CHAPTER1 9

BUDGETARY
POLICY IN INDIA

INTRODUCTION

In modem days, budget policy ot a Government plays a vital role in the social and
nic life of the country. In the days of laisseze faire, the budget being the statement
econom

fimated receipts and expenditure there were only two objectives. These objectives were
how lite money the Government needs to take out of the pockets of the tax-payers
maintain its necessary activities at the proper standard of efficiency and (II) the Parliament
had to vote funds, so it had to know the plan of expenditure.
But, in present era, especially in a weltare state, the Government activities are fast
expanding and are covering almost all spheres of the social and economic life of all itizens
of the country. In spite of the fact that the private sector is gaining momentum due to
ineficiencies of the public sector but yet it has to play vital role.
Government is now an agency for promoting the general welfare of all the citizens
by positive acts. Government budgeting is one of the major instruments by which the use
of the
public resources are planned and controlled to attain certain objectives.
In addition to it, the size of the budget in relation to the rest of the
economy has
BrOWn so enormously that the power of the budget to affect the national economy has
ngreatly enhanced. Budgetary actions of the government affect production, size and
bution of income and utilisation of human and material resources of the country
Government budget is a powerful tool with which the government can greatly
ence the formation,. distribution and spending of national income through its taxation,
PDic
expenditure and borrowing policies.
Thessuperiority of the dget is due to its more firm and direct hold on the economy
the result budg
of the
budget policy are more direct.". Paul A.M. Van Philips
1
Paul A.M.
Van Philips-Public Finance and Less-developed Economy, p. 81
960 pUBLIC FINANCE
Therton, budget possessed specifir actions of thhe Covernent rergardiny, taxatuni, pwie
evpenditur as well borrowing policy. Similarly, Gladstumr found that budgets ai: nt ere
arithmetie but in thousand ways to go to the roots of prosperity individuais, relatiems r
classes and strength of kindom. Therefore, the taxation and expenditure policy heip
narrow down the class distinctions. The expenditure and production policy ained at remayyir
verty, unemployment and mal-distribution of wealth and accelerating the rate of econn iT,
devekopment. The public borrowing policy may also be aimed at accelerating the rate of savir
and for the mobilisation of resources for the rapid economic development of the eroniom
short, budget is a powerful instrument of economic activities or economic policy.

ECONOMIC, FISCAL AND BUDGETARY POLICY

Economic Policy. All those policies which have bearing on the nation's economic ife
are covered by economic policy.
Econonmic policy is the economic aspect of government policy in general, it is
the
deliberate intervention of the government in economic affairs"2, E.S. Kersellen
Its important constituents and
are banking
monetary policy, labour policy, trade
policy, export-import policy, agricultural and industrial policy and fiscal policy,etc.
Fiscal Policy. Prof. Buchler defined it as that which applies to the whole of
public
finance or
expenditure,
economic objectives3
taxes, borrowing and financial administration to further the national
"Fiscal policy may be taken to embrace all government transactions which have
as
their objective in the support of general economic policy."4 Mrs. U.K. Hicks
Fiscal policy refers to the management of government expenditure and taxes and
the handling of public debts in such a way as to accomplish certain objectives."s
Mr. J. J. James Bryee and Herbert
Nicholas A.
"Fiscal policy is concerned with the determination of the type, the time and the
procedure to be foilowed in making government expenditure and in obtaining
government revenues."6 R.W. Lindholm
From these definitions, we can say that fiscal policy is the corner-stone of the
Governmental policies and particularly of the economic policy. It is one of the most
significant tool of economic policy to achieve national economic objectives.
Budget Policy. According to C.A. Hal, "Budget policy exercises control over size
and relationship of government receipts and expenditure7 According to the Commite
For Economic Development (U. S.) "Budgetary policy is a policy with respect to the
relation between total government revenues and total expenditure to achieve the basic
objectives." Thus, Budgetary policy is concerned with coordinating tax and expendini
2. E.S. Kersellen-Economic Policy in our times, p. 3.
3 A.G. Buchler-Government Finance in a Stable Economy, p. 32
4, Mrs. U.K. Hicks-Development Finance, p-61.
5.JJames Bryee and Herbert A. Nicholas. The Basic Pattern of Fiscal Policy, p. 174.
6 R.W. Lindholm, Introduction to Fiscal Policy - p.3.
7. Charles A. Hall-Fiscal Policy for Stable Growth,
8.
9-91
B.N. Gupta-Indian Fiscal Finance and Budgetary Policy, p. 341.
 IN INDIA
BUDGETARY
POLICY

