<P> In the classical view, the expansionary fiscal policy also decreases net exports, which has a mitigating effect on national output and income . When government borrowing increases interest rates it attracts foreign capital from foreign investors . This is because, all other things being equal, the bonds issued from a country executing expansionary fiscal policy now offer a higher rate of return . In other words, companies wanting to finance projects must compete with their government for capital so they offer higher rates of return . To purchase bonds originating from a certain country, foreign investors must obtain that country's currency . Therefore, when foreign capital flows into the country undergoing fiscal expansion, demand for that country's currency increases . This causes the currency to appreciate, reducing the cost of imports and making exports from that country more expensive to foreigners . Consequently, exports decrease and imports increase, reducing demand from net exports . </P> <P> Some economists oppose the discretionary use of fiscal stimulus because of the inside lag (the time lag involved in implementing it), which is almost inevitably long because of the substantial legislative effort involved . Further, the outside lag between the time of implementation and the time that most of the effects of the stimulus are felt could mean that the stimulus hits an already - recovering economy and exacerbates the ensuing boom rather than stimulating the economy when it needs it . </P> <P> Some economists are concerned about potential inflationary effects driven by increased demand engendered by a fiscal stimulus . In theory, fiscal stimulus does not cause inflation when it uses resources that would have otherwise been idle . For instance, if a fiscal stimulus employs a worker who otherwise would have been unemployed, there is no inflationary effect; however, if the stimulus employs a worker who otherwise would have had a job, the stimulus is increasing labor demand while labor supply remains fixed, leading to wage inflation and therefore price inflation . </P> <P> The concept of a fiscal straitjacket is a general economic principle that suggests strict constraints on government spending and public sector borrowing, to limit or regulate the budget deficit over a time period . Most US states have balanced budget rules that prevent them from running a deficit . The United States federal government technically has a legal cap on the total amount of money it can borrow, but it is not a meaningful constraint because the cap can be raised as easily as spending can be authorized, and the cap is almost always raised before the debt gets that high . </P>

Explain the highlight of fiscal policy announced by government of india