INDIAN PUBLIC FINANCE

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<<–2/”>a >h1>Indian PUBLIC FINANCE

Value Added Tax

  • Under the constitution the States have the exclusive power to tax sales and purchases of goods other than newspapers
  • There are however defects of sales tax
    • It is regressive in nature. Families with low income a larger proportion of their income as sales tax.
    • Has a cascading effect – tax is collected at all stages and every time a commodity is bought or sold
    • Sales tax is easily evaded by the consumers by not asking for receipts.
  • VAT is the tax on the value added to goods in the process of production and distribution.
  • With the implementation of VAT, the origin based Central Sales Tax is phased out.
  • Introduced from April 1, 2005
  • Advantages
    • Is a neutral tax. Does not have a distortionary effect
    • Imposed on a large number of firms instead of at the final stage
    • Easier to enforce as tax paid by one firm is reported as a deduction by a subsequent firm
    • Difficult to evade as collection is done at different stages
    • Incentive to produce and invest more as producer goods can be easily excluded under VAT
    • Encourages exports since VAT is identifiable and fully rebated on exports
  • Difficulties in implementing
    • For collection of VAT all producers, distributers, traders and everyone in the chain of production should keep proper account of all their transactions
    • Bribing of sales tax officials to escape taxes
    • The government has to simplify VAT procedures for small traders and artisans

Goods and Services Tax

  • Has not yet been introduced because of the support of opposition in Rajya Sabha

State Finances

  • Borrowing by the State governments is subordinated to prior approval by the national government <ARTICLE 293>
  • Furthermore, State Governments are not permitted to borrow externally unlike the centre.

Public Debt

  • The aggregate stock of public debt of the Centre and States as a Percentage of GDP is high (around 75 pc)
  • Unique features of public debt in India
    • States have no direct exposure to External Debt
    • Almost the whole of PD is local currency denominated and held almost wholly by residents
    • The PD of both centre and states is actively managed by the RBI ensuring comfort the Financial Markets without any undue volatility.
    • The g-sec market has developed significantly in recent years
    • Contractual Savings supplement marketable debt in financing deficits
    • Direct monetary financing of primary issues of debt has been discontinued since April 2006.

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Public finance is the study of the role of government in the economy. It deals with the government’s revenues, expenditures, and borrowing. Public finance is important because it affects the allocation of Resources in the economy.

In India, public finance is managed by the Ministry of Finance. The Ministry of Finance is responsible for formulating the budget, collecting taxes, and managing the public debt. The Ministry of Finance also oversees the expenditure of the government.

The budget is the most important document in public finance. It is a statement of the government’s revenues and expenditures for a given year. The budget is prepared by the Ministry of Finance and is presented to the Parliament for approval.

Taxation is another important source of revenue for the government. Taxes are levied on individuals and businesses. The main Types of Taxes in India are Income tax, Corporate tax, and excise duty.

Expenditures are the amount of Money that the government spends on various activities. The main types of expenditures are on defense, Education, Health, and social welfare.

Public debt is the total amount of money that the government owes. The government borrows money to finance its expenditures. The main sources of borrowing are from the Reserve Bank of India and from foreign governments and institutions.

Fiscal Policy is the use of government spending and taxation to influence the economy. The government uses fiscal policy to stimulate the economy when it is in Recession and to restrain the economy when it is growing too fast.

Monetary Policy is the use of interest rates and the Money Supply to influence the economy. The Reserve Bank of India is responsible for implementing monetary policy.

Economic Reforms are the changes that have been made to the Indian economy since 1991. The reforms have liberalized the economy and made it more open to foreign Investment.

Fiscal Federalism is the division of revenue and expenditure powers between the central government and the state governments. The Constitution of India provides for a federal System of Government.

Public sector enterprises are companies that are owned and operated by the government. The government owns a number of public sector enterprises in various sectors of the economy.

Social sector expenditure is the expenditure that the government makes on education, health, and social welfare. The government spends a significant amount of money on social sector programs.

Economic Development is the process of improving the standard of living of the people. The government has a number of programs to promote economic development.

POVERTY alleviation is the reduction of poverty in the country. The government has a number of programs to alleviate poverty.

Human Development is the process of improving the Quality Of Life of the people. The government has a number of programs to promote human development.

Sustainable Development is the development that meets the needs of the present without compromising the ability of future generations to meet their own needs. The government has a number of programs to promote sustainable development.

