Budget 2019: What is Fiscal Policy?.

Nirmala Sitharaman, India’s first full-time female Finance Minister, will present the first budget of Narendra Modi-led government's second term on July 5.

Taking up the crucial Finance Ministry portfolio, Sitharaman has a big task at hand. In her new role, the former defence minister needs to address issues such as economic slowdown, unemployment rate which is at a 45-year high, severe agrarian crisis, NPAs marring the banking sector.

While all eyes will be on Budget 2019, it is imperative for people to know the key terms associated with the annual exercise.

Here’s a lowdown on some of the important terms to help understand and decode the Budget.

What is fiscal policy?

Fiscal policy is an estimate of taxes that are to be levied and also the expenditure that the government will do to impact the economy of the country. Fiscal policy can be either expansionary or contractionary.

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.

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