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Objectives And Techniques Of Fiscal Policy Economics Essay

Fiscal Policy’s first word Fiscal is taken from French word Fisc which means treasure of Govt. Fiscal policy concerns itself with the aggregate effect of government expenditure and taxation on income, employment and production. It refers to the instruments by which a government tries to regulate or modify the economic affairs of the economy keeping in view certain objectives. Thus, fiscal policy is a package of economic measures of government regarding its public expenditure, public revenue and public debt .Fiscal Policy is the most important part of Economic Policy .So ,we can define fiscal policy as the revenue and expenditure policy of Govt. of India .It becomes the prime duty of Government to frame fiscal policy . By making this policy , Govt. collects money from his different resources and utilize it in different expenditure . Thus fiscal policy is related to development policy. Through this paper the objectives , techniques, stances and limitations of a fiscal policy are being discussed .An attempt is also been made to highlight the achievements and progress of the fiscal policy of India.
Introduction The term fiscal has been derived from the greek word fisc, meaning a basket to symbolize the public purse.. Fiscal policy thus means the policy related to the treasury of the government.
Fiscal policy is a part of general economic policy of the government which is primarily concerned with the budget receipts and expenditures of the government. All welfare projects are completed under this policy .It also suggests measures to control economic fluctuations which may become violent and create great upheavals in the socio-economic structure of the economy. It also outlines the influence of resource utilization on the level of aggregate demand through affecting the level of aggregate consumption and investment expenditure.
Definitions According to U. Hicks” Fiscal policy is concerned with the manner in which all the different elements of public finance , while still primarily concerned with carrying out their own duties, may collectively be geared to forward the aims of economic policy.”
According to Arthur Smithies” Fiscal policy is a policy under which the government uses its expenditure and revenue programmes to produce desirable effects and avoid undesirable effects on the national income ,production and employment.”
Objectives of Fiscal Policy There are following objectives of fiscal policy :-
1. Development of Country :-
Every country has to make fiscal policy for development of Country . With this policy , all work like govt. planning and proper use of funds for development functions is done . If govt. does not make fiscal policy , then it can happen that revenues are misused without targeted expenditure of Government.
2. Employment :- Getting the full employment is also the objective of fiscal policy . Govt. can take many actions for increasing employment. Government can fix certain amount which can be utilized for creation of new employment opportunities for unemployed people .
3. Inequality :- In developing country like India , we can see the difference one basis of earning . 10% of people are earning more than Rs. 100000 per day and other are earning less than Rs . 100 per day . By making a good fiscal policy , govt. can reduce this difference if govt makes it as its target .
4. Fixation of Govt. Responsibility:- It is the duty of Govt. to effective use of resources and by making of fiscal policy different minister’s accountability can be checked . I was seeing the Episode of Chanakya on YouTube in which I found that in old time fiscal policy was made and treasury officer and even prime minister are also responsible for any shortage of govt .fund
Techniques of Fiscal Policy 1. Taxation Policy It is one of the powerful instruments of fiscal policy in the hands of public authorities which greatly affects changes in disposable income ,consumption and investment. Taxation policy is relates to new amendments in direct tax and indirect tax . Every year Govt. of India passes the finance bill . In this policy govt. determines the rate of taxes . Govt. can increase or decrease these tax rates and amend previous rules of taxation .Govt.’s earning’s main source is taxation . But more tax on public will adverse effect on the development of economy.
→ If Govt. will increase taxes , more burden will be on the public and it will reduce production and purchasing power of public .
→ If Govt. will decrease taxes , then public’s purchasing power will increase and it will increase the inflation.
Govt. analyzes both the situation and will make his taxation policy more progressive .
2. Govt. Expenditure Policy There are large number of public expenditure like opening of govt schools , colleges and universities , making of bridges , roads and new railway tracks . For the above projects govt has paid large amount for purchasing and paying wages and salaries ,however ,all these expenditures are paid after making govt. expenditure policy . Govt. can increase or decrease the amount of public expenditure by changing govt. budget . So , govt. expenditure is technique of fiscal policy by using this , govt. use his fund first on very necessary sector and other will be done after this .
