Telangana Public Finance and fiscal Policy

Telangana PUBLIC FINANCE and Fiscal Policy

Basic Understanding of Public Finance

Public finance as a concept may be understood on two levels –

as a practical activity of all components of Public Administration and
As a theoretical area.

The term “public finance“ may be defined as the identification of specific financial relationships and functions running between public administration bodies and institutions (i.e. public sector entities – the state) as one party and in mutual interaction with other entities of the economic system as the other party (i.e. private entities – households and companies).
These relationships and functions may be considered special as they include:

Procuring public goods (production and provision);
arranging and funding various transfers (particularly in the social area);
Directing entities existing in the economy towards socially desirable behaviours; for instance through taxes, penalties, subsidies and other stimuli and charges.

In order to arrange the funding of the above-mentioned areas, there is a Fiscal System (public BUDGETING system) whose aim is to collect the required amount of public revenue. Public revenue serves, at various levels of public budgets (governmental, regional and local), to fund public expenditures.
Public expenditures, public revenue and particularly taxes may be considered to be the fundamental Elements of public finance. Important terms derived from these three elements include deficit, Public Debt, budgetary policy and fiscal policy.
The development of public finance is connected with economic mechanisms that should ideally lead to the effective and fair allocation of limited Resources.

Public Finance – Causes of Development

The reason for developing public funding is the state intention to soften the drawbacks resulting from economic decisions made by individual entities (households and companies). It uses fiscal tools (public revenue and expenditure) to accomplish this.
Certain behaviour is classified as the “quasi-fiscal funding principle”, where publiclaw goods are funded from off-budgetary resources (e.g. the public-law television in the Czech Republic is funded from television licence fees).
Another important term that relates to public finance, and that is also a strong argument for its development, is market failure.
The market system follows supply and demand through the price mechanism. It is a system that has developed itself, and that has strong ties with the interactions between people and companies.
All these entities strive to maximize their benefit (welfare). The greatest benefit is strongly interconnected with reaching the economic optimum condition.
A system that reaches the optimum is considered, in the neoclassical economics concept, to be efficient, fair and stable.
The ideal condition is called the Pareto optimum. This exists in an economy when none of the involved entities can improve its position without worsening another entity’s position. If any of the entities intends to improve its position, it is possible for it to do so only to the detriment of another entity. The existence of perfect competition is a necessary requirement for reaching the optimum.
The three above-mentioned elements (efficiency, stability and fairness) are connected with microeconomics from the viewpoint of efficiency, connected with macroeconomics from the viewpoint of stability, and connected with sciences outside economics from the viewpoint of fairness. The perception of fairness is investigated by other social sciences, and is closely linked to ethics, etc.
If no conditions exist for reaching a market-efficient solution, or the conditions are simply violated for any reason, market failure will ensue.
It consists of the following:

The allocation of resources is not efficient,
The economy in the area of macroeconomics indicators oscillates around the desired values and
The distribution of wealth and income may diverge from the consensus on fairness.

It is then up to the state to perform its fiscal function (the public finance function) in those three areas in order to preferably eliminate or at least reduce market failure. Specifically, those are microeconomic failures from the allocation function perspective, macroeconomic failures from the stabilization function perspective, and the redistribution function then falls into the area of market failure caused by outside economies.
If the conditions for perfect competition are not met, a malfunction in the price mechanism will arise, which disturbs the allocation mechanism. Some failures can be eliminated without public finance intervention through auto-regulation (the internalization of externalities). However, others are part of the government’s allocation function and its fiscal tools (taxes and governmental purchases or transfers).
Macroeconomic failure is indicated by instability in the economic system that usually suffers from cyclical Inflation, a high rate of Unemployment, low or even negative Growth of production or problems in the Foreign Trade balance, etc.
The above-mentioned macroeconomic cases of instability are why governments perform the state stabilization functions (stabilization fiscal functions).
The state uses several tools to perform the stabilization function. The basic Classification is a division into monetary and fiscal tools. The monetary tools include open market operations, the setting of basic interest rates, determining the level of mandatory minimum reserves, etc. Fiscal tools may include public expenditure, public revenue and ways of funding deficits.
The causes of market failure outside the economy relate to reaching fairness in Society through the distribution of wealth and income. With the distribution of wealth, the market does not practically perceive fairness. In this case, the state performs a redistributive role with 5h3 principles of solidarity, social conscience, charity, etc. based on the social consensus.
The state performs the redistribution function through two basic categories of tools. The first includes revenue (tax) and the other expenditures (transfers, grants and subsidies).

