MONEY AND BANKING PART 19
ROLE OF FISCAL POLICY Fiscal policy plays a significant role in the promotion of economic development and bringing stability in the economy. This role can be explained by the following points. 10. Subsidies in Consumption and Production: 11. Balanced growth 12. Incentive to production 13. Reducing inequalities
SUBSIDIES IN PRODUCTION AND CONSUMPTION Fiscal tools help to provide subsidized food and production inputs to the poor people. Government programmes like public distribution system, price support policy procurement of food grains, marketing facilities to the producers, input supply schemes, etc. help to increase thr producutivity of pooer secions of the soceity so that it raises their income. For example, in India, many of poverty alleviation programmes like IRDP, NREP, RLEGP etc. are helping to improve the position of the poorer sections and to create permanent community assets
BALANCED GROWTH In the underdeveloped countries, there is an extreme imbalance of growth within different regions of the country. The private sector focuses on producing luxurious goods which are consumed by the richer sections of the soceity living in urban areas. Hence, backward areas will not be developed unless government interferes into the decision making relating to industrial location. Fiscal incentives must be provided to private sector and by setting up industries in the public sector in such locations, the government can achieve balanced development in the country
INCENTIVE TO PRODUCTION The level of production can increased by providing incentives of tax holiday or tax concessions. Also, discriminating against the usage of resources into the undesirable activities of production, will help to increase the production of more desirable products.
REDUCING INEQUALITIES The differences in the level of income and wealth is certain steps in this direction: 1. 2. 3. 4. Taxation of income and property at progressive rate Difference in the tax imposition Government expenditure on relief programmes Supply of inputs for small industries and agricultural farms Provision of essential commodities to the poor at subsidized prices, 5.
LIMITATIONS 1. Barter economy 2. Lack of inelasticity 3. Inadequate data 4. Illiteracy 5. Lack of co operation