GOVERNMENT BUDGET

1. DEFINE GOVERNMENT BUDGET.

ANS. Government budget is an annual statement showing item wise estimate of receipt and expenditure during a fiscal year,
financial year and accounting year.

2. OBJECTIVES OF GOVERNMENT BUDGET.

ANS. (i) REALLOCATION OF RESOURCES : With the help of budgetary policy , government reallocate the resources in such a

manner with economic and social welfare of country.

(a)TAX CONCESSIONS AND SUBSIDIS: Government discourage the production of harmful products such as liquor , cigarette etc
through imposing heavy taxes on them and government encourage the production of necessity items such as khadi by
providing subsidies on them.
(b) Directly producing goods and services : there are many non profitable activities which are not undertaken by private sectors
such as water supply , sanitation , law and order etc. Such activities are undertaken by public sectors in order to do social
welfare.
(ii) Reducing inequalities of income and wealth : with the help of budgetary policy Government aims to reduce inequalities of
income and wealth by imposing taxes and rich and spending more on welfare on poor which helps to raise the standards of poor
people.
(iii) Employment generation: with the help of budgetary policy Government focuses on providing employment opportunity by
establishment of roads schools etc. And also by providing or by establishing various employment schemes like MGNREGA etc.
(iv) Management of public enterprises : There are large number of public sectors industries
which are established for providing social welfare of the public. So with the help of budgetary
policy various provisions were made in order to provide them financial help.
(v) Balance regional development : with the help of budget 3 policy the development of backward
regions to place. This is achieved by establishing SEZ (special economic zones) in the backward
region.
3. What is budget receipt.
ANS. It refers to the estimated money receipt of the government from all the sources
during a fiscal year, financial year and accounting year.
It is of 2 types:
(i) Revenue receipt: It refers to those receipt which neither create any liabilities no
reduces any assets of government. It is one sided income.
(ii) Capital receipt: there are these are those receipts which either create any liabilities
or reduces the assets of the government.
Two types of revenue receipts are :
(a) Tax receipt: it is the compulsory payment to the government by the household,
firms or the other institutional unit.
(b) Non tax receipt: these are those receipts which arises from the source of other than
tax.
5. What are things which involve in the tax receipt.
ANS. (i) CORPORATION TAX: It is a direct tax as its impact and incidence lie on same
person.
(ii) GOODS AND SERVICES TAX : It is an indirect tax as its impact and incidence lie on
different persons.
(iii) INCOME TAX: It is a direct tax as its impact and incidence lie on same person.
(iv) CAPITAL GAIN TAX : It is a direct tax as its impact and incidence lie on same person.
7. Capital receipts include: -
(i) Borrowings : the funds are raised by government in order to meet their
expenditure from Om RBI foreign Government and international institutions.
Hands borrowing is said to be capital receipt as it creates liability for government.
(ii) RECOVERY OF LOAN : In this Central Bank provides loan to state government in
order to cope up with financial crisis. So, when the loans are recovered, it is said to
be capital receipts as it reduces the assets of the government.
(iii) OTHER RECEIPTS: This includes disinvestment. This investment is opposite to
investment.

8. WHAT IS BUDGET EXPENDITURE?

ANS. It refers to the estimated expenditure of the government during a fiscal year,
financial year and accounting year.
9. WHAT IS REVENUE EXPENDITURE?
ANS. It refers to expenditure which neither create any assets not reduces any liabilities of government.
(i) It does not create any assets : for example expenditure by the government on old age pension, salaries and scholarship are
to be treated as revenue expenditure.
(ii) It does not reduce any liability: Expenditure by way of grants to the state government to cope up with natural calamities
does not reduce financial liability of the central government in any manner accordingly this is to be treated as revenue
expenditure.

1 0.WHAT ARE THE THINGS INVOLVED IN REVENUE EXPENDITURE.

