Deficit financing in India - Part 2 - Fiscal Policy, Public Finance Video Lecture | Public Finance - B Com

next as the revenue can be used for
agricultural and industrial sector the
revenue which is generated by the
government through various sources can
also be used by the government for the
development of agricultural and
industrial sectors in the economy it can
be helpful in providing agricultural
equipments to the farmers better seeds
better fertilizers to the farmer at less
prices it can also help the industrial
sector with the help of taxation and
borrowing the borrowing can be used by
the government for the establishment of
new manufacturing plants by the
producers lastly but not least it is
also helpful in the development of the
social overheads means the fiscal policy
can also be utilized for the development
of social overheads like education it
can be used for the development of the
school's establishment of the college's
establishment of hospitals charitable
institution and the training
institutions for the public of the
country let's look into that how the
fiscal policy can be helpful in
maintaining equity in the economy first
the government must adopt progressive
tax system that us the government must
impose more and heavy taxes on the rich
class of the people and whereas less
taxes less taxes or more facilities
should be given to the poorer class of
the society second the government must
impose more taxes on the luxury items in
comparison to the necessities because
the luxury items can be purchased only
by the people those who belong to the
creamy layer of the society whereas the
necessity items are required by everyone
the one who is a part and parcel of the
economy and with the help of this
definitely the gap between the rich and
poor can be reduced
next thing is more expenditure for
low-income groups whatever the extra
revenue is generated by the government
out of that maximum amount of money
should be spent by the government for
the low-income groups for the low-income
groups by providing by providing them
employment by providing them old-age
pensions by providing them unemployed
allowances by providing them free
Russian facilities by providing them
free education so that the standard of
living of the low income groups can be
improved the government can also take up
investment in the backward regions
because the plants various plants which
need to be developed in the backward
regions they are quite expensive as a
result no private entrepreneur order no
manufacturer in the private area is
entrusted in the development in the
establishment of industries in the
backward region because of no facilities
what the government can do to maintain
equity in the back in the country
related to the regions the government
can invest a huge amount of money in the
backward regions by providing the
transportation and communication
facilities by providing them the
facilities of electricity and regular
supply so that more and more investors
more and more entertainers must be
entrusted in investing in the backward
regions let's look into the role of
fiscal policies in developing countries
first one to increase employment
opportunities to increase employment
opportunities is one of the most
important objective of the fiscal policy
of the country and economic growth can
be increased only by providing the
employment opportunities or we can say
indirectly that the employment
opportunities can only be provided by
economic growth and economic growth can
only be possible by providing the
employment opportunities to the people
so all that instruments of the fiscal
policy must work must work or must aim
in the direction of increase in economic
growth and employment opportunities
the government must give tax concessions
incentives to the interpreters to the
manufacturers those who are using the
labor intensive techniques the
government must start those type of
projects where the more employment
opportunities can be created like the
construction of dams construction of
roads laying off railway tracks deficit
financing it is approached
of meeting the deficit between
government expenditure and revenue
through the creation of new money it
does the easiest way which can be
adopted by the government to fill a gap
between the revenue and the expenditure
let's look into the need for deficit
financing or in other words why we need
deficit financing what is the
requirement what is the need for deficit
financing first deficit financing a
required for the fulfilling the
requirement of the modern wars as the
modern wars are quite expensive their
equipments as well as the methodology
which is required is very expensive and
during the time it is very difficult for
the government to cope up with the
expenditure of the world and duck time
deficit financing is the easiest and the
simplest way to generate income or
generate funds for the government that's
why the government is more dependent on
deficit financing at the time of war
deficit financing is used during the
time of depression as it has been
clearly advocated by JM Keynes that
deficit financing is the easiest and the
simplest way to remove depression in the
economy because the depression can be
removed in the economy only with the
increase of aggregate demand and supply
in the economy and both the things like
aggregate demand and supply can be
increased only by providing more funds
in the economy that can be done only
with the help of deficit financing next
is the economic development and economic
development of a country can be done by
