Fiscal policy can be defined as the government’s plan on how to raise revenue and how to spend it in order to keep the economy healthy. If the government gets more revenue than it spends, then it leads to a surplus. On the other hand, if the spending is more than the revenue, then it leads to a deficit. To address the deficit, the government may opt to borrow money or use its foreign reserves.

For instance in the course of a down turn in the economy the government may have to step up capital investment for example in infrastructure and social welfare. This increases consumer consumption, boosts business investments, and hence grows the economy. Also, to help citizens, the government may cut down on taxes but this means the government receives less revenue.

Objectives of Fiscal Policy

Inflation Control: Fiscal policy is a crucial tool that ensures general price stability and promotes continuous economic development.

Employment Generation: Through fiscal policy, the government tries to ensure that the economic activity is boosted with an view of creating employment.

The Importance of Fiscal Policy in India

Boosting Public and Private Investments: Fiscal policy entails availability of sufficient funds for investment in development projects. Revenue Collection: Through taxation, it collects a large part of the funds that are needed for government activities and projects.

Encouraging Savings: Fiscal policies are key in fostering private sector growth by introducing measures and incentives that encourage increased savings. These initiatives support economic stability and provide a foundation for sustainable private sector development.

Reducing Income Inequality: Fiscal policy is used to address the issue on wealth distribution in order to ensure that economic differences are minimized.

Thus, it can be stated that fiscal policy together with the monetary policy is one of the most influential tools that shape the Indian economic growth, inflation and development of the sectors.