Page 138 - DMGT401Business Environment

Unit 6: Fiscal Policy

List II: State List. Some of the financial resources as mentioned in constitution are: Notes
Tax Revenue

1. Land Revenue.
2. Taxes on agricultural income.
3. Taxes on land and buildings.
4. Duties of excise on the following goods manufactured or produced in the state and
countervailing duties at the same or lower rates on similar goods manufactured or produced
elsewhere in India: (a) alcoholic liquors for human consumption (b) opium, Indian hemp
and other narcotic drugs and narcotics, but not including medicinal and toilet preparations
containing alcohol or any substances included in this sub-paragraph (entry 51).
5. Taxes on the entry of goods into all local areas of consumption.
6. Taxes on electricity.

7. Taxes on sale and purchase of goods other than newspapers, excluding inter-state sale.
8. Taxes on advertisements other than those published in newspapers.
9. Taxes on vehicles for use on roads.
10. Tolls
11. Taxes on professions, trades, callings and employment.

12. Capitation Taxes.
13. Taxes on luxuries including taxes on entertainment, amusements, betting and gambling.
14. Fees in respect of any the matters in the State List but excluding court fees.
15. Share in some specified Union Taxes.

Non-tax Revenue

1. The State Government can borrow on the security of their respective consolidated funds,
but only within the country, including loans from the Government of India.
2. Income from government undertakings owned fully or partly by State Governments.
3. Income from public property owned by the State Government.
4. Grants-in-aid from the Central Government.

5. Other grants for the Central Government.

6.1.6 Fiscal Policy and Economic Growth

Fiscal policy is a potent tool in the hands of the government for regulating economic growth.
Deficit financing is an effective tool in the hands of the government to increase effective demand
in recession. To fill the deficit the government borrows from the RBI, the market and even
creates additional currency to increase the disposable income of people. This results in a conducive
environment for investment.
The market mechanism of an underdeveloped economy is not likely to be able to generate
enough savings and investment needed for rapid economic growth. Fiscal policy plays a leading
role in affecting savings for the economy. The budget plays a direct role in capital accumulation

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