Public finance is a complex and important subject. It is important to understand the role of government in the economy and the impact of public finance on the economy.

What is public finance?

Public finance is the study of the government’s revenues and expenditures. It includes the study of how the government raises money, how it spends money, and how it manages its debt.

What are the different types of public finance?

There are two main types of public finance: microeconomic public finance and macroeconomic public finance. Microeconomic public finance studies the effects of government policies on individual households and firms. Macroeconomic public finance studies the effects of government policies on the economy as a whole.

What are the different sources of government revenue?

The main sources of government revenue are taxes, fees, and fines. Taxes are compulsory payments that are made by individuals and businesses to the government. Fees are payments that are made for specific services that are provided by the government. Fines are payments that are made as punishment for breaking the law.

What are the different Types of government expenditures?

The main types of government expenditures are consumption expenditures, investment expenditures, and Transfer Payments. Consumption expenditures are payments that are made for goods and services that are used up in the current period. Investment expenditures are payments that are made for goods and services that will be used in the future. Transfer payments are payments that are made to individuals or businesses without any goods or services being provided in return.

What is the national debt?

The national debt is the total amount of money that the government owes to its creditors. The government borrows money by issuing Bonds. Bonds are loans that are made to the government by individuals, businesses, and other governments.

What are the different types of government debt?

There are two main types of government debt: short-term debt and long-term debt. Short-term debt is debt that matures within one year. Long-term debt is debt that matures after one year.

What are the different ways to finance the national debt?

The government can finance the national debt by issuing bonds, printing money, or raising taxes. When the government issues bonds, it borrows money from individuals, businesses, and other governments. When the government prints money, it creates new money out of thin air. When the government raises taxes, it collects more money from individuals and businesses.

What are the effects of the national debt?

The national debt can have a number of effects on the economy. It can increase interest rates, crowd out private investment, and reduce economic Growth.

What are the different ways to reduce the national debt?

The government can reduce the national debt by cutting spending, raising taxes, or selling assets. When the government cuts spending, it reduces the amount of money that it spends on goods and services. When the government raises taxes, it collects more money from individuals and businesses. When the government sells assets, it sells government-owned property or businesses.

What are the different arguments for and against the national debt?

There are a number of arguments for and against the national debt. Some people argue that the national debt is a problem because it increases interest rates, crowds out private investment, and reduces economic growth. Others argue that the national debt is not a problem because the government can always print more money to pay it off.

What is the future of the national debt?

The future of the national debt is uncertain. It depends on a number of factors, including the economy, interest rates, and government policy.

  1. The Indian government’s annual budget is presented in the:
    (a) Lok Sabha
    (b) Rajya Sabha
    (c) Supreme Court
    (d) President’s office

  2. The Finance Minister of India is a member of the:
    (a) Cabinet
    (b) Parliament
    (c) Supreme Court
    (d) President’s office

  3. The Reserve Bank of India is the:
    (a) Central bank of India
    (b) Commercial bank of India
    (c) Investment bank of India
    (d) Development Bank of India

  4. The Planning Commission of India was replaced by the:
    (a) National Development Council
    (b) Ministry of Finance
    (c) Ministry of Planning
    (d) Ministry of Economic Affairs

  5. The Fiscal Deficit of India is the difference between:
    (a) Revenue Receipts and expenditure
    (b) Capital receipts and expenditure
    (c) Revenue receipts and capital receipts
    (d) Total expenditure and total receipts

  6. The Current Account deficit of India is the difference between:
    (a) Export of goods and services and import of goods and services
    (b) Net invisible receipts and net invisible payments
    (c) Net capital inflow and net capital outflow
    (d) Net Foreign Direct Investment and net portfolio investment

  7. The public debt of India is the total amount of money that the government owes to its creditors.
    (a) True
    (b) False

  8. The government of India borrows money from a variety of sources, including:
    (a) The Reserve Bank of India
    (b) Commercial Banks
    (c) Foreign governments
    (d) All of the above

  9. The government of India uses the money it borrows to finance a variety of activities, including:
    (a) Infrastructure-2/”>INFRASTRUCTURE-development/”>Infrastructure Development
    (b) Social programs
    (c) Defense spending
    (d) All of the above

  10. The fiscal deficit of India is a major concern for the government because it:
    (a) Raises the country’s risk of defaulting on its debt
    (b) Crowds out private investment
    (c) Contributes to Inflation
    (d) All of the above

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