3. Deficit Financing Policy If Govt.’s expenditures are more than his revenue , then govt. should have to collect this amount . This amount is deficit and it can be fulfilled by issuing new currency by central bank of country . But , it will reduce the purchasing power of currency . More new currency will increase inflation and after inflation value of currency will decrease . So, deficit financing is very serious issue in the front of govt. Govt. should use it , if there is no other source of govt. earning .
4. Public Debt Policy If Govt. thinks that deficit financing is not sufficient for fulfilling the public expenditure or if govt. does not resort to deficit financing , then govt. can take loan from world bank , or take loan from public by the way of issuing govt. securities and bonds . But it will also increase the cost of debt in the form of interest which govt. has to pay on the amount of loan . So, govt. has to necessarily make solid budget for this and after taking into consideration the amount which is taken as debt. This policy can also use as the technique of fiscal policy for increase the treasure of govt. Internal sources of debt include market loans, compensation bonds,15 year’s annuity certificates ,small private savings through various saving schemes. External sources includes in borrowing from the external market ,from international institutions such as the World bank, IMF IDA etc and the governments of other countries.
5.Budget
.Fiscal policy operates through the budget .Thus it is also called budgetary policy. The term budget is derived from a French word “Bougette” which means a leather bag or a wallet used to carry financial papers. The budget of a nation is a useful instrument to assess the fluctuations in an economy. Different budgetary principles have been formulated by the economists ,prominently known as the annual budget ,cyclical balanced budget and full y managed compensatory budget.
Fiscal Consolidation • With recovery taking root, there is a need to review public spending, mobilise resources and gear them towards building the productivity of the economy.
• Fiscal policy shaped with reference to the recommendations of the Thirteenth Finance Commission, which has recommended a calibrated exit strategy from the expansionary fiscal stance of last two years.
• It would be for the first time that the Government would target an explicit reduction in its domestic public debt-GDP ratio.
Stances of fiscal policy The three possible stances of fiscal policy are neutral, expansionary and contractionary. The simplest definitions of these stances are as follows:
A neutral stance of fiscal policy implies a balanced economy. This results in a large tax revenue. Government spending is fully funded by tax revenue and overall the budget outcome has a neutral effect on the level of economic activity.
An expansionary stance of fiscal policy involves government spending exceeding tax revenue.
A contractionary fiscal policy occurs when government spending is lower than tax revenue.
However, these definitions can be misleading because, even with no changes in spending or tax laws at all, cyclical fluctuations of the economy cause cyclical fluctuations of tax revenues and of some types of government spending, altering the deficit situation; these are not considered to be policy changes. “. Thus, for example, a government budget that is balanced over the course of the business cycle is considered to represent a neutral fiscal policy stance.
Methods of funding Governments spend money on a wide variety of things, from the military and police to services like education and healthcare, as well as transfer payments such as welfare benefits. This expenditure can be funded in a number of different ways:
Taxation
Seigniorage, the benefit from printing money
Borrowing money from the population or from abroad
Consumption of fiscal reserves.
Sale of fixed assets (e.g., land).
All of these except taxation are forms of deficit financing.
Some facts about fiscal policy •Government revenues and expenditures don’t need to balance every year but over one business cycle
•Functional finance is the principle that government budgets should be geared to the yearly needs of the economy
•Defenders of functional finance are those who believe fiscal policy is a powerful stabilization tool.
•The choice of fiscal policy guideline depends on the government’s belief in fiscal policy as an effective tool for stabilizing the economy .
•In 1970s and 1980s Canada believed in functional finance but recently has made unsuccessful attempts to move toward cyclically balanced budgets.
•Government deficits were highest during recessions during the early 1980s and early 1990s
•Tax revenues fell with slumping incomes during that time as a result of the automatic stabilizers
•Discretionary expansionary policy also contributed since federal government increased purchases of goods and services to counteract the effects of sagging outputs and incomes.
•1990s downturn caused a concern over increased public debt and lowered confidence in discretionary fiscal policies to counteract a recession.
Achievements of fiscal policy in India The fiscal policy has played an important role in the following fields.
Mobilization of resources To finance the development need of India ,the government has extensively used the fiscal policy. The policy of public borrowing and deficit financing has enable the government to raise huge amounts of resources for development. Increasing tax GDP ratio is a good indication of the increasing mobilization of resources. The tax GDP ratio was only 6.7 percent in 1950-51 but it has reached to 17.3 % in 2006-07.