lanesbetween the two to

961
.d
strike a
balnee so as
produce the best effects on the natiormal
hation resources
n g h taNation
ae ransterred frOm
public to the
l i e s

u neceived the governrnent and by

ditune bernetit is by
public, through, budgetary policy these two
d to be pertormed as to produce maximum social advantage." Therefore,
m e n t through which fiscal policy is executed, administered and controlled.
adetis

3JECTIVES
OF BUDGETARY POLICY
p t a r y policy is the policy ot household keeping of the nation ; and is
The
a
cheme ation, expenditure, etc., for the efficient conduct of "fiscal
of taxati
nstructing
atisfactory degree of soundness of public finances in the long run with
h o u u s e h o l d

year. This may be called budget engineering. The main object

trom year to of
object of
ibility
is to promote a balanced expansion of the economy
budget
engineeri
polic t h e economv with available
derdeveloped
sources in unde countries. Budgetary
Dudgetary policy is to be made an instrument of
with stability and of
stability and of promoting national income, savings and investment.
ievelopment

According
Aco
to Prof. Walter Heller, the objectives of budgetary policy in
countries should be
underdeveloped
( To make available for economic development, the maximum flow of human and
material resources consistent with minimum current consumption requirement.
(t To maintain reasonable economic stability in the face of long run inflation pressure
and short term international price movement.
(tin To reduce, wherever they exist, the extreme inequalities in wealth, income and
consumption standards which undermine productive efficiency, afford justice and
endanger political stability.
The objectives of budgetary policy, obviously, is to help in the process of economic
growth with stability on the one hand and to maintain social justice on the other.
Resources are transterred away trom consumption towards investment. Besides,
unnecessary
government expenditure is controlled and efforts are made to stimulate efficiency in
government. In short, budgetary policy should be used in conjunction with other policies
Such as monetary policy and credit
policy.
DISTINCTION BETWEEN FISCAL POLICY AND BUDGETARY
POLICY
Here, it is
important to distinguish between budgetary and fiscal policy.
Botih, budgetary and fiscal policy seem to be similar but not identical. They are similar in the
sSe that both are important instruments of economic policy to achieve national economic
use taxation, public expenditure and borrowing as their tool to achieve, objectiveS. national
c objectives such as growth with stability, reduction in economic
justice, etc. Despite these facts, both are not identical. inequalities,
POVISIon of social

riscal policy is a long term phenomena while budgetary policy is a short term
phenomena.
fiso
policy lays down the principles while budgetary policy inmplements them n
practice.
Water Heller,
U.N. "Taxes and Fiscal Policy in Developing Countries"
 962 PUBLIC FIHANCE
1. Fiscal policy determines structure and lays down the road to the nationial econoni
ortie
objective while the budgetary policy covers the distanoe through road-march, i i
step by step, thus, each year budget which is an exposition of the budgetary poic
IS prepared, presented before the parliament passed and executed to promote t
national economic objectives already set out in the fiscal policy. t implies that the
Government has taken a step further in the direction ot national economic objectives,

Components of Revenue and Capital Budgets

The budget document of India is divided into two parts, viz. the revenue account and
the capital account. The revenue budget deals with receipts from taxation and non-tay
revenues like those from public enterprises, fiscal services, interest and dividends,
the one hand and disbursements on their account and with respect to both development
and non-development activities on the other. The capital budget is the statement of all
capital receipts like loans and recoveries, collection from small savings and provident
funds, etc. and of all capital expenditures like those on defence loans and advances,
general services and developmental investments. The revenue budget comprises of the
following main heads of receipts and expenditure.
Revenue Budget

