Indian Fiscal System

Indian Fiscal System

Fiscal System :
It refers to the management of revenue and capital expenditure finances by the state. Hence, fiscal system includes budgetary activities of the government that is revenue raising, borrowing and spending activities.

Fiscal Policy :
Fiscal Policy refers to the use of taxation, public expenditure and the management of public debt in order to achieve certain specified objectives.

» Indian Fiscal System includes or refers to the management of revenue sources and expenditure of the Central and State governments, Public debt, Deficit financing, Budget, Tax structure etc.

Sources of Revenue for Centre :
The revenue of the Central Government consists of the following elements :
(i) Tax revenue
(ii) Non-tax revenue. Tax revenue comes broadly from three sources— (a) taxes on income and expenditure (b) taxes on property and capital transactions (c) taxes on commodities and services. Non-tax revenue, consists of— (a) currency, coinage and mint (b) interest receipts and dividends; and other non-tax revenue.

Sources of Revenue for State :
The main sources are :
(a) state tax revenue
(b) share in central taxes
(c) income from social, commercial and economic service and profits of state-run enterprises. State tax revenue includes among others, land revenue, stamp, registration and estate duty etc.

Expenditure of the Centre :
The central government makes expenditures broadly under two heads :
(i) Plan expenditure and
(ii) Non-Plan expenditure.

» Under Plan expenditure comes outlay for agriculture, rural development, irrigation and flood control, energy, industry and minerals, transport, communications, Science and Technology, environment and economic services etc.
» The major non-plan expenditures are interest payments, defence, subsidies and general services.

Expenditure of State :
Like the Union Government, the State Governments too have two broad heads of expenditure :
(a) Non-Development Expenditure; and
(b) Development Expenditure.

» Public debt of the government of India is of two kinds-Internal and External.
» Internal debt : It comprises loans raised from the open market, compensation bonds, prize bonds etc. treasury bills issued to the RBI, commercial banks etc.
» External debt : It consists of loans taken from World Bank, IMF, ADB and individual countries like USA, Japan etc.
» Deficit Financing is a fiscal tool in the hands of the government to bridge the gap between revenue receipt and revenue expenditure.