Unit -II

The Indian Union Budget

The Indian Union Budget is an annual financial statement presented by the Government of
India in the Parliament. It is a comprehensive document that details the government's revenue
and expenditure for the upcoming fiscal year, which runs from April 1 to March 31.

The Union Budget includes information on the government's revenue sources, such as taxes
and non-tax revenues, as well as its planned expenditures on various sectors, such as defense,
education, health, infrastructure, and more. It also includes policy measures and proposals that
the government plans to implement to achieve its economic goals for the upcoming fiscal year.

The Union Budget is prepared by the Ministry of Finance and presented by the Finance
Minister of India. It is an important event in India's political and economic calendar, and its
contents are closely watched by various stakeholders, including businesses, investors,
economists, and the general public.

Revenue and capital budgets

A revenue budget is a financial plan that outlines the expected income and expenses of an
organization over a particular period. The revenue budget is typically focused on the day-to-
day operations of the organization, and it details the income and expenses that are necessary to
keep the organization running.

In contrast, a capital budget is a financial plan that outlines the expected income and expenses
associated with long-term investments or capital expenditures. Capital budgets typically cover
investments in fixed assets such as buildings, equipment, or infrastructure, and they are
typically focused on the longer-term financial health of the organization.

In summary, the main difference between a revenue budget and a capital budget is that the
former is focused on the day-to-day operations of an organization, while the latter is focused on
long-term investments and the acquisition of fixed assets. Both types of budgets are important
for managing the financial health of an organization, and they should be carefully planned and
monitored to ensure that the organization is on track to meet its goals and objectives.

1
 Classification of Public Revenue

Public revenue refers to the funds that are collected by the government through various means
such as taxes, fees, fines, and other sources. These revenues are used by the government to
finance public goods and services, such as education, healthcare, infrastructure, and defense.
Here are some of the classifications of public revenue:

1. Tax revenue: This is the primary source of public revenue and refers to the money
collected by the government through various taxes such as income tax, sales tax,
property tax, and excise tax.

2. Non-tax revenue: This refers to the revenue collected by the government through
sources other than taxes. It includes revenue from sources such as fees, fines, licenses,
and permits.

3. Capital revenue: This refers to the revenue generated by the government through the
sale of assets, such as land, buildings, and equipment.

4. Borrowed revenue: This refers to the funds borrowed by the government from various
sources such as banks, financial institutions, and other countries.

5. Grants-in-aid: This refers to the funds received by the government from other
governments or international organizations for a specific purpose, such as aid for
development or relief during a natural disaster.

6. Dividend revenue: This refers to the revenue generated by the government from its
ownership in state-owned enterprises, such as public utilities or transportation
companies.

These are some of the common classifications of public revenue, and governments may use
different classifications depending on their specific needs and circumstances.

Sources of Public Revenue

Public revenue refers to the money collected by the government from various sources to
finance its operations and provide public services. The sources of public revenue can be
broadly categorized into two types:

1. Tax Revenue: Taxes are the most significant source of public revenue. Taxation involves
levying a charge on individuals or organizations based on their income, wealth, or
consumption. The various types of taxes include:

 Income Tax: This is a tax levied on the income earned by individuals or organizations.
 Sales Tax: This is a tax levied on the sale of goods and services.
 Property Tax: This is a tax levied on the value of property owned by individuals or
organizations.
 Excise Tax: This is a tax levied on the production or sale of specific goods.
 Corporate Tax: This is a tax levied on the income earned by corporations.

2
 2. Non-Tax Revenue: Non-tax revenue refers to the revenue collected by the government
through means other than taxes. The various sources of non-tax revenue include:

 Fees and Fines: The government charges fees for various services it provides, such as
issuance of licenses, permits, and certificates. It also collects fines for various offenses
committed by individuals or organizations.
 User Charges: The government charges user fees for the use of public utilities such as
water, electricity, and transport.
 Rent and Royalties: The government earns revenue by leasing out its properties or
charging royalties for the use of natural resources.
 Dividends and Profits: The government earns revenue from its investments in public
sector enterprises and other organizations.
 Grants and Aid: The government receives grants and aid from other countries,
international organizations, and philanthropic foundations to finance its operations and
development programs.

Overall, the government uses a combination of tax and non-tax revenue sources to finance its
operations and provide public services to its citizens.

