Indian Economy: Fiscal Policy & Budgeting

Fiscal Policy is the means by which the government adjusts its spending levels and tax rates to monitor and influence the nation’s economy. It is managed by the Ministry of Finance.

Budgetary Components

• Revenue Budget: Includes the government’s day-to-day receipts (taxes, dividends) and expenditures (salaries, subsidies).
• Capital Budget: Consists of capital receipts (loans, disinvestment) and capital expenditure (creation of assets like roads, schools).
• Article 112: The Constitution refers to the Budget as the “Annual Financial Statement.”

Deficits and FRBM Act

• Fiscal Deficit: The difference between total expenditure and total receipts (excluding borrowings). It indicates the government’s borrowing needs.
• Primary Deficit: Calculated by subtracting Interest Payments from the Fiscal Deficit.
• FRBM Act (2003): Enacted to institutionalize financial discipline and reduce the fiscal deficit to manageable levels.

Question for you: Which official document serves as a “Vote on Account,” allowing the government to meet its essential expenditure for a short period until the main budget is passed?

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