Increase in savings The fiscal policy has been successful in raising the rate of savings in the household sector, corporate sector and public sector. To encourage savings, prize based schemes to encourage savings, expansion of the network of savings bank, post office schemes.
Increase in capital formation Capital formation involves three stages-incentive to save, mobilization of savings and investment of savings .The fiscal policy has tried to influence all the three stages .A well spread network of postal banks ,savings bank, commercial banks, financial institutions and money market is there to collect people’s savings .The government has also been successful in using the savings of the public of the public sector for development.
Incentives to investment The government has exclusively used it to influence the government decisions of the private sector. Various tax concessions ,tax rebates, subsidies and fiscal incentives are given to investors. Cottage and small scale industries have survived due to the support of the fiscal policy. The government is mobilizing increased amounts of resources through public borrowings and deficit financing to push up the level of investment in infrastructure ,social sectors, exploration and development of natural resources.
Reduction in Income and wealth Inequalities To create equitable conditions in the society ,a progressive tax system has been adopted in the realm of direct taxes. The rate of taxes on income goes on increasing with the increase in income .Direct and indirect taxes are used to mop up more resources from the richer sections of the society. Luxuries are heavily taxed. The government has also launched several poverty eradication programmes to directly benefit the poor people. The poor sections of the society are provided with subsidized grains and other essential items of consumption.
Reduction in inter regional variations The states like Bihar, U.P. ,Rajasthan ,Madhya Pradesh, Orissa etc. are given preference while transferring resources from the center to the states .Both statutory and non statutory channels of resource transfer are being used for the purpose. The government of India also gives discretionary grants to economically poor states. In addition to this special incentives, subsidies and concessions are given for locating industrial units in backward regions.
Limitations of Fiscal Policy 1.Inadequate resource mobilization
The fiscal policy has achieved a mixed success in mobilization of resources. The defective tax system ,limited base of direct taxes ,exemption of agriculture from direct taxation ,evasion of taxes ,inefficient and corrupt tax collection machinery are some of the causes of poor tax collection in the country. Another cause of poor resource mobilization is the low share of non-tax revenue in the total revenue receipts.
2. Inflation of India is increasing rapidly after issuing new notes for payment of govt. of expenses and in this inflation, prices of necessary goods are increasing very fastly. Living of poor people has become difficult due to this . So , these signs show the failure of Indian fiscal policy.
3. Govt. fiscal policy has failed to reduce the black money . Even large amount of past minister is in the form of black money which is deposited in Swiss Bank.
4. After taking loan from world bank under the fiscal policy’s debt technique , govt. has to follow the rules and regulations framed by world bank and IMF . These rules are more harmful for developing small domestic business of India. These organizations are inter related with WTO and they intend to stop Indian domestic Industry.
5. After expending large amount for generating new employment under fiscal policy , rate of unemployment is increasing fastly and big lines on govt. employment exchange can be seen generally in working days . Database of employment exchanges are full from educated unemployed candidates .
6. Fiscal policy and inflation
The direct taxes are the main instruments of the fiscal policy. The rise in the rates of direct taxes result in the reduction of the disposable income of the people .The indirect taxes contribute more than four-fifths of the tax revenue .Taxes on commodities, sales taxes ,excise duties, customs etc .add to the prices of commodities .Increase in the rates of sales taxes and excise duties immediately cause a rise in the price level.
Conclusion Thus, the fiscal policy encompasses two separate but related decisions; public expenditures and the level and structure of taxes. It occupies the central place for maintaining full employment without inflationary forces in the economy. With its various instruments it influences the economic stability of an economy. The fiscal policy of the Indian government has been very successful in several fields such as mobilization of resources for economic development, increasing rate of savings and capital formation, developing cottage and small scale industries ,reducing the incidence of poverty etc. Despite a few drawbacks of this policy, India has truly achieved a considerable level of fiscal maturity.

Privatisation On Life Insurance Corporation Of India Economics Essay

With the advent of new players in the field of Life insurance sector, the degree of competition has increased multifold. The private insurance companies are launching new innovative insurance plans for their survival and growth. At the same time, Life Insurance Corporation of India has upgraded their quality of service to retain, maintain and attract new business.