Principles and Forms of taxation

Taxation is the primary source of public revenue for most governments around the world. The
principles and forms of taxation are important considerations when designing a tax system.
Here are some of the key principles and forms of taxation:

Principles of taxation:

1. Equity: Taxation should be fair and just, with everyone paying their fair share based on
their ability to pay.

2. Efficiency: The tax system should be efficient and not impose undue burdens on
taxpayers.

3. Simplicity: The tax system should be simple and easy to understand.

4. Certainty: Taxpayers should know in advance how much tax they owe, and the tax
system should be predictable.

5. Convenience: Taxpayers should be able to pay their taxes easily and without undue
burden.

6. Economy: Tax collection should be done in a cost-effective manner.

3
Forms of taxation:

1. Direct taxes: These are taxes levied directly on the income or assets of individuals or
businesses, such as income tax or property tax.

2. Indirect taxes: These are taxes imposed on the purchase or consumption of goods and
services, such as sales tax or value-added tax (VAT).

3. Proportional taxes: These are taxes that are charged at a fixed percentage rate
regardless of income, such as a flat income tax rate.

4. Progressive taxes: These are taxes that increase as income increases, such as a
graduated income tax system.

5. Regressive taxes: These are taxes that take a larger percentage of income from low-
income earners than from high-income earners, such as sales tax or excise tax on
necessities like food and medicine.

6. Ad valorem taxes: These are taxes based on the value of the item being taxed, such as
property tax or import duties.

7. Specific taxes: These are taxes charged at a fixed rate per unit of a particular item, such
as gasoline tax or cigarette tax.

Overall, the principles and forms of taxation are critical factors in determining the fairness and
effectiveness of a tax system. Governments must balance the need to raise revenue with the
need to minimize the burden on taxpayers and encourage economic growth.

What is Surplus?

Surplus is the amount by which something exceeds what is necessary or required. In

economics, it refers to the difference between the total amount of goods or services produced
and the total amount that consumers are willing to purchase at a given price.

Surplus can be classified into two types: consumer surplus and producer surplus. Consumer
surplus is the difference between the maximum price a consumer is willing to pay for a product
or service and the actual price they pay. Producer surplus, on the other hand, is the difference
between the actual price received by a producer and the minimum price they would have
accepted for the product or service.

In both cases, surplus is a measure of the efficiency of a market. If there is a large surplus, it
suggests that there is excess production or that prices are too high, which could lead to a
decrease in demand or a surplus of unsold goods. Conversely, a small surplus could indicate
that there is not enough production or that prices are too low, which could lead to shortages or
increased demand.

4
 Deficit and balanced budget

Deficit and balanced budget are two concepts related to government spending and revenue.

A deficit occurs when a government spends more money than it receives in revenue over a
given period of time, usually a fiscal year. In other words, the government is running a budget
deficit when its expenditures exceed its revenue, leading to an increase in debt. This can
happen for various reasons, such as an economic downturn, increased spending on public
programs, or a decrease in tax revenue.

On the other hand, a balanced budget occurs when a government's revenue is equal to its
expenditures over a given period. In this scenario, the government is not borrowing to finance
its spending, and its debt levels remain stable. A balanced budget can be achieved by either
reducing spending or increasing revenue, such as through taxes or other sources of income.

A balanced budget is often seen as a desirable goal for governments, as it promotes fiscal
responsibility and reduces the risk of economic instability. However, in some situations, a
budget deficit may be necessary or even beneficial, such as during a recession when
government spending can help stimulate the economy.

Concepts of Deficit

There are several different concepts of deficit, depending on the context in which the term is
used. Here are a few examples:

1. Economic Deficit: This refers to the situation where a government or an individual

spends more money than it earns. In the case of a government, this may lead to the
accumulation of national debt.

2. Nutritional Deficit: This refers to a lack of adequate nutrition in one's diet. It can result
in malnutrition, stunted growth, and a weakened immune system.

3. Attention Deficit: This refers to a condition in which an individual has difficulty focusing
on a particular task or activity, often accompanied by hyperactivity or impulsivity. This
is commonly known as Attention Deficit Hyperactivity Disorder (ADHD).

4. Cognitive Deficit: This refers to a decline in cognitive abilities, such as memory,

language, perception, and reasoning. It can be caused by various factors such as brain
injury, aging, or certain medical conditions.