Receipts items Disbursement items

Total Revenue (A + B) Total disbursement (A + B + C)

Centre's Share (A B-States' share) A. Development expenditure (a +b + c+d)

A. Gross tax revenue (a + b + C)
Centre's share (A-states' Share)
a. Taxes on income and expenditure
b. Taxes on property & capital
commodities and
C. Taxes on
(Less) State's share
B. Non-tax Revenue (a + b + c)
a. Fiscal Service
b. Interest receipts
C. Profits and others.
a. Social services
b. Economic services
C. Grants-in-aid to states and UT's
d. General services
B. Non-development expenditures
(a+b+c+d)
services. a. Interest payment
b. Administrative senvices.
C. Grants to States and UT's
d. Collection of Taxes and others.
C. Defence expenditure

The capital budget comprises thefollowing heads of receipts and expenditures.

Capital Budget
Recepits Items Sl.No. Distribution Items
SI.No.
Market Ioans (net) 1. Defence expenditure
1.
External loans (net) 2. Loans and advances.
2.
Recoveries of loans and advances 3. Other non-development expenditures.
3 4. Development expenditures (a
+ b)
4. Small Savings (net)
a. Social Services
5. Provident Funds
b. Economic services.
6. Others 5. General Services
 IN INDIA
BUDGETARY
POLICY

963
TREND OF INDIA
BUDGETARY

The govemment budgets in India give a complete picture of the estimated receipts and
The gov the
eyenditun
govemment.
In fact, the budget document is a
complete action plan
sets of figures, viz. the actual figures for the previous fiscal year, revised
depicting three
estimates for he urrent year and budget estimates of. the coming year. The
tiscal
in India comprises of the period from April, 1 to March, 31.
year in
budgetary
The budget is normally presentea every year on the last day of February of the preceding
hthe Finance Minister before the parliament. In the case of state governments, the
yeais presented before the state legislatures by their respective Finance Ministers. After
he budget is presented, it is debated. The demands of various ministries are discussed and
cuitableamendments thereon are made. A scope is provided in the budget session for
cion on the working, efficiency or otherwise of each
ministry or department. After the
budget proposals of receipts and disbursements pass through the critical analysis of the
omhers of parliament or state legislatures, as the case may be, and the demands are voted
nan, a Finance bill is passed to approve the proposals and
up Appropriation
Bill is ultimately
passed to raise proposed taxes and incur proposed expenditures.

BUDGETARY TRENDS SINCE 1990-91

The budgetary trends in India since 1990-91 can be explained under four
They are : headings.
Budgetary Trends of Revenue Receipts and Revenue Expenditures.
(a)
Budgetary Trends of Capital Receipts and Capital Expenditures.
(b)
c) Budgetary Trends of Plan Expenditure and Non-Plan
Expenditure.
(d) Budgetary Trends of Deficit Spending.
A. Budgetary Trends of Revenue
Receipts and Revenue Expenditures
Budgetary trends in terms of revenue recepits and revenue expenditures are
in Table 19.1. Both revenue
receipts and revenue expenditures have increased presented
overtime. Revenue recepits excelled from 7 54954 crores
in 1990-91 to
significantly
2015-16 amounting to 8.7 1195025 crores in
percent gross domestic product GDP) of the country.
venue
expenditure showed fast increase during this period and thus was 11.2 Similarly,
the GDP. Hence the
revenue defictit was about 3 percent of
percent of GDP (Table 19.1).
Revenue receipts are further
7.2% and 1.6% of GDP in split into tax revenue and non-tax revenue which were
2014-15 respectively. Similarly, revenue
payments, major subsidies and defense expenditure was expenditure
nterest in terms of
and 1.1% of GDP expected to be 3.2%, 2.0%
able 19.1.
respectively.
Revenue Receipts and Revenue
Expenditures of Centre Since 1990-91
( in Crores)

