GOVT.

BUDGECONOMY
Budget: It is an annual financial statement of the
govt.showing anticipated revenue and
expenditure during a fiscal year.
Objectives of Budget:
I.Resource allocation:The government allocates
resources to achieve definite socio-economic
objectives . It gives tax concession and subsidies
to the producers to encourage investment. It also
imposes tax on production of harmful goods and
gives subsidies to encourage production of useful
goods. It undertakes various activities in the
public interest.
II.Reduction of economic inequality: Govt. aims
to reduce inequality in the distribution of income
and wealth through it’s budgetary policy. It
influences distribution of income by imposing
progressively higher taxes on rich section and
spending more on the welfare of the weaker
sections of the society.This will automatically
reduce the gap between the haves and have nots.
III.Economic stability:It refers to maintaining price
stability in the economy. Large scale fluctuation in
the price level cause obstacle in the economic
development. The govt. exercises control over
these fluctuations through revenue and
expenditure. During inflationary tendencies, it
reduces public expenditure and in deflation ,
expenditure is raised and subsidies are also given.
IV.Management of Public enterprises: There are
large number of public sector enterprises like
Railways, post offices etc in the country.These are
established and managed for social welfare of the
public.The govt. makes provision in the budget for
managing such enterprises by providing financial
help.
V.Economic growth:The govt. ensures economic
growth in a country through budget.It provides
tax rebates and other incentives to stimulate
saving and investment in the economy.It lays a
solid foundation of the economy by making huge
expenditure on infrastructural development like
roadways, railways etc.These basic services
directly help in raising the productive capacity of
the economy as well as in the economic growth.

COMPONENTS OF BUDGET

REVENUE BUDGET CAPITAL

BUDGET
REVENUE REVENUE CAPITAL CAPITAL
RECEIPTS EXPENDITUR RECEIPTS EXPENDITURE
E

Budget receipts:It refers to the estimated money

receipts of the govt. from all sources during a
given fiscal year. It is further classified into
Revenue receipts and Capital receipts. Revenue
receipts: It refers to those receipts which neither
create any liability nor reduces any assets of the
govt.
Revenue receipts of the govt. are generally
classified under two heads: Tax revenue and Non-
tax revenue.
Tax Revenue: It refers to the sum total of receipts
from taxes and other duties imposed by the govt.
Tax revenue can further be classified into Direct
tax and Indirect tax. Difference
between:
Direct tax Indirect tax
It refers to the taxes It refers to the taxes
whose burden can not whose burden can be
be shifted to others. shifted to others.
It is levied on individuals It is levied on goods
and companies. and services. It is
It is progressive in regressive in nature.
nature. For ex.goods and
For ex.Income tax, services tax etc(GST)
corporate tax etc.

Non-tax revenue: It refers to the receipts of the

govt. from all sources other than tax receipts like
interest, profits and dividends, fees, fines and
penalties, escheats, gifts and grants etc.
Capital receipts: It refers to those receipts which
either create a liability or cause a reduction in the
assets of the govt.
Sources of capital receipts:
I.Borrowings:Borrowings are capital receipts as
they create a liability for the govt. II.Recovery of
loans:It is a capital receipt as reduces the assets of
the govt. III.Disinvestment:It is a process of selling
a part or whole of shares of public sector
enterprises held by the govt. It is capital receipt as
it reduces assets of the govt.
Budget expenditure: It can be broadly divided
into two types.
They are: Revenue expenditure and Capital
expenditure:
Revenue expenditure Capital expenditure:
It refers to the It refers to the
expenditure which expenditure which
neither creates any either creates an asset
asset nor causes or causes a reduction in
reduction in any liability the liabilities of the
of the govt. govt.
 It adds to the capital
It is incurred on normal
stock of the country..
functioning of the govt.
It is recurring in nature
It is non-recurring in
like payment of salaries,
nature like expenditure
expenditure on defence,
on roads purchase of
health etc.
machinery, repayment
of borrowing etc.

Measures of budget deficit: When the govt.

spends more than it collects, then it incurs a
budgetary deficit. Budgetary deficit is of three
types:
I.Revenue deficit II.Fiscal deficit
III.Primary deficit
I.Revenue deficit:It refers to excess of revenue
expenditure over revenue receipts during the
given fiscal year.
Revenue deficit=(revenue expenditure-revenue
receipts)
Implications:
I.It indicates the inability of the govt.to meet it’s
regular and recurring expenditure.
II.It leads to dis-saving by the govt.
III.It creates an inflationary situation in the
economy. Revenue deficit can be reduced by
curtailing unproductive expenditure and
increasing revenue.
II.Fiscal deficit:It refers to the excess of total
expenditure over total receipts excluding
borrowings during the fiscal year.
Fiscal deficit=(Total expenditure- total receipts
excluding borrowings)
Implications:I.It compels the govt. to take more
loans to repay the earlier loans, which
automatically lands the country in debt trap.
II.It increases money supply in the economy and
creates inflationary pressure.
III.Govt. borrows from the rest of the world,which
raises its foreign dependence.It can be financed
by borrowing and deficit financing or printing of
more new currency.
III.Primary deficit:It refers to the difference
between fiscal deficit and interest payment.
Primary deficit= (fiscal deficit -interest payment)
Implications:
It shows the amount of interest payments on the
borrowings made in the past.