An attempt has been made to study the impact of privatization on LIC. The Development Officers were contacted to know their observations about the impact of privatization on their life insurance business and their views as how their life insurance business has been influenced by the opening of the sector.
LIC has made a lot of changes in its operation and latest technology is being used to serve the customer. The customer grievances are properly attended and all maturity claims are settled to the entire satisfaction of the policyholders. The privatization of the sector has brought lot of opportunities for all the players. Under such situation, fittest of the fit will survive and the rest will vanish over a period of time.
In the year 2000, when the insurance sector was privatized, many companies entered into the insurance sector and as a result competition has increased multifold. Initially, most of the private life insurance companies spent huge amount of money on advertisement. The purpose of the advertisement was to inform the public about their existence and the importance of life insurance policies in human life. With the rise in the degree of competition among the life insurance companies in India, the companies realized the need of developing new life insurance policy plans which can satisfy the multi needs of policyholders and as a result, the concept of riders were introduced. New channels of distributions have been introduced which have been economical and effective in serving the public.
NEED FOR THE STUDY With the privatization of the insurance sector, efforts have been made by the government to regulate the business of insurance through Insurance Regulatory and Development Authority ( IRDA). IRDA has formulated various guidelines to bring transparency in the working and make the system customer friendly. As a result, most of the companies are practicing Customer Relationship strategies to keep their customers delighted. Keeping in view such changes in the insurance sector, a need is felt to find out as what is the change in the attitude of general public before and after the Privatization.
OBJECTIVES OF THE STUDY This study is an attempt to find out the impact of privatization on Life Insurance Corporation of India. The basic purpose of conducting this study includes:
To find out the difference in the attitude of general public before and after the
Privatization.
To analyse the LIC business procurement in terms of First Premium Income (FPI) over the last 4 years.
To study the attitude of Development Officers towards impact of privatization on their insurance business
RESEARCH METHODOLOGY A descriptive study on the General Public and Development Officers have been undertaken to find out the answers to the objectives of the study. The study has been conducted in the selected cities of Haryana viz. Ambala Cantt, Ambala City, Kurukshetra Panipat, Karnal, Yamuna Nagar, Panchkula and Jagadhari. A structured questionnaire has been framed with multiple answers and their views have been noted and analysed to draw important conclusions.
TYPE OF DATA COLLECTED Both primary and secondary data has been used to study the impact of privatization on Life Insurance Corporation of India. Primary data has been collected from General Public and Development Officers through structured questionnaire where as secondary data has been collected from the IRDA journal(s) pertaining to the FPI of life Insurance Corporation of India over the last 4 years.
SAMPLING TECHNIQUES Stratified random sampling technique has been used in the study. Out of the eight cities selected for the study, 50 respondents from general public, representing different strata’s of the society have been included.
Similarly, 35 Development Officers from each city have been chosen on snow ball sampling basis.
HYPOTHESIS H o Privatisation of the Insurance Sector has adversely affected the working of LIC.
H a Privatisation of the Insurance Sector has favourably affected the working of LIC
Ho After the privatisation, whether your business as Development Officer has been adversely affected?
H a After the privatisation, whether your business as Development Officer has been favorably affected?
DATA COLLECTION AND ANALYSIS COMPARATIVE ANALYSIS OF BUSINESS PERFORMANCE OF LIC IN TERMS OF FIRST PREMIUM INCOME (FPI) Table 1.1: Comparative Analysis of Business Performance of LIC in terms of FPI
Name of LIC ZONE with FPI IN 2006-2007 FPI IN 2007-2008 Growth Rate in %age 2007-2008 FPI IN 2008-2009 Growth Rate in%age 2008-2009 FPI IN 2009-2010 Growth rate in %age 2009-2010 North Zone 862124.66 808943.20 -6.17 637302.71 -21.22 767438.31 20.42 North Central 463995.25 481078.84 3.68 384078.36 -20.16 493495.89 28.49 Central Zone 251776.58 210294.93 -16.48 183249.12 -12.86 226104.41 23.39 East Central Zone 261215.49 296291.15 13.43 262577.04 -11.38 310326.43 18.18 Eastern Zone 342181.75 410185.77 19.87 391795.29 -4.48 526284.19 34.33 South Central 596867.00 581365.08 -2.60 448089.37 -22.92 532827.32 18.91 Southern Zone 586241.87 855150.87 45.87 453414.89 -46.98 553047.49 21.97 Western Zone 589755.23 737975.93 25.13 771614.08 4.56 886520.29 14.89 TOTAL FIGURE 3954157.83 4381285.77 10.80 3532120.86 -19.38 4296044.33 21.63 Table 1.1 clearly shows that there was increase and decrease in most of the zones of LIC except the Western zone which made a consistent increase in the business from 2006-2007 to 2009-2010. The performance of all the zones were better during the financial year 2009-2010 as all the Eight zones have shown a positive growth rate. The maximum business in terms of FPI from the Western Zone followed by North zone and Southern zone. Eastern zone made the maximum growth rate of 34.33 % during the financial year 2009-2010.
