Nikaalo Prelims Spotlight || Pattern of Economic Indicators & Fiscal Policy

Dear Aspirants,

This Spotlight is a part of our Mission Nikaalo Prelims-2023.

You can check the broad timetable of Nikaalo Prelims here

Session Details

YouTube LIVE with Parth sir – 7 PM  – Prelims Spotlight Session

Evening 04 PM  – Daily Mini Tests

Join our Official telegram channel for Study material and Daily Sessions Here

1st May 2023

Patterns of Economic Indicators

An economic indicator is a statistic about an economic activity. Economic indicators allow analysis of economic performance and predictions of future performance. One application of economic indicators is the study of business cycles.

  • National Income is the total value of all final goods and services produced by the country in certain year. The growth of National Income helps to know the progress of the country.
  • In other words, the total amount of income accruing to a country from economic activities in a year’s time is known as national income.
  • National Income includes payments made to all resources in the form of wages, interest, rent and profits.
  • National Income Accounting is a method or technique used to measure the economic activity in the national economy as a whole.
  • It is the bookkeeping system which measures the level of economic activity in a given time period
  • NIA sets rules and definition to measure aggregate economic activity and tries to summarise the performance of the economy
Indicators: GDP
  • Gross Domestic Product is the market value of all the goods and services produced within the domestic territory of a country during a specified time period, usually one year.
  • Accounting Year = Fiscal Year; for India it is 1st of April to 31st of March (next year)
  • Will include the income generated by MNCs in India

Domestic Territory = Political frontiers of the country including its territorial waters+ Embassies/Consulates + Military Establishments of the country abroad + Ships/Aircrafts/Fishing Vessels/Oil Rigs belonging to the residents of the country

GDP does not include :
  • Capital goods (e.g. machinery) are included in GDP, but intermediate goods (e.g. raw materials) are not.
  • Intermediate goods and services are not included to avoid double counting.
  • Same good can be final (you consuming milk ) or intermediate (milk in the restaurant) depending on the usage.
  • Growth Rate (%) = [GDP (Present year – Last Year) / Last Year] x 100
  • But, quantitatively the production may not have improved (From 1 kg garlics to 2 kg garlics), and only because of inflation in the prices (₹ 10/kg garlic to ₹ 100/kg) the growth rate may be appear high.
  • Therefore (to remove the inflation impact on growth rate), we must select a base year, and convert the current prices to constant prices.
  • The ratio of these GDPs is called ‘GDP deflator’, it presents a picture of inflation like CPI and WPI but, unlike CPI & WPI it’s not based on a fixed basket of commodities.
  • These figures are revised as the new data arrives / previous data is cross verified & corrected.
Gross National Income (GNI)
  • According to OECDà GNI as GDP + NET receipts from abroad (wages, interest, profit, rent) plus net taxes & subsidies receivable from abroad. Here, ‘Wages and salaries’ from abroad = ‘Guest’ workers who reside abroad for less than 12 months and whose centre of economic interest remains in their home country
National Disposable Income
  • National Disposable Income= NNP + Other Current Transfers from rest of the world (remittances, gift, donations etc.)National Disposable Income gives an idea of what is the maximum amount of goods and services the domestic economy has at its disposal.
Personal Disposable Income
  • Personal Income – Personal Tax Payments (e.g. income tax) – Non-tax Payments (e.g. fines)

Fiscal Policy

What is Fiscal Policy? Fiscal Policy deals with the revenue and expenditure policy of the Govt. The word fiscal has been derived from the word ‘fisk’ which means public treasury or Govt funds.

Objectives of Fiscal Policy

The following are the objectives of the Fiscal Policy:

  1. Higher Economic Growth
  2. Price Stability
  3. Reduction in Inequality

What are the components of Fiscal Policy?

There are three components of the Fiscal Policy of India:

  1. Government Receipts
  2. Government Expenditure
  3. Public Debt

Government Receipts

The categorisation of the government receipts is given below:

  1. Revenue Receipt
    • Tax Revenue
      • Direct Tax
      • Indirect Tax
    • Non-Tax Revenue
      • Fees
      • License and Permits
      • Fines and Penalties, etc
  2. Capital Receipt
    • Loans Recovery
    • Disinvestments
    • Borrowing and other liabilities

Government Expenditure

There are two classifications of public expenditure:

  1. Revenue Expenditure – It is a recurring expenditure:
    • Interest Payments
    • Defence Expenses
    • Salaries to Central Government employees, etc are examples of  revenue expenditure
  2. Capital Expenditure – It is a non-recurring expenditure
    • Loans repayments
    • Loans to public enterprises, etc.

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