ANS.
(iii) SUBSIDIES : It is a revenue expenditure as it does not create any assets not reduces any liabilities of
government.
(iv) GRANTS GIVEN TO THE STATE GOVERNMENT: it is a revenue expenditure as it does not create any assets
not reduces the liabilities of government.
(v) EXPENSES IN CURED ON ADMINISTRATIVE AND DEFENCE SERVICES : it is a revenue expenditure as it
neither create any assets nor reduces liabilities.
(vi) PAYMENT OF SALARIES TO THE STAFF OF GOVERNMENT HOSPITAL: it is a revenue expenditure as it
neither create assets not reduces liabilities of government.
(vii) EXPENDITURE ON COLLECTION OF TAXES: it is a revenue expenditure as it neither create assets not reduce
is liabilities of government.
(viii) EXPENDITURE ON SCHOLARSHIP: it is a revenue expenditure as it neither create assets nor reduces
liabilities of government
11. WHAT IS CAPITAL EXPENDITURE?
ANS. It is a type of expenditure which either creates assets or reduces the liability of
the government.

(i) EITHER CREATE ASSETS FOR GOVERNMENT: For e.g. : construction of metro is capital expenditure as it
leads to creation of assets. However any amount paid as salaries is not a capital expenditure as there is no
increase in the assets.
(ii) REDUCES THE LIABILITIES: For e.g : repayment of borrowings is a capital expenditure as it leads to
reduction in the liabilities of government.

12. WHAT ARE THE THINGS INVOLVED IN CAPITAL EXPENDITURE?

ANS. (i) DEFENCE CAPITAL EQUIPMENT PURCHASE FROM GERMANY: As it increases the assets of government
it is said to be capital expenditure.
(ii) CONSTRUCTION OF SCHOOL BUILDING: It increases that assets of government.
(iii) EXPENDITURE ON BUILDING AND BRIDGE: It increases the assets of government.
(iv) REPAYMENT OF LOAN: It reduces the liability of government.
(v) PURCHASE OF 20 CRANES FOR CONSTRUCTION OF FLYOVERS: It increases the assets of government.
(vi) AMOUNT BORROWED FROM USA REPAID: It reduces the liability of government.
(vii) EXPENDITURE ON PURCHASING COMPUTER: It increases the assets of government.
 BUDGET DEFICIT

13. WHAT IS BUDGET DEFICIT?

ANS. Budget deficit also called government deficit refers to situation when budget
expenditure of the government is greater than budget receipt of the government full
stop it is also known as the government deficit.
BUDGET DEFICIT = TOTAL EXPENDITURE – TOTAL RECEIPT
BD = BUDGET EXPENDITURE – BUDGET RECEIPT When
BUDGET EXPENDITURE > BUDGET RECEIPT.
15. WHAT IS REVENUE DEFICIT. WRITE ITS IMPLICATIONS.
ANS. Revenue deficit is the excess of revenue expenditure over revenue
receipt.
Revenue = Revenue Expenditure – Revenue Receipt Deficit
RD = RE – RR when RE> RR.

IMPLICATIONS.
(i) LOSS OF SOCIAL WELFARE: Because of revenue deficit the government
may have to cut their expenditure on various social welfare programs in
the country which leads to loss of social welfare.
(ii) LACK OF CREDIT WORTHWISE : The government may have to race once
through borrowings which races the liability of the government and lowers
it’s credit worthiness.
(iii) DISINVESTMENT : The government may be compiled for disinvestment
for selling its ownership of public enterprises which leads to
disinvestment.
16. WHAT IS FISCAL DEFICIT?
ANS. It papers to the excess of total expenditure over total receipt.
FISCAL DEFICIT = TOTAL EXPENDITURE - TOTAL RECEIPT
FD = BE – BR (Other than borrowings)
FORMULAE = FISCAL DEFICIT - TOTAL RECEIP

IMPLICATIONS :
(i) FOREIGN DEPENDENCE: Government also borrows from rest of the world which
raises the dependence on other country.

(ii) HAMPER THE FUTURE GROWTH : borrowings increases the financial burden for
future generation. It adversely affects the future grows and development of the
country.

(iii) DEBT TRAP: Borrowings not only involves repayment of principle amount, but
also requires payment of interest. Interest payments increases the revenue
expenditure , where in government take more loans to repay the earlier loan. As a
result country is caught in debt trap.
 17. INFLATION.
ANS. Government mainly borrows money from RBI to meet its fiscal deficit. RBI
prints new currency to meet the deficit requirements. It increases the money supply
in economy which leads to increase in general price.

18. WHAT IS PRIMARY DEFICIT?

ANS. It refers to the difference between fiscal deficit and interest payments. It tells
us the deficiency of current year and it do not consider the interest payment of past
loan.
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