Contents

1) Acknowledgement
2) What is govt. budget
3) Objectives
4) Components
5) Revenue budget
6) Revenue receipt
a) Tax revenues
b) Non tax revenues
7) Revenue expenditure
8) Capital budget
9) Capital revenue
10) Capital expenditure
11) Budget deficit
12) Fiscal deficit
13) Revenue deficit
14) Primary deficit
 Government budget
What is government budget?

1) The government budget is an annual fiscal statement depicting

the revenues and expenditures for a financial year that is often moved
by the legislature, sanctioned by the Chief Executive or President, and
given by the Finance Minister to the country. The budget is also known
as the Annual Financial Statement of the nation

2) In India, in the beginning of every year, the government presents

its budget in front of the Lok Sabha, explaining an estimated receipt
and expense for the upcoming financial year. The fiscal year starts
from 1st April and concludes on 31st March of the next year.
3) The government prepares expenditure according to its objectives
and then starts gathering the resources and funds to fulfil the proposed
investment.
4) The funds are collected from fees, taxes, interest on loans given
to states, fines, and dividends by public sector enterprises

Objectives
Reallocation of resources – It helps to distribute resources, keeping
in view the social and economic advantages of the country. The factors
that influence the allocation of resources are:
Allowance or Tax concessions – The government gives allowance
and tax concessions to manufacturers to encourage investment.
Direct production of goods and services – The government can
take the production process directly if the private sector does not show
interest.
Minimize inequalities in income and wealth – In an economic
system, income and wealth inequality is an integral part. So, the
government aims to bring equality by imposing a tax on the elite class
and spending extra on the well-being of the poor.
Economic stability – The budget is also utilized to avoid business
fluctuations to accomplish the aim of financial stability. Policies such as
deficit budget during deflation and excess budget during inflation assist
in balancing the prices in the economy.
Manage public enterprises – Many public sector industries are built
for the social welfare of people. The budget is planned to deliver
different provisions for operating such business and imparting financial
help.
Economic growth – A country’s economic growth is based on the rate
of investments and savings. Therefore, the budgetary plan focuses on
preparing adequate resources for investing in the public sector and
raising the overall rate of investments and savings.
Decrease regional differences – It aims to diminish regional
inequalities by implementing taxation and expenditure policy and
promoting the installation of production units in underdeveloped
regions.

Components of Budget
I. Revenue budget –  The revenue budget contains revenue
expenditure and receipts. In these receipts, both tax revenue such as
excise duty, income tax and non-tax revenue like profits, interest
receipts are recorded.
II. Capital budget – The capital budget includes the capital receipts
(such as disinvestment, borrowing) and lengthy capital expenditure (for
instance, long-term investments, creation of assets). Capital receipts
are government liabilities or decreased financial assets, such as the
recovery of loans, market borrowing, etc.

 Revenue receipts
Revenue receipts can be characterized as those receipts which neither
make any risk or liability nor bring about any decrease in the resources
of the public authority.

They are recurring and regular in nature and the public authority
acquires them in the typical course of operations.

Basically, revenue receipts should fulfill two fundamental conditions:

No risk or liability: Revenue receipts don’t make any obligations to
the public authority’s resources.
No resource or asset decrease: Revenue receipts don’t prompt any
decrease in the public authority’s resources. In this way, the public
authority can’t show its income from the sale of a stake in a public-
sector undertaking as revenue receipts in light of the fact that the
stake sale brought about a decrease of its resources.

Tax Revenue – Direct Tax and Indirect Tax

Tax is a compulsory payment that is made to the government by the people or the companies
without having any direct benefit in return. The sum of all receipts from the taxes and all other
duties under the government are referred to as tax revenue. They are either from direct taxes
or indirect taxes. It is the main source of regular receipts of the government and is categorized
into Direct Taxes and Indirect Taxes.

Non Tax revenues.

Non-Tax Revenue is the recurring income that is earned from sources
other than taxes by the government. They are the revenue receipts
that are not generated by taxing the public. Some of the major sources
of non-tax revenue are mentioned below:

1.  Interests that are received by the government through the loans

provided by it to the state governments, UTs, private enterprises,
and the general public are an important source of non-tax
revenue.
2. Power Supply Fees: This includes fees received by the central
power authority of any nation. In the case of India, this includes
fees received by the Central Electricity Authority.
3. Fees: They are the charges that cover the cost of recurring
services that are provided and imposed by the government. It is a
compulsory contribution like a tax.
 4. License Fee: It is a form of tax charged by the government and
it’s allied entities for conducting an activity that can be anything
such as opening a restaurant or operating a heavy vehicle .

