Deficit financing in India - Part 1 - Fiscal Policy, Public Finance Video Lecture | Public Finance - B Com

let's start with the chapter fiscal
policy and deficit financing fiscal
policy is that under which the
government uses the various instruments
of taxation public expenditure our
public debt to achieve the objectives of
economic policy and the different
objectives of fiscal policy our first is
economic stability to achieve full
employment economic growth price
stability and reducing inequalities in
income and wealth let's look into the
different points different objectives of
fiscal policy in detail one of the main
objective of fiscal policy is economic
stability economic stability is that
situation there are there are no
fluctuations in the level of output and
employment the fluctuations in the level
of employment and output can occur if
the situation's of depression or
inflation are there what happens in the
situation of depression the level of
output and employment goes down and as
the level of output and employment goes
down the aggregate demand and supply
decreases and the economy as a result
with the help of fiscal policy and
especially by adopting public
expenditure and the taxation the
government can work and improve the
government can improve the situation of
depression by giving more subsidies to
the entrepreneur's by giving more
facilities to the consumers to purchase
a product so that the aggregate demand
and supply can increase in the economy
whereas on the other side during the
time of inflation the government can
just do the opposite of it during the
time of inflation the Gir with the help
of fiscal policy the government can
impose new taxes on the entropy Gnaeus
the government can increase the interest
rates on the loans to discourage the
people to have more money it can also
increase the taxes so that it can force
the people to save money
and saving off money as well as the more
taxes will definitely reduce the
circulation of money in the economy next
is
to achieve full employment full
employment is basically a situation in
which all those people those who are
willing those who are qualified are
agreed to work on the prevailing wage
rates in the economy and they get the
jobs but to achieve the situation of
full employment it's not easy it can
never be achieved we cannot say that
full employment means the
hundred-percent employment in the
economy it is not possible
not exactly the hundred percent but
still the 95 percent of employment can
be achieved in the economy and that is
the main aim full employment can be
achieved in the economy by the
government by adopting the various by
using the various tools of the fiscal
policy like public expenditure with the
help of public expenditure the
government spend money the government
can spend money on the establishment of
industries on Stub increasing the
manufacturing units in the economy as a
result more jobs and higher standard of
living for the people the government can
also spend money on the various training
institutes for the workers so to
increase their efficiency as well as to
increase their capacity to work next we
have the economic growth economic growth
is one of the most important objective
of the economic policy because economic
growth helps in increasing the standard
of living of the people in the economy
basically economic growth is a process
it's a process in which the per capita
income increases in the economy as well
as the standard of living also improves
but again the question comes that how
the economic standard and the per capita
income can be increased it can be done
only with the help of public expenditure
that is by spending more money on the
manufacturing sector and as well as on
the agricultural sector of the economy
so that the more job opportunities can
be created for the people and source of
income can also be generated for the
people so that ultimately the standard
of living will improve next is the price
stability price stability it's a
situation in which there are less flat
tuitions in the prices in other words we
can say that price stability is not a
situation where the prices always remain
stable because it does not require if
the prices will remain stable it means
that the economy is not growing so we
need we need some fluctuations in the
prices of the economy but it should not
be beyond the control of the economy
prices should be kept under control
within the limits which are required for
the growth of the economy for example
during the time of inflation as the
prices Rises due to increase in the
circulation of income so the government
needs to keep a check on that and the
check can be done check can be kept by
the government only by imposing the new
taxes imposing new taxes on the people
by forcing them to save more this can be
done and with the help of that the
inflation as well as the circulation
inflation which results because of the
increase in circulation of money in the
economy can be under control next thing
which we have as you're reducing
inequalities in income and wealth in the
developing countries of the world the
inequalities in income and wealth can
also be create can also be checked
uncontrolled effectively by the fiscal
policy of a country with the help of
fiscal policy the government can keep a
check on the consumers expenditure it
can also keep a check on the savings by
the various manufacturing units of the
country with the help of fiscal policy
the government can also borrow extra
money from the various from the people
those who are having the excess amount
of funds with them
it means the reducing inequalities in
income and wealth can be checked by the
government by adopting all the three
instruments of the fiscal policy that US
expenditure taxation and borrowing now
we will look into that how the fiscal
policy can be used to control inflation
first of all there are the three
different instruments of the fiscal
policy which can be helpful in keeping a
check on inflation or deflation first we
have public expenditure public
expenditure if it is the time of
inflation during the time of inflation
the government needs to keep a check
to reduce public expenditure to some
extent if the public expenditure will be
reduced lesser will be the demand from
the sight of the people lesser will be
the income in the hands of the people a
government need not to reduce completely
the public expenditure but it needs to
keep a check on the unproductive
expenditure made by the government
next is the taxation during the time of
inflation the government needs to impose
new taxes and variety of taxes to cover
the number of people in the economy so
that they are compelled to save more and
whenever the people will save more they
will are they left with the less amount
of money in their hands as a result the
aggregate demand will decrease and the
economy and as the aggregate demand will
decrease automatically it will lead to
decrease in the aggregate supply as a
result the inflation can be checked
easily by the government next as the
public debt if it is a time of inflation
the government needs to borrow more to
raise more loans from within the country
and whenever the government will raise
more loans from within the country it
will force the people to save more money
with them so that more loads can be
given to the government that to hide it
of interest and on the other side if we
have a situation like deflation in the
economy then the public expenditure
needs to be increased taxation must be
reduced and the public debt must be
reduced these two things is that as
taxation and public debt must be reduced
whereas the public expenditure must be
increased in the economy let's look into
that how the fiscal policy can be
helpful in maintaining the economic
stability in the country whether the
situation is related to depression or
inflation if the situation is of
depression then the government needs to
present a deficit budget which means
that the expenditure of the government
is more than the revenue then whatever
the gap is there between the revenue and
the expenditure of the government can be
easily covered by the deficit financing
and deficit financing with the
help of deficit financing the government
will be in a position to cope up with
the excess expenditure which is required
in the economy on the other side if it
is a situation of inflation the
government needs to impose more taxes on
the people to cover up the expenditure
to cover up that gap between the
expenditure and the revenue second thing
if it is a situation of depression then
the government need not to impose more
taxes on the people on the other side it
is required to give some relaxation to
the people on the issue of taxes
nuta rate of taxes should not be
increased by the government during the
time of depression whereas in the case
if it is a situation of inflation more
taxes must be imposed by the government
next is the public expenditure if it is
a situation of depression then the
government needs to increase its public
expenditure the government needs to
spend more money on the various schemes
on the project whereas if it is a
situation of inflation the government
needs to cut down its expenditure on for
the unproductive purposes last thing if
there is a situation of depression then
the government needs to reduce the
borrowing government needs to increase
the repayment of the loans to increase
the disposable income in the hands at
the people's end whereas if it is a
situation of inflation the government
needs to increase public borrowing so
that the people are forced to save more
and saving more it means the less income
in the hands of the people let's see how
pop fiscal policy can be useful in
increasing economic growth in the
economy first of all the government can
use these two tools to increase economic
growth in the economy like taxation and
borrowings second the government can
give tax reliefs and subsidies to
increase the investment because tax
relief and subsidies are always an
incentive for the investors to invest in
the various new projects with the help
of Taxation and borrowings the
government can give tax holidays and in
to develop the backward regions it can
give a more and more incentives to the
entrepreneurs those who are entrusted in
establishing their plants and with
establishment of their manufacturing
units in the areas which are backward
and government can also borrow money
more loans from the public for the
development of backward regions and the
backward regions can be developed by the
government by providing the basic
amenities in the backward regions
because that will definitely work as a
boost for the investors in the backward
regions