Fiscal policy in India-TNPSC

Fiscal policy in India is formulated by

a.Planning Commission

b.Ministry of Finance

c.Securities and Exchange Board of India (SEBI)

d.Reserve Bank of India

EXPLANATION

What is Fiscal Policy?

Fiscal policy refers to the use of government spending, taxation, and borrowing to influence a nation’s economy.
It is one of the two main tools of macroeconomic management — the other being monetary policy (which is managed by the Reserve Bank of India).

The objectives of fiscal policy include:

• Promoting economic growth

• Ensuring price stability

• Reducing income inequalities

• Achieving full employment

• Managing public debt

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🏛️ Who Formulates Fiscal Policy in India?

✅ Ministry of Finance (Government of India)

The Ministry of Finance is the apex body responsible for formulating and implementing fiscal policy in India.

Structure:

The Ministry has several departments, each with specific roles:

1. Department of Economic Affairs (DEA):

   • Prepares the Union Budget (which is the most important fiscal policy document).

   • Deals with public finance, fiscal policy, foreign investment, and economic surveys.

2. Department of Revenue:

   • Handles tax policy and administration (both direct and indirect taxes).

   • Manages institutions like the CBDT (Central Board of Direct Taxes) and CBIC (Central Board of Indirect Taxes and Customs).

3. Department of Expenditure:

   • Controls government spending and budgetary allocations to ministries and departments.

4. Department of Financial Services and Department of Investment and Public Asset Management (DIPAM):

   • Deal with banking reforms, insurance, public sector undertakings (PSUs), and disinvestment.

Thus, the Ministry of Finance designs the taxation structure, spending priorities, and borrowing strategies—all of which form the foundation of fiscal policy.

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⚙️ Role of Other Institutions (and Why They Are Not Correct)

a) Planning Commission

• Existed from 1950 to 2014, replaced by NITI Aayog in 2015.

• Focused on long-term economic planning, not on annual fiscal policy.

• It prepared Five-Year Plans, which were more about development goals, not budgetary or fiscal management.

c) SEBI (Securities and Exchange Board of India)

• A regulatory body that oversees the capital market—stocks, bonds, mutual funds, etc.

• Its function is to protect investors and ensure fair trading practices, not to manage fiscal or tax policies.

d) Reserve Bank of India (RBI)

• Responsible for monetary policy, which manages money supply and interest rates.

• Although it works closely with the Ministry of Finance, its focus is inflation control, credit regulation, and financial stability, not government spending or taxation.

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📚 Summary Table

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✅ Final Answer: b) Ministry of Finance
Reason: It prepares and implements fiscal policy through the Union Budget, managing taxation, expenditure, and borrowing to influence the Indian economy.