Revenue expenditure.
Revenue expenditures are the expenditures incurred for the basis other
than the creation of physical or financial assets of the central
government.

These are associated with the expenses incurred for the normal
operations of the government divisions and various services, interest
payments on debt sustained by the government, and grants given to
state governments and other parties.

Budget documents allocate total expenditure into plan and non-plan

expenditures.
These are shown in item 6 on the table within revenue expenditure, a
distinction is made between plan and non-plan.
According to this categorisation, a plan revenue expenditure is
associated with central plans (the Five-Year Plans), and central aid for
state and union territory plans.
Non-plan expenditure, the more significant component of revenue
expenditure, covers a broad degree of general, economic, and social
services of the government. The main objects of a non-plan
expenditure are interest payments, defence services, subsidies,
salaries, and pensions.

Capital receipts:
Capital receipts will be receipts that make liabilities or diminish
monetary resources. They additionally allude to incoming cash flows.
Capital receipts can be both debt receipts and non-debt receipts.
Credits or loans got from foreign aid from foreign governments, the
Reserve Bank of India (RBI), and the overall population, structure a
critical piece of capital receipts.

Kinds of Capital Receipts in Government Budget :

Borrowing and Other Liabilities:
It incorporates essentially borrowings by the public authority. The
public authority gets from the

 market
 from general society
 from the national bank
 from Foreign states and bodies.
Raising assets through acquiring prompts an increment in the liabilities
of the public authority. It is a capital receipt.

Capital expenditure
There are the expenditures of the government that result in the
creation of physical or financial assets, or depletion in financial
liabilities. These are known as capital expenditures.

Disinvestment:
when the public authority raises assets by selling its equity shares
holding, it is called disinvestment. It prompts a decrease in the
resources held by the public authority. It is a capital receipt.
Recuperation of Loans or Recovery of Loans:
The local government awards credits to state legislatures, association
region states, and different gatherings.
Conceding credits build the monetary resources of the public authority.
At the point when the government recuperates or recovers these
credits from its borrowers, it is treated as capital receipts. It prompts a
decrease in the monetary resources of the public authority.

Budget Deficit
A budgetary deficit is referred to as the situation in which the spending
is more than the income.
In other words, a budgetary deficit is said to have taken place when
the individual, government, or business budgets have more spending
than the income that they can generate as revenue.

Types of Budget Deficits

There are three types of budget deficit. They are explained follows:

1. Fiscal deficit
2. Revenue deficit
3. Primary deficit

Fiscal Deficit
Fiscal deficit is defined as the excess of total expenditures over the total receipts, excluding the
borrowings in a year. In other words, this can be defined as the amount that the government
needs to borrow in order to meet all expenses.
The more the fiscal deficit, the more will be the amount borrowed. Fiscal deficit helps in
understanding the shortfall that the government faces while paying for the expenditures in the
absence of lack of funds.
The formula for calculating fiscal deficit is as follows:
Fiscal deficit = Total expenditures – Total receipts excluding borrowings
Revenue Deficit
Revenue expenditure is defined as the excess of total revenue expenditure over the total
revenue receipts. In other words, the shortfall of revenue receipts as compared to that of the
revenue expenditure is known as revenue deficit.
Revenue deficit signals to the economists that the revenue earned by the government is
insufficient to meet the requirements of the expenditures required for the essential government
functions.
The formula for revenue deficit can be expressed as follows:
Revenue deficit = Total revenue expenditure – Total revenue receipts

Primary Deficit
Primary Deficit is said to be the fiscal deficit of the current year subtracted by the interest
payments that are pending on previous borrowings. In other words, the primary deficit is the
requirement of borrowing without the interest payment.
Primary deficit, therefore, shows the expenses that government borrowings are going to fulfil
while not paying for the income interest payment.
A zero deficit shows that there is a requirement for availing credit or borrowing for clearing the
interest payments pending.
The formula for the primary deficit is expressed as follows:
Primary deficit = Fiscal deficit – Interest payments