Quality focus to help in ‘setting humane fiscal policy’: RBI study

What is the News?  

A Reserve Bank of India study has said that the formal weaving of quality targets into the fiscal consolidation paths would result in setting fiscal policy with a “human face”.  

Key Facts mentioned in the Article:  

About Cyclical Fiscal Policy:  

• Cyclicality of the fiscal policy simply refers to a change in direction of government expenditure and taxes based on economic conditions.   
• There are two types of cyclical fiscal policies – counter-cyclical and procyclical.  

What is Counter Cyclical Fiscal Policy?  

• Counter-cyclical Fiscal Policy refers to the steps taken by the government that go against the direction of the economic or business cycle.  
• This means that during a recession or slowdown, the government increases expenditure and reduces taxes to create a demand that can drive an economic boom.   
• On the other hand, during a boom in the economy, the policy aims at raising taxes and cutting public expenditure to control inflation and debt.  

What is pro-cyclical fiscal policy?  

• In a pro-cyclical fiscal policy, the government reinforces the business cycle by being expansionary during good times and contractionary during recessions.   
• Pursuing a pro-cyclical fiscal policy is generally regarded as dangerous.It could raise macroeconomic volatility, depress investment in real and human capital, hamper growth and harm the poor.  

What is Fiscal Deficit?  

• Fiscal deficit is the gap between total expenditure and total income of the government.   
• The fiscal deficit can arise either due to revenue expenses overshooting income or increase in capital expenditure.   
• The fiscal deficit matters because it indicates the extent by which government spending exceeds its income and the total borrowings needed by it to fill this gap.   
• A fiscal deficit is usually calculated and expressed as a percentage of a country’s Gross Domestic Product (GDP).  

What is Gross Fiscal Deficit?  

• The gross fiscal deficit(GFD) is the excess of total expenditure including loans net of recovery over revenue receipts (including external grants) and non-debt capital receipts.  

What is Revenue Deficit?  

• Revenue Deficit denotes the difference between revenue receipts and revenue expenditure. 

Source: Indian Express