QUESTION-1: A question was asked to the General public ( 50 IN EACH CITY) about their future intentions to buy any life insurance plan and which insurance company will they prefer
Table1.2: Interest of the General Public to purchase insurance
Respondents interested to insure
LIC
Other Companies
City
Ambala Cantt.
Count
18
4
% within City
81.8%
18.2%
Ambala City
Count
13
3
% within City
81.3%
18.8%
Kurukshetra
Count
14
0
% within City
100.0%
.0%
Panipat
Count
14
3
% within City
82.4%
17.6%
Karnal
Count
10
2
% within City
83.3%
16.7%
Yamuna Nagar
Count
9
3
% within City
75.0%
25.0%
Panchkula
Count
11
5
% within City
68.8%
31.3%
Jagadhari
Count
9
3
% within City
75.0%
25.0%
Total
Count
98
23
% within City
81.0%
19.0%
Chi-Square Tests Value
df
Pearson Chi-Square
5.477a
7
Likelihood Ratio
7.866
7
Linear-by-Linear Association
2.124
1
N of Valid Cases
280
a. 8 cells (50.0%) have expected count less than 5. The minimum expected count is 1.63.
81% respondents like to get insured by having LIC policy, Chi square significance is .001, which suggests that data is significantly related.
QUESTION-2: After the privatisation of the insurance sector, whether your business (
Development Officer) has been affected?
Table 1.3: Effect of privatization on the business Business has increased or decreased
Increase
Stable
City
Ambala Cantt.
Count
33
2
% within City
94.3%
5.7%
Ambala City
Count
31
4
% within City
88.6%
11.4%
Kurukshetra
Count
34
1
% within City
97.1%
2.9%
Panipat
Count
33
2
% within City
94.3%
5.7%
Karnal
Count
34
1
% within City
97.1%
2.9%
Yamuna Nagar
Count
33
2
% within City
94.3%
5.7%
Panchkula
Count
35
0
% within City
100.0%
.0%
Jagadhari
Count
34
1
% within City
97.1%
2.9%
Total
Count
267
13
% within City
95.4%
4.6%
Chi-Square Tests Value
df
Pearson Chi-Square
6.373a
7
Likelihood Ratio
7.084
7
Linear-by-Linear Association
2.392
1
N of Valid Cases
280
a. 8 cells (50.0%) have expected count less than 5. The minimum expected count is 1.63.
From the above table it is clear that business of the LIC has increased (95.4%).
Chi square significance is .003, which suggests that data is significantly related.
QUESTION-3: Do you think that privatization of Insurance sector is a sign of growth
for You as Development Officer and for LIC as a whole?
Table1.4: Relationship between privatization and growth for LIC privatization of business sector is a sign of growth for LIC
Yes
No
No Comments
City
Ambala Cantt.
Count
33
2
0
% within City
94.3%
5.7%
.0%
Ambala City
Count
32
1
2
% within City
91.4%
2.9%
5.7%
Kurukshetra
Count
29
2
4
% within City
82.9%
5.7%
11.4%
Panipat
Count
34
1
0
% within City
97.1%
2.9%
.0%
Karnal
Count
34
0
1
% within City
97.1%
.0%
2.9%
Yamuna Nagar
Count
33
2
0
% within City
94.3%
5.7%
.0%
Panchkula
Count
35
0
0
% within City
100.0%
.0%
.0%
Jagadhari
Count
32
2
1
% within City
91.4%
5.7%
2.9%
Total
Count
262
10
8
% within City
93.6%
3.6%
2.9%
Chi-Square Tests Value
df
Pearson Chi-Square
19.118a
14
Likelihood Ratio
21.221
14
Linear-by-Linear Association
1.386
1
N of Valid Cases
280
a. 16 cells (66.7%) have expected count less than 5. The minimum expected count is 1.00.
