10.5 Merits or Advantages of Fiscal Policy of India

10.5 Merits or Advantages of Fiscal Policy of India

Following are some of the important merits or advantages of fiscal policy of Government of India:

(i) Capital Formation:

Fiscal policy of the country has been playing an important role in raising the rate of capital formation in the country both in its public and private sectors. The gross domestic capital formation as per cent of GDP in India increased from 8.4 per cent in 1950-51 to 19.9 per cent in 1980-81 and then to 39.1 per cent in 2007-08. Therefore, it has created a favourable impact on the public and private sector investment of the country.

(ii) Mobilisation of Resources:

Fiscal policy of the country has been helping to mobilise considerable amount of resources through taxation, public debt etc. for financing its various developmental projects. The extent of internal resource mobilisation for financing plan increased considerably from 70 per cent in 1965- 66 to around 90 per cent in 1997-98.

(iii) Incentives to Savings:

The fiscal policy of the country has been providing various incentives to raise the savings rate both in household and corporate sector through various budgetary policy changes, viz., tax exemption, tax concession etc. The saving rate increased from a mere 8.6 per cent in 1950-51 to 37.7 per cent in 2007-08.

(iv) Inducement to Private Sector:

Private sector of the country has been getting necessary inducement from the fiscal policy .of the country to expand its activities. Tax concessions, tax exemptions, subsidies etc. incorporated in the budgets have been providing adequate incentives to the private sector units engaged in industry, infrastructure and export sector of the country.

(v) Reduction of Inequality:

Fiscal policy of the country has been making constant endeavour to reduce the inequality in the distribution of income and wealth. Progressive taxes on income and wealth tax exemption, subsidies, grant etc. are making a consolidated effort to reduce such inequality. Moreover, the fiscal policy is also trying to reduce the regional disparities through its various budgetary policies.

(vi) Export Promotion:

The Fiscal policy of the Government has been making constant endeavour to promote export through its various budgetary policy in the form of concessions, subsidies etc. As a result, the growth rate of export has increased from a mere 4.6 per cent in 1960-61 to 10.4 per cent in 1996-97.

(vii) Alleviation of Poverty and Unemployment:

Another important merit of Indian fiscal policy is that it is making constant effort to alleviate poverty and unemployment problem through its various poverty eradication and employment generation programmes, like, IRDP, JRY, PMRY, SJSRY, EAS, NREGA etc.