GOVERNMENT BUDGET

PROJECT DRAFT
DAKSH GAUR 12 C
What is the Government Budget?
According to the chapter government budget and the economy class 12, the
government budget is basically an annual final statement which shows item wise
expenditures of the government or a ruling entity during a fiscal year. It also
presents the anticipated tax revenues and proposed spending or expenditures in
areas like Healthcare, Defence, Education, Infrastructure, Banks, State Benefits, etc.
The fiscal year is taken into account from 1st April to 31st March.

Objectives of the Government Budget

As per the chapter on Government Budget and the Economy class 12, the main
purpose or the main objectives of the government budget is as follows:

• Reallocation of resources
• Redistribution of activities
• Stabilizing economic activities
• Management of public enterprises
• Economic growth
• Generation of employment

Components of Government Budget

According to Government Budget and the Economy class 12, there are 2
components of the budget. These are:

• Revenue Budget: this deals with the revenue generation aspect of the
government budget. It further has 2 parts or components:
1. Revenue Receipts
2. Revenue Expenditure
• Capital Budget: the other feature is the capital budget, which deals with the
budget’s capital aspect, which the government prepares. It also has 2
components:
1. Capital Receipts
2. Capital Expenditure

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 Budget Receipts
According to the chapter government budget and the economy class 12, the budget
receipts refer to the estimated receipts/revenue or money receipts that the
government may earn from all the sources during a fiscal year. Receipts can be of 2
types, i.e. revenue receipts and capital receipts.

Revenue Receipts vs Capital Receipts

Government budget and the economy class 12 chapter gives the various
differences between revenue receipts and capital receipts. They are tabulated
below:

Basis of Revenue Receipts Capital Receipts

Comparison
Meaning Revenue receipts refer to the receipts that the Capital receipts are those receipts which the
government receives and that is generated from the government receive via or from the investments and
operating activities of the business. Revenue financing activities such as Borrowings and Other
receipts are further divided into 2 categories liabilities, Recovery of Loans, Other
i.e. Receipts from tax revenueReceipts from non-tax receipts(Disinvestments)
revenue
Nature Recurring in nature Non-recurring
Term Short term Long term
Shown in Income Statements Balance sheet
Value of asset Increases or decreases the value of asset or liability. Decreases the value of assets or increases the value
or liability of the liability.
Tax Revenues vs Non-Tax Revenues
As we have discussed above in this blog of Government Budget and the Economy
class 12 study notes, the revenue receipts are divided into 2 categories which are
tax revenue receipts and non-tax revenue receipts. The tax revenue receipts can
further be divided into 2 categories:

• Direct taxes
• Indirect taxes

Direct Taxes Indirect Taxes

These are taxes that are levied on These taxes are imposed on
individuals and companies. goods and services.
These taxes are paid by the same person It is not paid by the same person
on whom it is imposed on whom it is imposed.
The burden of direct taxes can not be Indirect taxes burden can be shifted
shifted to any other person. onto another person.
Examples: income tax, property tax Examples: sales tax, GST
On the other hand, the non-tax revenues, which is the second type of revenue
receipts which government may receive from all other sources other than taxes are:
 • Commercial Revenue
• Interests
• Dividends and Profits
• External Grants
• Administrative Revenues
• Fees
• License Fee
• Fines and/or Penalties
• Cash grants-in-aid from foreign countries and international organisations or
the World Bank

Budget Expenditure
The second component of the government budget is, of course, the government
budget expenditure. As we have discussed above, these are of two types, the
revenue expenditure and the capital expenditure. Let us understand the difference
between these two according to Government Budget and the Economy class 12.

Basis of Revenue Expenditure Capital Expenditure

Difference
Meaning The revenue expenditures are those expenditures of
government which neither cause increase in
government assets nor any reductions in the
government liabilities.
Purpose It is spent on normal functioning of the government
departments and various provisions.
Example Examples of such expenditures can be old age
pensions, expenses incurred on administrative
services, national security, health and education etc.
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Capital expenditures are those expenditures of the
government which leads to increase in the
government assets or reduction in the government
liabilities.
It is spent on the acquisition of assets, prepayment
of borrowings and granting of loans and advances.
Examples of such expenditures can be construction
of new roads, highways, repayment of government
loans, establishment of factories and companies
etc.

Plan Expenditure VS Non-Plan Expenditure

According to the chapter on Government Budget and the Economy class 12,
expenditures can be of 2 types:

• Plan expenditures: all those expenditures of the government that are to be

incurred during the fiscal or the financial year on things like development and
investment programs are termed as plan expenditures.
• Non-plan expenditures: all those expenditures of the government that are not
included in the current five year plan are termed as non-plan expenditures.

Types of Budget
According to the chapter on Government Budget and the Economy class 12, we can
bifurcate the government budget into 3 major types:
 • Balanced Budget: when estimated receipts are equal to the government
estimated expenditures.
• Surplus Budget: when government estimated receipts are shown more than
the government estimated expenditures.
• Deficit Budget: when government estimated receipts are shown less than the
government estimated expenditures. This implies an increase in the
government liabilities and fall in the reserves.

Deficit can be of 3 types:

• Revenue Deficit: Total Revenue Expenditure – Total Revenue Receipts

• Fiscal Deficit: Total Budget Expenditure – Total Budget Receipts excluding
borrowings

Or

Fiscal Deficit = Borrowings

• Primary Deficit: Fiscal Deficit Interest Payment

Implications of Revenue Deficits and Fiscal Deficits

Moving further in the government budget and the economy class 12, it mentions the
implications of revenue deficits and fiscal deficit. They are tabulated below.

Revenue Deficits (Total revenue expenditure > Total revenue receipts) Fiscal Deficits (Total expenditures > Total
Receipts excluding borrowing)
A high revenue deficit shows fiscal indiscipline It leads to inflationary pressure
It implies that government is using up savings of other sectors of the A country facing fiscal deficit has to face a
economy to finance its consumption expenditure situation of the debt trap.
It shows wasteful expenditures of the government on administration It further reduces future growth and
development of the country and economy
It reduces the assets of the government due to disinvestment It increases foreign dependence
A high revenue deficit gives a warning signal to the government to either It increases liability of the government
reduce or decrease its expenditures or increase its revenues
Measures to Reduce or Correct Different Deficits
As per the chapter on Government Budget and the Economy class 12, the measures
that can be adopted to reduce or correct different deficits in the economy are:

• Borrowing from international monetary institution and other countries

• Lowering government expenditure
• Increasing government revenue
• Monetary expansion
• deficit financing
• Borrowing from public
• Disinvestment