FISCAL POLICY AND IT'S COMPONENTS/B.A./M.A./11TH CLASS/12TH CLASS

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What is fiscal policy?
It refers to optimizing government spending and tax policies to affect their economic conditions, mainly the macroeconomic conditions. It also involves employment, inflation, aggregate demand for goods and services and economic growth.
The policy’s primary purpose is to stabilize the economy and achieve full employment in the country.
The economic policy measures are helpful in conjunction with the monetary policy to achieve the mentioned macroeconomic goals.
Components of Fiscal policy
The components of the policy are categorized as-.

Government receipts
Government expenditures
Public account of India
Government receipts
The Government’s income as interests, taxes, earnings on investments and other receipts for services provided is known as government receipts. It is the total amount of money governing bodies receive from their sources. However, their revenue enables them to spend money in other sectors. The government receipts divide into two groups, i.e., Capital receipts and Revenue receipts. Government receipts that reduce assets or create liability are Capital receipts. Government receipts that neither reduce assets nor create liability are Revenue receipts.

1.Capital receipts– A government obtains funds from its functioning in various ways, which are capital receipts. The ways could dispose of its assets or incur liabilities to the Government. Although, capital receipts are also known as incoming cash flows.

All types of loans and borrowings are treated as debt receipts as the governing bodies repay the money and interests.

2. Revenue receipts– Receipts that neither reduce assets nor create liabilities are revenue receipts. It is subdivided into two forms, i.e., tax and non-tax revenues. The tax revenue consists of two types: direct and indirect taxes. The non-tax revenues involve cess, interest and dividends on government investment and other receipts.
Government expenditure
Government expenditure divides into two categories, i.e., revenue expenditure and capital expenditure.

3. Revenue expenditure– The revenue expenditures are short-term expenses used within one year. It involves the expenses required to meet the operational costs of the Government. It also includes maintenance costs and ordinary repair, which is essential to keep assets working without improving their useful life.
4. Capital expenditure– The capital expenditures involve investments made by governing bodies to generate additional revenue and expand their business. These consist of purchasing long-term assets that can last more than one year and long shelf life.
Such expenditures are often available by buying fixed assets such as equipment. Examples are- purchases for business, factory equipment, furniture etc.



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