Budget 2023 | What is Fiscal Policy?

The 2023-24 Union Budget will be presented by the Finance Minister Nirmala Sitharaman on February 1.

With just a few more days left for Sitharaman to announce the budget, it is imperitive to understand an essential component of the budget, the fiscal policy.

What is fiscal policy?

Fiscal policy is an estimate of taxes that are to be levied and also the expenditure that the government will make to run the economy of the country. Fiscal policy can be of two types.

Expansionary policy means government will decrease the tax rates, increase the expenditures or both. This will increase the consumption of the products and profit of businesses increasing their investment expenditures, thereby increasing Gross Domestic Product (GDP) and fight the recession.

Contractionary policy means government will increase the tax rates, decrease the expenditures or both. This will decrease the consumption of the products and profit of businesses, cutting down their investment expenditures. Thus, decreasing Gross Domestic Product (GDP) and fight inflation.