Fiscal Policy refers to the use of government spending and taxation policies to influence a countryís overall economic activity. It is one of the key tools of macroeconomic management, alongside monetary policy, aimed at promoting economic growth, controlling inflation, reducing unemployment, and maintaining financial stability.

The government formulates fiscal policy through its annual budget, which outlines expected revenues (mainly from taxes and non-tax sources) and planned expenditures on public services, infrastructure, defense, and welfare programs. Depending on economic conditions, fiscal policy can be either expansionary or contractionary.

An expansionary fiscal policy involves increasing government spending or reducing taxes to stimulate demand and boost economic growth, especially during periods of slowdown or recession. This helps create jobs and raise income levels but can also increase the fiscal deficit if not managed carefully. Conversely, a contractionary fiscal policy aims to reduce demand by cutting spending or increasing taxes to control inflation and stabilize prices during periods of high growth.

In India, fiscal policy is guided by the Fiscal Responsibility and Budget Management (FRBM) Act, which seeks to ensure prudent fiscal management and limit government borrowing. The Ministry of Finance, in coordination with the Reserve Bank of India (RBI), plays a central role in designing and implementing fiscal strategies that balance growth with financial discipline.

Effective fiscal policy can help achieve inclusive growth by directing resources toward infrastructure, healthcare, education, and social welfare, thereby improving the standard of living. However, excessive borrowing or inefficient spending can lead to inflation, higher interest rates, and long-term debt concerns.

In summary, fiscal policy is a powerful instrument for shaping a nationís economic trajectory. When used judiciously, it fosters sustainable growth, equitable wealth distribution, and macroeconomic stability.