In the Indian system of economic governance, fiscal policy that deals with taxation and government expenditure is primarily formulated by which of the following authorities?

Introduction / Context:

This question checks whether you can correctly distinguish between fiscal policy and monetary or regulatory policy in the Indian context. Fiscal policy concerns the use of government spending and taxation to influence the economy, while monetary policy concerns the regulation of money supply and interest rates. Several important institutions like the Reserve Bank of India, the Finance Ministry and regulatory bodies are given in the options, and you must identify which one actually formulates fiscal policy.

Given Data / Assumptions:

• The topic is fiscal policy, that is, government policy on taxation, borrowing and expenditure.
• The options list key institutions related to economics and finance in India.
• It is assumed that we are talking about the Union or central level fiscal policy, not individual state budgets.
• Some listed bodies no longer exist in their original form but are still used in older exam questions.

Concept / Approach:

In India, fiscal policy at the Union level is framed by the central government through the Ministry of Finance. This involves preparing the Union Budget, deciding tax rates under central jurisdiction, determining expenditure priorities and managing fiscal deficits. By contrast, the Reserve Bank of India is responsible for monetary policy, which includes setting policy interest rates and controlling money supply. Regulatory bodies like the Securities and Exchange Board of India have focused sectoral roles. Therefore, when asked who formulates fiscal policy, the correct answer is the Finance Ministry.

Step-by-Step Solution:

Verification / Alternative check:

Official budget documents tabled in Parliament clearly state that they are presented by the Minister of Finance on behalf of the Government of India. These documents outline fiscal deficit, tax proposals, expenditure plans and borrowing requirements. Monetary policy statements, however, are issued by the Reserve Bank of India separately. This institutional separation confirms that the Finance Ministry is responsible for fiscal policy.

Why Other Options Are Wrong:

The Reserve Bank of India manages monetary policy and banking regulation. Although its decisions affect the economy, it does not decide tax rates or government spending programmes.

The Planning Commission was earlier an advisory body for planning and five year plans, and it has now been replaced by NITI Aayog. It never directly formulated the Union fiscal policy.

The Securities and Exchange Board of India regulates the securities market, protects investor interests and oversees stock exchanges, not overall fiscal policy.

NITI Aayog is a policy think tank that provides strategic and technical advice to the central and state governments, but it does not itself formulate or announce fiscal policy.

Common Pitfalls:

A common error is to confuse fiscal and monetary policy simply because both deal with macroeconomic management. Another pitfall is to assume that any economic body like the Reserve Bank of India or NITI Aayog must be responsible. Remember that monetary policy is about money and interest rates and is handled by the Reserve Bank of India, while fiscal policy is about taxes and government spending and is handled by the Finance Ministry.

Final Answer:

In India, fiscal policy is formulated by the Finance Ministry.