- Revenue Budget: Regular income & daily expenses (no asset creation).
- Capital Budget: Loans, investments & asset creation.
Definitions [3]
Define of the following concept.
Balanced budget
A balanced budget occurs when the government’s total expenditure equals its total revenue during a financial year.
Balanced Budget = Total Expenditure = Total Revenue
Define the following concept:
Budget
According to Prof. Johnson, “A state budget is a statement of the states estimated income and expenditure in a commencing period usually one year.”
According to Prof. Dimock, “Balanced estimate of expenditure and receipt for the given period of time.”
Define fiscal deficit.
The fiscal deficit is the excess of total expenditure, i.e. revenue and capital expenditure, over total receipts. This measure reflects total borrowings of the government during the financial year.
Fiscal deficit refers to the excess of total expenditure over total receipts, excluding borrowings, during the given fiscal year.
Formulae [3]
Revenue Deficit
|
Revenue Deficit = Revenue Expenditure |
Where, Revenue Expenditure (RE)
= Interest Payments + Non-interest Expenditure or Plan Expenditure + Non-plan Expenditure. Revenue Receipts (RR) = Tax Revenue + Non-tax Revenue.
Fiscal Deficit
|
Fiscal Deficit = Total Budget Expenditure - Total Budget Receipts |
Primary Deficit
Primary Deficit = Fiscal Deficit - Interest Payments.
Key Points
Key Points: Government Budget
Government budget = annual financial plan of the government showing estimated receipts and proposed expenditure for the coming financial year (1 April–31 March in India).
- It is an official financial statement of how the government plans to raise money (taxes, borrowings, other receipts) and how it will spend it (on defence, welfare, development, etc.).
- It is a constitutional requirement (Article 112) and is presented every year in Parliament as the central government’s budget.
Key Points: Components (Structure) of the Government Budget
Key Points: Objectives of Government Budget
- Allocation function: Government provides public goods (defence, roads) which are non-rival and non-excludable.
- Public provision vs production: Goods are financed by government, but may be produced by public or private sector.
- Redistribution function: Government uses taxes and transfers to reduce income inequality.
- Stabilisation function: Government controls inflation and unemployment by managing aggregate demand.
Key Points: Classification of Receipts
- Revenue receipts: Do not create liability; include tax and non-tax revenues.
- Tax revenue: Direct taxes (income tax, corporation tax) and indirect taxes (excise, customs, GST).
- Non-tax revenue: Interest, dividends, fees, profits, grants.
- Capital receipts: Create liability or reduce assets (loans, PSU disinvestment).
- Finance Bill explains tax changes; GST introduced in 2017.
Key Points: Classification of Expenditure
- Revenue expenditure: No asset creation; includes salaries, pensions, subsidies, defence, interest payments.
- Non-plan revenue expenditure forms the major part (interest, defence, subsidies).
- Capital expenditure: Leads to asset creation or reduction of liabilities (infrastructure, loans, investments).
- Expenditure is classified into plan and non-plan in budget documents.
- Budget is also a policy document guided by FRBM Act, 2003.
Key Points: Types of Budget
- Balanced budget: Government receipts = government expenditure.
- Surplus budget: Receipts > expenditure; mainly used to control inflation.
- Deficit budget: Receipts < expenditure; used to raise spending, jobs and growth, common in developing countries.
