11/11/22, 8:47 PM Government Budget and its components

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Economics » Government Budget and its Components

Government Budget and its

Components
This article explains the economic concepts of the
Government Budget and its components, and talks
about a balanced, surplus and deficit budget.

Table of Content
The Concept Of Government Budget and Economy
Aims and Objectives of Government Budget
Government Budget and its components

The Concept Of Government

Budget and Economy
The most important aspect of any
government and economy is the
Government’s Budget and its components.
In India, the Government Budget is
presented on 1st Feb every year, as
enshrined in Article 112 of the Constitution
of India. It is referred to as the “Annual
Financial Statement.” 

Earlier, the budget was divided into two

components- Common Budget and the Rail
Budget, which were eventually merged in
the year 2017. It is presented in the
parliament by the Finance Minister of India,

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11/11/22, 8:47 PM Government Budget and its components

and entails the last year’s financial

enactment of the government and
introduces new financial policies and
programmes for the current year. 

Aims and Objectives of

Government Budget
The aim of the Government Budget and its
components includes allocation of
resources, classification of wealth and
income, local area growth, employment
opportunities etc. The budget also
introduces the individual taxation and
subsidies to be provided during the coming
fiscal year. It aims to maintain economic
stability in the country.

Government Budget and its

components
The budget is divided into two parts-
Budget Receipts, which constitute Revenue
Receipts and Capital Receipts, and Budget
Expenditure, which includes the Revenue
Expenditure and Capital Expenditure.

Budget Receipt: They have estimated

money receipts from all the sources during
the government’s fiscal year. The
classification of Budget receipts is as
follows:
1. Revenue Receipts: They are the receipts
that neither create any liability nor cause
any reduction in government assets.
They are further divided into Tax
Receipts, like Income Tax, Corporate
Tax, Excuse Duty, GST etc., and Non-
Tax Receipts like Fines, Special
Assessment, Grants and Donations etc.

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11/11/22, 8:47 PM Government Budget and its components

2. Capital Receipts: They are the receipts

that either create liability or cause a
reduction in assets for the government.
They are paid in interest payments,
recovery of loans and disinvestment of
assets to the private sector.
Budget Expenditure: The estimated
expense during the government’s fiscal
year. Following is the classification of
expenditure of the government:
1. Revenue Expenditure: They are
expenditures that neither creates any
asset nor cause any reduction in liability
of the government. For example,
Salaries, pensions, grants during
calamities etc.
2. Capital Expenditure: They are the
expenditures that either an asset or
cause any reduction in liabilities for the
government. 

Types of Taxes
The classification of taxes is as follows:

Progressive and Regressive Taxes

1. Progressive Tax: It is a type of tax that
causes relatively less burden on the poor
and more on the rich. A tax is said to be
progressive when the rate increases with
income growth. Example: Income Tax.
2. Regressive Tax: It is a type of tax that
causes relatively more burden on the
poor than the rich. It occurs when there
is a greater real burden on the poor than
the wealthy. Example: House tax. 
Direct and Indirect Taxes:
1. Direct Tax: A direct tax is a tax borne by
the person it is imposed on. It is non-
transferable to another person. Example-

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11/11/22, 8:47 PM Government Budget and its components

Income Tax, Corporate Tax, Wealth Tax

etc.
2. Indirect Tax: It is a tax in which the initial
burden is on anyone and can be further
transferred to another person. It is
imposed on producers. Example GST.

Budget Deficit and its

classification
A situation where the budget expenditures
of the government are greater than the
budget receipts is termed as Government
deficit or Budget Deficit. There are three
important types of Budget deficit in India
namely Revenue Deficit, Fiscal Deficit and
primary deficit: 

1. Revenue Deficit: It is a state where the

government expenditure is more than
revenue receipts. It implies that they
should practice disinvestment and
increase their borrowings to meet
demands. 
2. Fiscal Deficit: The excess of total
expenditure over total receipts without
considering borrowings. It denotes
borrowings by the government and leads
to inflation, attrition of credibility,
crowding-out and national debt.
3. Primary Deficit: It is the difference
between fiscal deficit and interest
payment of the government. It displays
the lack of economic discipline in a
nation.

Balanced and Unbalanced

Budget
1. Balanced Budget: It refers to the
situation of equilibrium between
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11/11/22, 8:47 PM Government Budget and its components

government receipts and government

expenditure. It displays the financial
stability of the government.
2. Unbalanced Budget: It refers to the
budget where receipts and expenditures
of the government are not in equilibrium.
It means either there is a Surplus Budget
or Deficit Budget.
1. Surplus Budget: A budget where the
government expenditures are lower than
the government receipts is known as
Surplus Budget. It reduces inflation in the
economy.
2. Deficit Budget: A budget where the
government receipts are lower than the
government expenditures is known as
Deficit Budget. It is recommended in a
state of depression in the economy.

Conclusion
All the aspects of the Government Budget
and its components make it highly essential
for any economy. Its drafting requires a
plethora of resources and hard work from
all the officials involved, as it’s a year-long
process and requires scrutiny. The task
holds high significance and responsibility as
it determines the country’s financial
situation for a whole year. The policies
presented in the Budget are followed and
maintained by the cooperation of the central
government and Reserve Bank Of India
(RBI). The budget also requires the citizens
to abide by it as it is formulated for their
benefit.

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11/11/22, 8:47 PM Government Budget and its components

Frequently
asked
questions
Get answers to the most common
queries related to the CBSE Class 11
Examination Preparation.

What is the name of the

Government Budget in the
constitution?
Ans : In the Constitution of India, the word
‘Budget’ is nowhere mentioned. However,
Article 112 of the ...Read full

What are Paper taxes?

Ans : Paper taxes are those taxes that are similar
to gift taxes in India. They carry significance
only on paper and...Read full

What is meant by
Disinvestment?
Ans : Disinvestment refers to selling
government assets to private players in the
economy. They reduce the governmen...Read
full

What are the shortcomings of

a Balanced Budget?
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11/11/22, 8:47 PM Government Budget and its components
a Balanced Budget?
Ans : Since they refer only to the equilibrium of
receipts and expenditures of the government,
they are not conduciv...Read full

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