Lesson 6. Government Budgeting, Fiscal Policy, and Federal Finance

This topic deals with how the government mobilizes and spends resources, influencing the entire economy. It requires a clear understanding of the components of the Union Budget (Revenue and Capital accounts; Plan and Non-Plan is now obsolete), key budgetary terms (revenue deficit, fiscal deficit, primary deficit, and their implications), and the FRBM Act and its targets. The structure of taxation is crucial—the difference between direct and indirect taxes, the evolution and implementation of the Goods and Services Tax (GST) (its structure, Council, benefits, challenges), and reforms in direct taxes (corporate tax cuts, new tax regime). The other side is expenditure—its composition (developmental vs. non-developmental, revenue vs. capital) and issues like subsidies (their types and need for rationalization). Federal finance involves the recommendations of the Finance Commission (especially the 15th FC), the devolution of taxes, grants-in-aid, and the role of institutions like NITI Aayog in center-state coordination. The Economic Survey’s chapter on the fiscal sector and the Budget speech/document are the primary sources for current data. Additional Resources: The “Indian Public Finance” reports by the RBI, the GST Council’s press releases and minutes, and the Finance Commission’s full report are essential reads. The OECD’s Revenue Statistics and IMF’s Fiscal Monitor provide excellent comparative international perspectives on taxation and fiscal health.