First, a tax transfer mechanism may be implemented through a combination of Taxation/”>Progressive taxation of high incomes and transfers (subsidies) in favour of low income households.
Secondly, this can occur through the taxation of luxury goods combined with subsidies on goods for the low-income Population.

Fiscal Policy Meaning

Arthur Smithies defines fiscal policy as “a policy under which the government uses its expenditure and revenue programmes to produce desirable effects and avoid undesirable effects on the NATIONAL INCOME, production and EMPLOYMENT.”
Though the ultimate aim of fiscal policy in the long-run stabilisation of the economy, yet it can be achieved by moderating short-run economic fluctuations.
In this context, Otto Eckstein defines fiscal policy as “changes in taxes and expenditures which aim at short-run goals of full employment and price-level stability.

Objective of Fiscal Policy

To maintain and achieve full employment.
To stabilise the price level.
To stabilise the growth rate of the economy
To maintain equilibrium in the Balance of Payments.
To promote the Economic Development of underdeveloped countries

Revenue Receipt

Tax Revenue Comprises taxes collected and retained by the State and State’s share of union taxes under ARTICLE 280(3) of the Constitution.
Non-Tax Revenue Includes interest receipts, dividends, profits etc. Grants in Aid and Contributions
Grants-in-aid represent central assistance to the State Government from the Union Government. Includes ‘External Grant Assistance’ and ‘Aid, Material & Equipment’ received from Foreign Governments and channelised through the Union Government. In turn, the State Government also gives Grants-in-aid to Panchayati Raj Institutions, Autonomous Bodies etc.

Expenditure

Expenditure is classified as Revenue Expenditure (which is used to meet the day-to-day running of the Government), and Capital Expenditure (which is used to create permanent assets, or to enhance the utility of such assets or to reduce permanent liabilities). Expenditure is further classified under Plan and Non-plan across different Services viz., General services, Social services and Economic Services.

General Services Includes Justice, Police, Jail, PWD, Pension etc.
Social Services Includes Education, Health & Family Welfare, Water Supply , Welfare of SC-ST etc.
Economic Services Includes agriculture, Rural Development, Irrigation, Cooperation, Energy, Industries, Transport etc.

Telangana Budget Highlight

The Gross State Domestic Product of Telangana for 2017-18 at current prices is estimated to be Rs 7,49,893 crore. This is 14.6% higher than the revised estimate for 2016-17.
Total expenditure for 2017-18 is estimated to be Rs 1,49,646 crore, a 33.4% increase over the revised estimate of 2016-17. In 2016-17, there was a decrease of Rs 18,225 crore (14%) in the revised estimate over the budget estimate.
Total receipts (excluding borrowings) for 2017-18 are estimated to be Rs 1,19,940 crore, an increase of 36% over the revised estimates of 2016-17. In 2016-17, total receipts fell short of the budgeted target by Rs 16,661 crore (15.9%).
Revenue surplus for the next financial year is targeted at Rs 4,571 crore, or 0.61% of the state Gross Domestic Product (GDP). Fiscal Deficit is targeted at Rs 26,096 crore (3.49% of state GDP).
Departments of Panchayat Raj, Major and Medium Irrigation and Social Welfare saw increases in allocations for the year 2017-18. On the other hand, Departments Agriculture witnessed a decrease in its allocation in 2017-18.

Policy Highlights

SC and ST Development Funds will be constituted to carry the development activities of these communities. Unspent provisions under these Funds will be carried forward to the following next year. A Bill is proposed to be introduced in the State Legislature to give statutory status to these proposals.
Scheme for sheep rearing for Yadava community has been proposed to be implemented. Sheep will be provided at 75% subsidy rate to eligible members.
For the welfare of Navi-brahmins and Washermen communities, Rs 500 crore is proposed to be allocated. To modernize their occupations, it is proposed to provide washing machines, driers and iron-boxes to eligible members. Similarly, dhobi ghats are proposed to be constructed on tanks.
An amount of Rs 1,200 crore has been proposed towards assistance to weavers. To promote handloom Industry, the government proposes to procure cloth only from the handloom industry. This includes construction of a textile park at Warangal and an apparel park at Sircilla. In addition, financial support will be provided to handloom weavers to take up alternative professions.
Welfare of backward classes: The Government proposes to establish residential schools in each of the 119 Assembly constituencies. It is expected that 76,160 students will get quality education in these schools starting from class 5 to intermediate. An expenditure of Rs.1.05 lakh to Rs.1.25 lakh will be incurred on each student towards provision of Infrastructure-2/”>INFRASTRUCTURE, nutritious food, text books, uniform and other facilities.
Financial assistance under the Kalyana Lakshmi and Shaadi Mubarak Schemes is proposed to be increased from Rs 51,000 to Rs 75,116.
The government proposes to provide Rs 12,000 for pregnant Women. Rs 4,000 will be provided upon admission to a government hospital, followed by another Rs 4,000 during discharge from the hospital, and another Rs 4000 will at the time of vaccination of the child. An additional Rs 1,000 will be provided for the birth of a girl child.
KCR Kit is proposed to be provided to new born children. The kit will consist of 16 essential things needed for a new born baby for the first three months, such as soaps, baby oil, baby bed, mosquito net, dresses, napkins, etc. The amount proposed under this scheme is Rs 605 crore.
Salaries of Anganwadi teachers has been increased from Rs 7,000 per month to Rs 10,500 per month.

