Definition
Fiscal Policy
Fiscal policy is the government's use of taxation and spending decisions, set out mainly in the Union Budget, to influence the economy.
Through fiscal policy, the government can boost growth by spending more or cutting taxes, or cool an overheating economy by doing the reverse. The annual Union Budget is the centrepiece, setting spending plans and the fiscal deficit target.
Fiscal policy works alongside the RBI's monetary policy. Heavy government spending can stimulate demand but may widen the deficit and pressure bond yields, so markets watch the Budget's balance between growth and discipline closely.
Related terms
- GDP (Gross Domestic Product)GDP is the total value of all goods and services produced within a country over a period, the broadest single measure of how big and how fast an economy is growing.
- Fiscal DeficitThe fiscal deficit is the gap between the government's total spending and its total revenue, showing how much it must borrow in a year.
- RBI Monetary PolicyRBI monetary policy is the central bank's use of the repo rate and liquidity tools, guided by an MPC mandate to keep CPI inflation at 4% within a 2-6% band, to manage inflation and support growth.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.