1. Revenue
1990-91 2000-01| 2005-06 2010-11 2015-16
54954 192605 347462 788471 1195025
Receipts of which (9.7)
(a) Tax Revenue (9.2) (9.7) (10.1) (8.7)
42978 136658 270264 569869 943765
(7.6) (6.5) (7.5) (7.3) (6.9)
964 PUBLIC FIHASK
1990-911 2000-01 2005 06 2010-11261e
11976 S5947 77193 2186
Revenue (2.1) (2..7) (2.2)
Revenue 73516 277838 439761 1949723 1151
Expenitures of which (12.9) (13.3) (12.3) (13.4
{) interest 21498 99314 132630 234022
Payments (3.8) .8) (3.7) (3.0)
() Major 9581 25860 44480 173420 241632
Subsidies (1.7) (1.2) (1.2) (2.1)
92061
(c) Defence 10874 37238 48211 14593
Expenditures (1.9) (1.8) (1.3) (1.2) (.)
Source: Economic Survey, Government of India.
Figures in parentheses indicate percentage of GDP.

B. Capital Receipts and Capital expenditure

As shown in Table 19.2, capital receipts in terms of recovery ot loans, other receipt
mainly PSU disinestments and borrowings and other liabilities amounted to 31971 crores
in 1990-91 and subsequently increased, touching an expected level of 595758 crore in
2015-16. As percentage of GDP, capital receipts also varied overtime hovering around5
percent. On the other hand, capital expenditure figure as percent of GDP has singnificanti
divindled from 4.4% in 1990-91 to 1.8% in 2015-16.
Table 19.2. Capital Receipts and Capital Expenditures of
Centre since 1990-91
(7 in crore)

1990-91 2000-01 2005-06 2010-11 2015-16

31971 132987 158661 408857 595758

1. Capital Receipts
(5.6) (6.4) (4.4) (5.3) (4.4)
12046 10645 12420 20835
(a) Recovery of 5712
(0.6) (0.3) (0.2) (0.2)
Loans (1.0)
1581 22846 42132
2125
(b) Other
(0.0) (0.1) (0.0) (0.3) (0.3
Receipts
(mainly PSU Disinvestment) 532791
118816 146435 373591
26259
(c) Borrowings (4.8) (3.9)
(4.6) (5.7) (4.1)
and other
Liabilities 66362156605 2533022

24756 47754
2. Capital (1.9) (2.1) (1.8)
(4.4) (2.3)
Expenditures of GDP
Parentheses indicate %
Government of India.
Source : Economic Surveys, 19907 in
24756 crore
was almost double ; at
growth of capital
expenditure there was growtn
The
2000-01. However, during 2005-06,
increased 47754 crore in which stood at
7 25330 crore
it
66362 (1.9 per cent)
crore

expenditure amounting to 7
 -

POLICY IN INDIA
BUDGETARY
965
015-10. In terms
s af percentage, capital expenditure was 4.4 percent which declined to
in
115-16. Other important
2015-16.
Other items ot
expenditure are economic services, defence
Nnent services.
1.8
s
and general
C. Plan Expenditure

For development
relopment plans, resources are raised trom various sources which may be
brdly grouped uno d under domestic and external mobilisations. Among the domestic sources,
hdly gr surplus,
getary s. contribu
contribution of public enterprises, market borrowings and small savings
ial m mention.
ieserve s p e c i a l e n t i o n . External assistance is obtained from international financial

isations like (IMF,

Vorld Bank, Aid India Consortium, etc. and
Wor
organ
countries. foreign
deficit financing is taken for the uncovered gap. The trend of
plan from the
1indicates that the government has tailed to raise adequate resources financing
d sources. The failure is partly on account of errors in estimating fund sources and
expea
a c c o u n t of economic, social and
artly on political instabilities and the associated delays
eslting in time over-run and cOst over-Tun in the process of plan implementation.