Deficits, Debts and FRBM Targets for 2017-18

The Fiscal Responsibility and Budget Management (FRBM) Act, 2006 of the state provides annual targets to progressively reduce the outstanding liabilities, Revenue Deficit and fiscal deficit of the state government.
Revenue deficit: It is the excess of revenue expenditure over Revenue Receipts. A revenue deficit implies that the government needs to borrow in order to finance its expenses which do not create capital assets. However, the state estimates a revenue surplus of Rs 4,571 crore (or 0.61% of state GDP) in 2017-18. This implies that revenue receipts are expected to be higher than the revenue expenditure, resulting in a surplus. The estimate indicates that the state is within the target of eliminating revenue deficit, prescribed by the 14th Finance Commission.
Fiscal deficit: It is the excess of total expenditure over total receipts. This gap is filled by borrowings by the government, and leads to an increase in total liabilities of the government. In 2017-18, fiscal deficit is estimated to be Rs 26,096 crore, which is 3.49% of the state GDP. The estimate exceeds the 3% limit prescribed by the 14th Finance Commission.
Outstanding liabilities: It is the accumulation of borrowings over the years. In 2017-18, the outstanding liabilities are expected at 18.6% of state GDP. This is a steady increase from 16.1% in 2014-15. Increase in outstanding liabilities over time indicates increasing interest payment and principal repayment burden in the future

Public Finance and Fiscal Policy in Telangana

Telangana is a state in India that was formed in 2014. It is the 29th state of India and is located in the southern part of the country. The capital of Telangana is Hyderabad.

The public finance of Telangana is managed by the state government. The government collects revenue through taxes and non-tax sources. The revenue is used to finance the state’s expenditure. The expenditure is classified into capital expenditure and recurrent expenditure. Capital expenditure is incurred on assets that have a long life, such as roads, bridges, and buildings. Recurrent expenditure is incurred on day-to-day activities of the government, such as salaries, pensions, and interest payments.

The fiscal policy of Telangana is set by the state government. The government uses fiscal policy to achieve its economic objectives, such as economic growth, employment generation, and price stability. The fiscal policy instruments used by the government include taxation, expenditure, and borrowing.

The fiscal deficit of Telangana is the difference between the government’s revenue and expenditure. The budget deficit is the difference between the government’s revenue and expenditure, excluding net lending. Public debt is the total amount of Money that the government owes. Fiscal sustainability is the ability of the government to meet its financial obligations in the long run. Fiscal reforms are measures taken by the government to improve its fiscal position.

The fiscal deficit of Telangana has been increasing in recent years. The budget deficit has also been increasing. The public debt of Telangana is high. The fiscal sustainability of Telangana is a concern. The government has taken some fiscal reforms, but more needs to be done.

The following are some of the challenges faced by Telangana in public finance and fiscal policy:

High fiscal deficit: The fiscal deficit of Telangana has been increasing in recent years. This is a concern because it means that the government is spending more money than it is earning. This can lead to a number of problems, such as inflation and debt.
High public debt: The public debt of Telangana is also high. This means that the government owes a lot of money to its creditors. This can also lead to a number of problems, such as inflation and interest rates.
Fiscal sustainability: The fiscal sustainability of Telangana is a concern. This means that the government may not be able to meet its financial obligations in the long run. This can lead to a number of problems, such as defaulting on its debt and economic instability.

