GOVERNMENT BUDGET

MEANING AND OBJECTIVES

Government budget is an annual statement, showing item wise estimates of
receipts and expenditures during a fiscal year. The receipts and expenditures
accounted in the budget are estimated values for the coming fiscal year(1
April to 31’st March).
OBJECTIVES
• Reallocation of resources
• Reducing inequalities in income and wealth
• Economic stability
• Management of public enterprises
• Economic growth
• Reducing regional disparities
 STRUCTURE OF BUDGET
Two main components of budget are:
Government receipts
Government expenditure
BUDGET

Government Receipts Government Expenditure

Revenue Receipts Capital Receipts Revenue Expenditure Capital Expenditure

 Government receipts
It refers to the estimated money receipts of the government from all sources
during a given fiscal year.

• REVENUE RECEIPTS: The receipts which neither create a liability nor

cause any reduction in assets of the government.
A L (satisfies both the conditions)

• CAPITAL RECEIPTS: the receipts which either create a liability or cause a

reduction in the assets of the government.
A L (satisfies any one condition)
REVENUE RECEIPTS
Two sources of revenue receipts:
- Tax revenue
- Non-tax revenue

Tax revenue refers to sum total of receipts from taxes and other duties
imposed by the government. It can be further classified as Direct(corporation
tax, wealth tax)and Indirect Taxes(VAT , exercise duty)
Non tax revenue refers to receipts of the government from all sources other
than those of tax receipts. Main sources being : profits and dividends, fees,
gifts and grants.
CAPITAL RECEIPTS

Sources of capital receipts:

-Borrowings- from Open Market, RBI, Foreign Government, Int.
Institutions.
-Recovery of loans
-Other receipts- which includes disinvestment, small savings
 Government Expenditure
It refers to the estimated expenditure of the government during a given
fiscal year.
• REVENUE EXPENDITURE: It refers to the expenditure which
neither creates any asset nor causes reduction in any liability of the
government.
A L (Satisfies both the conditions)

• CAPITAL EXPENDITURE: It refers to the expenditure which neither

creates an asset or cause any reduction in the liabilities of the
government.
A L (satisfies any one condition)
Plan and Non Plan Expenditure
Plan expenditure refers to the expenditure that is incurred on the programs
detailed in the current five year plan.
Non plan expenditure refers to the expenditure other than the expenditure related
to the current five year plan.

Development and Non Development

Expenditure
Development expenditure refers to expenditure which is directly
related to the economic and social development of the country.
Non development expenditure refers to the expenditure which is
incurred on the general services of the government.
 TYPES OF BUDGETS
Balanced budget
Government receipts(GR)=Government Expenditure(GE)

Imbalanced budget which can be further divided into

Surplus budget
Government receipts > government expenditure

Deficit budget
Government receipts <government expenditure
 GOVERNMENT DEFICIT
It is defined as the excess of total estimated expenditure over total
estimated revenues.

Budgetary deficit can be of three types:

- Revenue deficit
- Fiscal deficit
- Primary deficit
Revenue Deficit
Revenue deficit- it refers to the excess of total estimated expenditure
over total estimated revenue.
Revenue deficit= revenue expenditure- revenue receipts
Implications-
• Indicates inability of the government to meet its regular and recurring
expenditure in the proposed budget.
• It leads to increase in liability in the form of borrowings or reduces
assets through disinvestment.
• It also leads to an inflationary situation in the economy.
Fiscal Deficit
Fiscal deficit refers to the excess of total expenditure over total
revenues(excluding borrowings) during the given fiscal year.
Fiscal deficit= total expenditure- total receipts excluding borrowings
Implications
• It indicates total borrowing requirements of the government i.e country
is caught in debt trap
• It increases the money supply in the economy and creates inflationary
pressure
• It raises dependence on other countries.
Primary Deficit
Primary deficit refers to the difference between fiscal deficit of the
current year and interest payments in the previous borrowings.
Primary deficit= fiscal deficit- interest payments
Implications-
• Difference between fiscal deficit and primary deficit shows the
amount of interest payments on borrowings.
• Low or zero primary deficit indicates that interest commitments have
forced the government to borrow.
• Primary deficit is the root cause of fiscal deficit.
C W . Q.1 NUMERICAL
Q.2 It primary deficit is 4,000 and interest payment is 500.
Calculate fiscal deficit.

Primary deficit = Fiscal deficit – Interest payment.

4,000 = Fiscal deficit – 500
Fiscal deficit = 4,500
Q.3 From the following data,
calculate.
(i) Revenue deficit
(ii) Fiscal deficit
(iii) Primary deficit.
Revenue receipts – 80
Capital receipts – 170
Loan & borrowing – 50
Revenue expenditure – 110
Capital expenditure – 140
Interest payment – 10
Q.4 From the following data, calculate revenue
deficit, fiscal deficit, primary deficit
Capital receipts not of borrowings 25
Revenue exp. 100
Interest payment 10
Revenue receipts 80
Capital exp. 110
Q.5 From the following data,
calculate revenue deficit,
fiscal deficit, primary
deficit.

Tax revenue 47
Capital receipts 34
Non-tax revenue 10
Borrowings 32
Revenue exp. 80
Interest payment 20
Q.6 From the following data, calculate
revenue deficit, fiscal deficit, primary
deficit, primary deficit

Planned capital exp 120

Revenue exp
100
Non-planned capital exp 80
Revenue receipts 70
Capital receipts net of loans &
borrowing 140
Interest payment 30