Role of Fiscal Policy in Resource Mobilization

  • In a liberal mixed economy, such as ours the task of fiscal policy is not only to raise saving ratio for acceleration of growth, but also to improve investment in the private sector so that higher rate of investment be achieved.
  • Public finance assumes a new significance in the face of the problem of resource mobilization in underdeveloped countries.
  • On the expenditure side, there is a positive need for public investment, especially in those spheres of economic activity where the private investments are not easily attracted, for example, the development of power resources, roads and highway, ports and airports, means of transport and communications, basic heavy industries, social infrastructure such as education and research, public health etc. Such investments are very often the very foundations of rapid economic advance.
  • Thus, fiscal policy is of crucial importance in accelerating the pace of economic growth in developing countries. Fiscal policy, if properly designed, is an efficient and equitable way of mobilizing resources for augmenting public investment.
  • Through it not only that collective public savings can be raised for financing public investment, but also at the same time private savings and investment can be encouraged.
  • In other words, Fiscal policy allows the government to mobilize resources for public expenditure and development. There are three ways of resource mobilization viz., taxation, public savings and private savings through issue of bonds and securities.
  • The fiscal policy can be so devised that not only the objective of rapid capital accumulation or growth, but also other objectives of economic policy, such as equitable distribution of income and wealth, price stability and promotion of employment opportunities can be achieved.