5. Trade Deficit: This refers to a situation where a country imports more goods than it
exports. It can result in a negative balance of trade, which may have economic
implications for the country in question.

6. Energy Deficit: This refers to a situation where an individual or organism is not

consuming enough energy (in the form of food or other sources) to meet its metabolic
needs. This can result in fatigue, weakness, and other health problems.

5
 Objectives of budgetary Policy

Budgetary policy refers to the use of government spending, taxation, and borrowing to
influence the economy's performance. The objectives of budgetary policy can vary depending
on the economic conditions and the government's priorities. However, some common
objectives of budgetary policy are:

1. Economic growth: One of the primary objectives of budgetary policy is to promote

economic growth by increasing government spending on infrastructure, education,
research, and development. This helps to stimulate economic activity and create jobs.

2. Price stability: Another important objective of budgetary policy is to maintain price

stability. This is achieved by controlling inflation through measures such as reducing
government spending and increasing taxes to reduce demand in the economy.

3. Full employment: Budgetary policy can also be used to achieve full employment by
stimulating economic growth and creating job opportunities. The government can
increase spending on public projects or provide incentives to businesses to encourage
them to hire more workers.

4. Income distribution: Budgetary policy can be used to promote income distribution by

providing support for low-income individuals and families. This can be achieved
through programs such as social welfare, education, and healthcare.

5. Balance of payments: Budgetary policy can also be used to maintain a balance of

payments by controlling the country's exports and imports. The government can
impose tariffs or quotas on imports to reduce the trade deficit and increase exports to
improve the trade surplus.

Overall, the objective of budgetary policy is to promote a stable and sustainable economy that
benefits all members of society.

Allocation of budgetary Policy

Budgetary policy is the use of government spending, taxation, and borrowing to influence the
economy's performance. The allocation of budgetary policy refers to how the government
decides to allocate its budget towards different sectors and programs.

The allocation of budgetary policy is a crucial decision for governments as it determines how
public resources are utilized to achieve different objectives. Here are some key factors that can
influence the allocation of budgetary policy:

1. Economic Priorities: The government may prioritize certain sectors of the economy
based on their importance to the country's economic growth and development. For
example, a government may allocate more funds towards infrastructure development,
education, or healthcare.

6
 2. Political Priorities: The government may also allocate funds based on political priorities.
This could include policies aimed at gaining political support, such as funding for social
welfare programs or defense spending.

3. Fiscal Constraints: The allocation of budgetary policy is also influenced by fiscal

constraints. The government may have limited resources and must make tough
decisions about which programs and sectors to fund and at what levels.

4. External Factors: External factors, such as global economic conditions or political

instability, may also influence the allocation of budgetary policy. For example, a
government may need to allocate more funds towards defense or security spending in
response to a threat from a neighboring country.

Overall, the allocation of budgetary policy is a complex decision that requires careful
consideration of various factors. Governments must balance their economic, political, and
social priorities while ensuring that they remain fiscally responsible and accountable to their
citizens.

Budgetary policy: distribution, stabilization, and growth

Budgetary policy can be used by governments to achieve different objectives, including

distribution, stabilization, and growth. Here's how each of these objectives can be achieved
through budgetary policy:

1. Distribution: Budgetary policy can be used to address income and wealth inequality by
allocating resources towards social welfare programs, education, and healthcare. By
redistributing resources towards those in need, budgetary policy can help to promote
social equity and reduce poverty.

2. Stabilization: Budgetary policy can be used to stabilize the economy during periods of
economic downturns or recessions. This can be achieved by increasing government
spending and reducing taxes to stimulate demand and boost economic activity.
Conversely, during periods of economic expansion, budgetary policy can be used to curb
inflation by reducing government spending and increasing taxes.

3. Growth: Budgetary policy can also be used to promote long-term economic growth. This
can be achieved by allocating resources towards infrastructure development, education,
and research and development. By investing in these areas, governments can promote
productivity and innovation, which can lead to higher economic growth over the long
term.

Overall, the allocation of budgetary policy can be used to achieve different economic and social
objectives. Governments must carefully balance these objectives to ensure that they are able to
meet the needs of their citizens while also remaining fiscally responsible and accountable.