Fiscal System Flashcards
Fiscal Policy definition
That part of govt policy which is concerned with raising revenues through taxation and with deciding on the amounts and purposes of govt spending
Fiscal Receipts definition
Taxes, user charges (power, water, transport charges, etc); disinvestment, borrowings from internal and external channels. All receipts are not earned, some are borrowed
Article 112 of the constitution mandates
expenditure be shown in revenue and other categories
Revenue receipt (Revenue account) includes
taxes and non-taxes sources.
Tax: GST, income tax, customs duty, corporation tax, etc
Non-Tax: user charges for railways, power, transport, etc; interests received on loans given, dividend, profits, etc
Revenue Account expenditure
It does not directly create assets: interests payments, defence, subsidies, public administration.
Financial grants given to states as they do not create assets for central government
Synonyms of maintenance and consumption expenditure
Capital account receipts
recoveries of loans and advances made by the central govt to states, UTs, PSUs
Fresh borrowings from inside and abroad
Disinvestments proceeds etc
—Some are debts and some are non debts
Capital Account Expenditure
Loans made to states, UTs and PSUs
Expenditure for assets creation in infrastructure and social areas
Loans repaid etc
Revenue Deficit (RD)
The difference between the revenue receipts (Tax and non-tax sources) and the revenue expenditure
Effective Revenue Deficit (ERD)
The difference between the Revenue Deficit and the grants for creation of capital assets
Capital Assets: School, hospital, irrigation, etc
Fiscal Deficit (FD)
The difference between what the govt EARNS and its total expenditures
Govt earnings: REVENUE ACCOUNT and all the non-debt creating CAPITAL RECEIPTS like recovered loans and disinvestment proceeds on the CAPITAL ACCOUNT
The difference amounts to all borrowings of the govt
Gross Fiscal Deficit (Gross FD)
Total borrowings of the union govt
Net Fiscal Deficit (Net FD)
Gross FD - loans to States, UT, local govt, PSU, etc
Budget Deficit
The difference between the total budgeted receipts and the expenditure
The amount that is printed by RBI and supplied to GoI as credit
Monetised Deficit
the borrowings made form the RBI through printing fresh currency
Primary Deficit
The difference between the Fiscal deficit and the interest payments
Helps in assessing the progress of the government in its current fiscal efforts
Deficit Financing
Printing currency by RBI for financing the expenditure of govt as revenues are not adequate
Crowding Out effect
Rising public sector spending drives down private sector spending.
Sovereign Debt Crisis
when a country finds it difficult to service external debt contracted in foreign currency
Under the FRBM Act, documents to be laid are:
Medium Term Fiscal Policy Statement (MTFP)
Fiscal Policy Strategy Statement
Macroeconomic Framework Statement
Medium Term Expenditure Framework Statement (MTEF, a three-year rolling target)
Medium Term Fiscal Policy Statement (MTFP) sets out 3-year rolling targets for 5 indicators
Revenue Deficit Effective Revenue Deficit Fiscal Deficit Tax to GDP ratio Total outstanding debt as a percentage of GDP
Twin Deficit Challenge
Budget deficits (Fiscal deficit) and Current Account Deficit (CAD) are together known as twin deficit
State Development Loans (SDL)
Debt securities auctioned by RBI to raise loans for state government
SDLs are eligible for SLR and LAF (repo) purposes, are brought by banks, insurance companies, mutual funds, other institutional investors
Ways and Means Advances (WMA)
WMA: Temporary advances made by RBI to centre and state to bridge the short term mismatches b/w expenditure and receipts
Interest rate is the repo rate, if govt wants more then a penal rate (2%) will be charged on the additional amount
Types of WMA
Normal: clean advances without any security, both CENTRE and STATE both are eligible
Special: secured advances against government dated securities, only STATE are eligible
Zero Base Budgeting (ZBB)
Zero-based budgeting runs contrary to traditional budgeting where the previous year is taken as a base
It re-evaluates the entire budget
National small saving Fund (NSSF)
Exclusion of States/UTs (with Legislature) excepting Arunachal Pradesh, Kerala, Madhya Pradesh and Delhi from NSSF Investments
The NSSF borrowings are serviced from CFI
India’s External Debt: A Status Report
Department of Economic Affairs, Ministry of Finance
Sovereign Debt Crisis (SDC)
The difficulties that a nation faces to service the loans it takes from foreign sources in foreign currency
Masala Bonds
issued in global capital markets outside India by international financial institutions to raise money and lend to INDIAN companies
Masala bonds are denominated in rupees hence foreign investors will be taking the currency risk
Fiscal Drag
Tax-related issues drag the prices down, it is called fiscal drag
