Critical Evaluation of Fiscal Policy of India

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Business Environment Critical Evaluation of the Fiscal Policy of India Subitted by: Tanvir Singh MBA 2nd Semester - B Subitted by: Tanvir Singh MBA 2nd Semester - B Subitted to: Dr. Manoj Kumar Sharma UBS, PU Subitted to: Dr. Manoj Kumar Sharma UBS, PU ACKNOWLEDGEMENT I have put in my best efforts in the completion of this report. However, it would not have been possible without the kind support and help of many informative sources and individuals. I would like to extend my sincere thanks to all of them. First of all, I am highly indebted to Dr. Manoj Kumar Sharma for his constant guidance and supervision as well as for providing necessary information regarding the project and also giving us the opportunity to increase our technical…show more content…
To meet the additional expenditures, it needs to borrow from domestic or foreign sources, draw upon its foreign exchange reserves or print an equivalent amount of money. This tends to influence other economic variables. On a broad generalisation, excessive printing of money leads to inflation. If the government borrows too much from abroad it leads to a debt crisis. If it draws down on its foreign exchange reserves, a balance of payments crisis may arise. Excessive domestic borrowing by the government may lead to higher real interest rates and the domestic private sector being unable to access funds resulting in the “crowding out” of private investment. Sometimes a combination of these can occur. In any case, the impact of a large deficit on long run growth and economic well-being is negative. Therefore, there is broad agreement that it is not prudent for a government to run an unduly large deficit. However, in case of developing countries, where the need for infrastructure and social investments may be substantial, it sometimes argued that running surpluses at the cost of long-term growth might also not be wise (Fischer and Easterly, 1990). The challenge then for most developing country governments is to meet infrastructure and social needs while managing the government’s finances in a way that the deficit or the accumulating debt burden is not too great. The government’s exclusive right and privilege to print money is known as “seigniorage”.

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