Monday, June 22, 2009

Conceptual ideas-II

What are the indirect taxes?

An indirect tax is a tax which is imposed on one person, but paid partly or wholly by another depending on the bargaining power between them. In the sense, indirect tax is conceived as the one which can be shifted or passed on. The prominent examples of the indirect taxes are sales tax, customs and excise duties, incidence of which is transferred to (partly) the ultimate customers. In India contribution of indirect taxes to the total tax revenue of the union government is around 47% in 2008-09.

What is the budget deficit?

In India, the term budget deficit is used to describe the position in the different accounts of the budget. That is on current or revenue account and on capital account. The combination of the state of these two accounts represents the overall state of the budgetary position. The budgetary position on the revenue account represents the current operations of the government, i.e., government administrative expenses which are financed by the tax revenue. The deficit or surplus in the revenue account would be carried over to the capital account. The surplus or deficit on capital account signifies the over all budgetary position. The method of financing budget deficits is known as the deficit financing.

Where does the government look for funds where there is deficit?

Deficit is referred to the excess of expenditure incurred by government over the receipts from levying taxes, fees and so on. To reduce or eliminate the gap between expenses and receipts, modern democratic governments lay their hands on the accumulated reserves, sale of government properties, issuing debt securities which are issued in the market through central banks, borrowing from external sources such as foreign governments and foreign financial bodies and least likely increasing the taxes. In India, the budget deficit of the union government is about six percent (5.63%) of GDP in 2008-09, when sub-national governments are taken together it is about 10% of GDP which is overwhelmingly high.

What is the long run impact of the piling of debt?

In the short run debt gives the relief from the budgetary mismatch. But the accumulation of debt increases the debt service burden on the economy in the long run. Though in the short run debt adds for the economic expansionary policies, it takes away much needed cushion in the times of extreme events and causes for the contraction.

What is the relationship between deficits and taxes?

The term deficit refers to the presence of excess government expenditure over receipts from taxes, duties, fees and so on. Increase in taxes thereby tax revenue is one of the options government can exercise in reducing the burden of deficit. But such an option of increasing taxes to meet the budgetary demands is less attractive to the democratic governments.

What is the relationship between deficits and unemployment rates?

Deficit financing is the most popular economic expansionary policies particularly in the context of emerging markets. In presence of resource crunch, most of the emerging economies resort to the deficit financing as a policy measure to increase the investment spending, employment opportunities thereby increased production. In a way deficit financing reduces the unemployment rates given the economy future resilient prospects to deal with the increased deficit.

What do you understand by the term ‘fiscal responsibility’?

The term fiscal responsibility may be viewed as it is composed with three dimensions; they are managing resources, minimizing the debt and preparing for the future. Managing resources involves assessing needs, setting priorities, and appropriating funds as well. Assessing the needs in various departments and allocating the resources is the crucial part of fiscal responsibility. Preparing and effectively tiding over the potential black swan events by maintaining possible cushion is the prominent dimension of the fiscal responsibility. Eliminating the wasteful expenses, optimizing the expenditure on social security measures are the possible ways to minimizing the debt. Indian government (including sub national governments) running the deficit of around 10% of GDP as on 2008-09, enacted the Fiscal Responsibility & Budget Management to phase out the fiscal deficit.

What are supplementary budgets? Why are they needed?

During the budget year unanticipated needs may arise that affect the central government budget. A particular deparment may, for example, need more money than planned. In such a situation, the Government can revise the central government budget by proposing an increase. This is known as a supplementary budget and proposals for supplementary budgets are submitted by the Government possibly twice a year.

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