According to 93.6% respondents, privatization is a growth sign for LIC. Chi square significance is .002, which suggests that data is significantly related. From the above analysis it is seen that there is hardly any impact of privatization on the business of LIC.
Hence hypothesis H0 is Rejected, which shows that the business of LIC has been affected by privatization but it has positive impact on the business of LIC, hence we accept the alternate Hypothesis..
FINDINGS On the basis of the study undertaken on General Public and Development Officers, some important observations are appended below
Corporate Active Data Warehouse (CADW): LIC’s CADW is one of the largest life insurance customer database in the world. The project has enabled LIC to launch Customer focused campaign like Customer Contact Program and Global Club Customer Campaigns launched in the various “A Class” cities during the year 2009-2010. The major achievement has been to send a single notice for the premium falling due in the same month for the various policies of an individual policyholder. All these initiatives launched have made the brand of LIC more visible in the eyes of the policyholders and public in general.
New channels for premium payment: More channels have been added to facilitate the renewal premium payment by the policyholders. Major addition is in the form of creating “PREMIUM POINTS” where policyholders can deposit the premium 24*7 and can get a final receipt from the office of the empowered LIC agents who are spread across the country. More than 5000 such empowered agents are authorized to provide this service to policyholders. Apart from this, 350 satellite offices have been opened in various cities to give the feel of physical presence of LIC.
Enterprise Document Management System: LIC has implemented EDMS in its offices to digitize the customers an Office records.
EDMS has been done to get the advantage in terms of
Enabling the concept of anywhere-anytime service through electronic files.
To make documents and files available to multiple users simultaneously.
To eliminate the need to transfer paper records from one branch to another branch.
Electronic Bill Presentation and Payment (EBPP): Premium can be paid through various banks like City Bank, HDFC Bank, ICICI Bank, Federal Bank, Corporation Bank, Axis Bank and other service providers-Bill Desk and Tech Process which cover almost all other banks throughout the country. Premium can be paid through credit card also. Premium can also be made through ATM card and EBPP. Premium can be deposited for the in force policies only and which are not with monthly or salary saving schemes.
Customer Grievance Redressal Management: LIC has grievance redressal officers at Branch/Divisional/Zonal/Central office to redress the grievances of policyholders and for bringing transparency in the operations. IT enabled support system have been operationalised to reduce manual intervention and to minimize the grievances. For quick redressal of grievances, LIC has introduced a customer friendly “Complaint Management System” through customer portal where the policyholder can directly register any complaint/ grievance/quarry and track its status anytime without going anywhere.
CONCLUSION The performance of LIC during the year 2006 to 2010 indicates that there has been tremendous amount of potential in the insurance business. It is hoped that the spark ignited by the leading insurance company shall be carried forward by all the players and they will generate phenomenal business and fulfills the social obligation to the society. With the privatization of the insurance sector, the degree of competition has increased and as a result, the service standard of insurance companies has improved beyond imagination. In the present set up of life insurance organisations, Development Officer is the most important functionary of the organisation. The major life insurance business is procured through agents who are supervised by their respective DO’s. An agent is the representative of the company who has the maximum interaction with the General public and persuades the prospects to purchase insurance policy. The agents should be well trained so that the general public can be made aware about the importance of the concept of life insurance. In the recent past, most of the agents of the life insurance companies are offered lucrative incentives so that the sales force can be always be set in high spirit. In India, insurance market is open, only fittest of the fit will survive.LIC is an old trusted brand, it has to launch new policy plans which can satisfy the multi needs of the public. At the same time, LIC has to train and develop its employees so that they can serve the customer with full commitment and dedication. In short, privatization has favorably affected the LIC organization which has resulted into the improvement in the overall operations of LIC.

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