The following are some of the measures that the government of Telangana can take to address these challenges:

Reduce the fiscal deficit: The government can reduce the fiscal deficit by cutting expenditure or increasing revenue. Cutting expenditure can be done by reducing subsidies, salaries, and pensions. Increasing revenue can be done by increasing taxes or raising user fees.
Reduce the public debt: The government can reduce the public debt by repaying the debt or by issuing new debt at a lower interest rate. Repaying the debt can be done by using surplus revenue or by selling assets. Issuing new debt at a lower interest rate can be done by improving the government’s credit rating.
Improve fiscal sustainability: The government can improve fiscal sustainability by reducing the fiscal deficit and the public debt. It can also do this by increasing economic growth and by improving the efficiency of its spending.

The government of Telangana has taken some steps to address these challenges. However, more needs to be done to ensure the long-term fiscal sustainability of the state.

What is public finance?

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

What is fiscal policy?

Fiscal policy is the use of government spending and taxation to influence the economy. The government can use fiscal policy to stimulate the economy, to reduce inflation, or to balance the budget.

What are the different Types of Taxes?

There are many different types of taxes, but the most common are income taxes, property taxes, and sales taxes. Income taxes are taxes on the income that people earn. Property taxes are taxes on the value of property, such as land and buildings. Sales taxes are taxes on the sale of goods and services.

What are the different Types of government spending?

Government spending can be divided into two categories: discretionary spending and mandatory spending. Discretionary spending is spending that is decided by Congress each year. Mandatory spending is spending that is required by law, such as Social Security and Medicare.

What is the national debt?

The national debt is the total amount of money that the government owes. The government borrows money by selling Treasury Bonds. The national debt has been increasing in recent years, and it is now over $30 trillion.

What are the benefits of public finance?

Public finance can help to stabilize the economy, to provide essential services, and to redistribute income.

What are the drawbacks of public finance?

Public finance can be inefficient, it can lead to Corruption, and it can increase the national debt.

What are the challenges of public finance?

The challenges of public finance include the aging population, the rising cost of healthcare, and the need to reduce the national debt.

What are the future trends in public finance?

The future trends in public finance include the increasing use of technology, the growing importance of social insurance, and the need to find new sources of revenue.

Question 1

The Telangana government has announced a new fiscal policy for the state. Which of the following is not one of the key features of the new policy?

(A) The state government will focus on increasing revenue collection.
(B) The state government will reduce expenditure.
(C) The state government will borrow more money.
(D) The state government will invest in infrastructure.

Answer

Explanation

The new fiscal policy does not include any plans to borrow more money. In fact, the government has announced that it will focus on reducing its debt burden.

Question 2

The Telangana government has also announced a new public finance policy. Which of the following is not one of the key features of the new policy?

(A) The state government will focus on increasing revenue collection.
(B) The state government will reduce expenditure.
(C) The state government will invest in infrastructure.
(D) The state government will introduce new taxes.

Answer

(D) The state government will introduce new taxes.

Explanation

The new public finance policy does not include any plans to introduce new taxes. In fact, the government has announced that it will focus on reducing the tax burden on businesses and individuals.

Question 3

The Telangana government has also announced a new fiscal responsibility and budget management (FRBM) Act. Which of the following is not one of the key features of the new FRBM Act?

(A) The state government will set a target for fiscal deficit.
(B) The state government will set a target for revenue deficit.
(C) The state government will set a target for debt to GDP ratio.
(D) The state government will set a target for revenue surplus.

Answer

(D) The state government will set a target for revenue surplus.

Explanation

The new FRBM Act does not include any plans to set a target for revenue surplus. In fact, the government has announced that it will focus on reducing its fiscal deficit.

Question 4

The Telangana government has also announced a new Debt Management strategy. Which of the following is not one of the key features of the new debt management strategy?

(A) The state government will focus on reducing its debt burden.
(B) The state government will focus on extending the maturity of its debt.
(C) The state government will focus on issuing more short-term debt.
(D) The state government will focus on issuing more long-term debt.

Answer

Explanation

The new debt management strategy does not include any plans to issue more short-term debt. In fact, the government has announced that it will focus on extending the maturity of its debt.

Question 5

The Telangana government has also announced a new asset management strategy. Which of the following is not one of the key features of the new asset management strategy?

(A) The state government will focus on selling its assets.
(B) The state government will focus on leasing its assets.
(C) The state government will focus on investing in its assets.
(D) The state government will focus on maintaining its assets.

Answer

(A) The state government will focus on selling its assets.

Explanation

The new asset management strategy does not include any plans to sell its assets. In fact, the government has announced that it will focus on investing in its assets.