the different ways first by raising the
additional sources as we all know that
deficit financing can work in the
underdeveloped countries for raising
additional sources because as we are
aware that the underdeveloped countries
are not having the sufficient funds for
the development of their resources so
they need excess so they need extra
funds for the development for the
purchasing of capital equipments for the
development for taking out raw materials
so that the economic growth can
in the country let's look into the evil
effects of deficit financing or the
negative effects of deficit financing
first inflationary rise in prices due to
deficit financing the circulation of
money increases in the economy and as
the circulation of money increases in
the economy the demand of the people
increases along with that but you do the
absence of the aggregate supply increase
in aggregate supply in the economy the
prices rise the prices of the raw
materials and the factor inputs also
increases and as the price rises the
cost spiral comes in the picture as a
result it becomes a continuous process
to keep earth for the increase in the
prices second unequal impact of the for
saving me deficit financing is basically
responsible for the force saving on the
people of the economy and as the force
saving is there on the people of the
country but it is not balanced the for
saving is not balanced from the side of
the government because the impact or the
effect of the for saving falls more
heavy on the people those who belong to
the fixed income group because they need
to save more whereas the profiteering
class or the profit underclass they keep
on enjoying the profits and reaping the
profits third unequal distribution of
income due to the deficit financing the
income gets distributed in the favor of
the rich class of the society because
that is the only class which is a
prophet a prophet earning class of the
economy whereas the fixed income groups
they are always at loss because as we
know that the deficit financing leads to
inflation and in the situation of
inflation the proper turning class is
always at the profit whereas the fixed
income groups always suffer the losses
because their incomes are the source of
earning do not increases with the
increase in prices there is a mismatch
there is always a mismatch between the
increase in the prices and increase in
the income of the fixed income class
last but not the least change in the
pattern of investment there is a
negative effect on the pattern of
investment because during the deficit
financing as the demand as the demand of
the
you might've increases in the economy
and the consumers they also have a lot
of money in their hands as a result
instead of demanding instead of
demanding for the necessity items the
people they start demanding for the
luxury items same happens with the
producers producers also show more
interest they take more initiative in
investing in the projects which can give
them higher profits and higher profits
can be earned by the producers only and
only if they invest their money into the
projects which can produce the luxury
items because in that area only the
profit margin is the highest so now the
as we have looked into the evil effects
or deficit financing let's look into the
need of the deficit financing in India
that divided the deficit financing is
required in the Indian scenario first
financing for the five-year plans the
whatever the projects whatever the
expenditures we laid down in the
five-year plans in India their budgets
their expenditure is such a huge amount
that if we try to cover up the gap
between the revenue and the expenditure
with the help of the taxes we cannot
cover up the gap between the expenditure
and we cannot cover up the budget of the
five-year plans so the best option is
that that the Indian government can
easily go for the deficit financing that
as the printing of new currency second
increase in public expenditure public
expenditure has increased in India many
folds because as the demand of the
people are increasing the expenditure of
the government is also increasing
government is spending a huge amount of
money on giving the dierence allowance
to the people it is spending huge amount
of money on giving the social securities
to the people as a result the
expenditure is increasing and that
expenditure cannot be fulfilled cannot
be done with the help of only after
taxes so the best option is again is the
deficit financing increasing public
expenditure it has required it is
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the taxes Indian government is not an
opposition to increase the taxes up to
any extent to increase the taxes
instantly according to the requirement
according to the expenditure India is
basically as a developing country so we
cannot increase the taxes or the rate of
taxes up to any extent so that option
which is left with the government has
only the deficit financing that's why
the Indian government is more dependent
on the deficit financing because it is
the easiest way out last is the
mobilization of borrowings on a limited
scale the government can borrow from the
public or from the institution free
within the country up to certain limit
because the financially again the thing
will come that the financial position of
the Indians is not very good is not in
such a situation that maximum maximum
amount of money can be given to the
government that's why the government has
to switch over on into the deficit
financing to cope up with the
expenditures thank you