Question

The fiscal policy of India is formulated by the

• A. Planning Commission
• B. ministry of finance
• C. Reserve Bank of India (RBI)
• D. none of these

Hint:

Fiscal policy means taxation and government spending, which is the finance ministry's job through the union budget, not the RBI's.

Answer 1

The Correct Option is B

Fiscal policy is the government's use of taxation and public spending to guide the economy, for example deciding tax rates or the size of the government's budget deficit. This job belongs to the government's finance department. Let's check the options.

1. Planning Commission: This body draws up India's Five Year Plans and allocates resources across sectors, but it is not the one that sets tax rates or manages the government budget.
2. ministry of finance: The finance ministry prepares the union budget, sets tax policy, and manages government borrowing and spending. This is exactly what fiscal policy covers.
3. Reserve Bank of India (RBI): The RBI controls monetary policy, such as interest rates and money supply, not fiscal policy.
4. none of these: Not needed, since option (2) correctly identifies the body.

Since fiscal policy is about government taxation and spending, and the finance ministry prepares the budget and tax rules every year, the correct option is "ministry of finance".

Let's summarize:

• Fiscal policy covers government taxation, spending, and borrowing.
• The ministry of finance, through the union budget, is the body that sets fiscal policy in India.

The answer is option (2).