the expert reports suggest that fiscal deficit will be around 6 percent for 2012-13. This is very dangerous; you need do fiscal consolidation immediately!| Mohan| Ya but what is fiscal deficit and why is it dangerous?| Kelkar| What? you’re an economist and yet you don’t know what is fiscal deficit?| Mohan| Well I was an economist. But I didn’t maintain notes and I did not revise the standard reference books either, so I’m unable to recall the concepts right now, just like a no0b player of UPSC.| Kelkar| Well fiscal deficit (FD) = Budgetary Deficit + Market borrowing + other liabilities of Government| Mohan| Please Explain in English, from the very beginning.| Kelkar| Ok then let us start from the beginning.Every year, the Government puts out a plan for its income  and expenditure for the coming year. This is, called  annual  Union Budget and you need to get it approved by the parliament.| Mohan| Side question: why do I need to get it approved by the parliament?| Kelkar| For the answer Click ME|

Mohan| Ok back to the topic|
| |
Parts of Budget: Revenue and Expenditure
Kelkar: In every budget, there is incoming money (Revenue) and out going money (Expenditure). Incoming money| Outgoing Money|
Incoming money is divided into two parts. Tax and Non Tax
And outgoing money is divided into Plan and Non plan Expenditure. Incoming| Outgoing|
Tax| Non Tax| Plan| Non Plan|
| | | |
Kelkar: We can further refine this classification into Revenue/capital receipts and Expenditure. But let us not complicate the matter for the time being.
Mohan: Now What is this incoming money from tax and non tax sources? Kelkar: see the table yourself for the examples.
Incoming money| Outgoing|
Tax Revenue| Non Tax Revenue| Plan| Non Plan|
Direct Tax| Indirect Tax| | | |
1. income tax 2. Corporate tax; 3. Wealth tax 4. Capital gain tax (Vodafone case)| 1. custom duty, 2. excise duty, 3. service tax. 4. VAT| 1. Fees Collected (Driving license, RTI, Passport) 2. Fines and Penalties (Traffic violation etc) 3. Income from PSU (e.g. profit from Airindia (lolz) 4. Gifts. (discussed in 2nd ARC article) 5. Grants (Foreign Aid from UN, Japan etc)| | | Mohan: and what is this outgoing money? Plan and non-plan?

Kelkar: Outgoing money = the area where Government spends the money (Expenditure). Plan-Expenditure means spending money on the activities related to the national five year plan. (FYP) Non-plan Expenditure, obviously means spending money on activities that are not related with national five year plan. Check the table for examples. Incoming| Outgoing|

Tax Revenue| Non Tax Revenue| Plan Expenditure| Non Plan| Direct Tax| Indirect Tax| | | |
1. income tax 2. Corporate tax; 3. Wealth tax 4. Capital gain tax (Vodafone case)| 1. custom duty, 2. excise duty, 3. service tax. 4. VAT| 1. Fees Collected (Driving license, RTI, Passport) 2....
tracking img