The budgetary support to plan expenditure and non-plan expenditure has been given
in Table 19.3. Plan expenditures during 1990-91 to 2000-2001 rose from 28363 crore to
82669 crore and further to 471083 crore in 2014-2015. While in terms of percentage, it
has shown fluctuating trend and stood at 3.4% in 2015-16.
Table 19.3. Plan Expenditure and Non-Plan Expenditure
F in crore) (%% of GDP)
1990-91 2000-01 2005-06 2010-11 2015-16
Plan 28363 82669 140638 379029 471083
Expenditure (5.0) (4.0) (3.9) (4.9) (3.4)
Non-Plan 69907 242923 365485 818299 1319700
Expenditure (12.3) (11.6) (10.2) (10.7) (9.6)
Total 98272 325592 506123 1197328 1790793
Expenditure (17.3) (15.6) (14.1) (15.6) (13.1)
Source Economic Surveys, Government of India.
Figures in parentheses indicate percentage of GDP.

Non-Plan expenditure
has also shown
crore in 2000-01 which is
upward trend. It was amounting to 7 69907
expected
it has recorded downward trend as
to be F 1191140 crore in 2014-15. In terms of
percent,
12.3 percent in 1990-91 to 11.6 in 2000-01 and
during 2015-16, it declined to 9.6 per cent. Considering an overall percent
total
expenditure of plan expenditure and non-plan expenditure has position, it is stated that
1990-91 total increased rapidly. In
expenditure was 7 98272 crore which rose to 7
1790783 crore in 2015-16. In terms of 325592 crore in 2000-01 and

against 17.3 percent in 1990-91. percent, it stood at 15.6 percent of GDP in 2000-01
However, it declined to 13.1 percent in 2015-16.
D. Trend of Deficit
is clear from
spendin9
what the above pattern of
government
easy recourse of increasing doses of deficitexpenditure and
taken is that the Government
d
financing as a result larger
966 PUBLIC PINANCE
budgetary gaps were created. It is imporlant here to distinguish between
and fiscal deticit. While fiscal budget deficit
deficit is the summation of government revenue
ue receipts,
receipts,!loan
recoveries and other
borrowing receipts minus plan and non-plan expenditures, the
budgetary deficit is the excess of plan and non-plan
receipts. The real measure of expenditures
over
revenue and capital
government obligation is, therefore, given by the fiscal deficit
and not budgetary
the Government.
deficit alone. Table 19.4
depicts the rising trend to aeficit
spending of
Table 19.4. Trends of Deficit Spendings since 1990-91

(in crore) (% of GDP)

1990-912000-01 2005-062010-11 2015-16
Revenue 18562 252252
85233 92299 342736
Deficit
(3.3) (4.1) (2.6) (3.3) (2.5)
Fiscal 37606 373591
118816 146435 532791
Deficit (6.6) (4.5)
(5.7) (4.1) (3.9)
Primary 16108 19502 13805 139569 91132
Deficit
(2.8) (0.9) (0.4) (1.8) (0.7)
Source Economic Surveys, Government of India.
:

Figures in parentheses indicate percentage of GDP,

The revenue deficit with slight variations remained at about 3.3% during the past
wo decades. Similarly fiscal deficit have been hovering aroung 5% and primary deficit at
about 2% of GDP. But recently revenue deficit declined to 2.9%, fiscal deficit to 4.0% and
primary deficit to 0.8%.

SELECTED REFERENGES
1. Paul A.M. Van Philips, 'Public Finance and Less Developed Economy.
2. E.S. Kersellen-Economic Policy in Our Times
3. Mrs. U.K. Hicks, Development Finance'
4. B.N. GUupta, "Indlan Fiscal Finance and Budgetary Policy'
5. Economic Survey, Various Issues.
6. Indian budget, nic.in.

aUESTIONS FOREXERCISE AND REVIEW

? Make a
1. What do you understand by budgetary policy in a developing country
hypothetical revenue and capital budget in a country.
2. Distinguish between economic policy, fiscal policy and budgetary policy.
3. Define the concept of budgetary policy. Give its main objectives.
detailed analysis of Indian budgetary trends since 1990-91.
4. Make a