2. Components of Government Budget.
Classification of receipts – Capital and revenue .
Classification of expenditure - Capital and revenue .
Balanced budget surplus budget, deficit budget -
meaning and implication .
Revenue deficit, Fiscal deficit, primary deficit -
Meaning and implication
3. A government budget is an annual statement of
the estimated receipts and estimated expenditure
of the government during a fiscal year .
Fiscal year is taken from 1st April to 31st March.
4. It means managed and proper distribution of resources. As private
sector can not provide all the goods and services the government
has to provide these goods.
Through budget government tries to reduce the gap between Rich
and poor. This is achieved through taxing the rich and subsidizing
the needs of poor people.
There may be inflation or depression in the economy. Inflation is
the situation of rise in price level whereas depression is lack of
demand. Both the situations are undesirable. During depression
government reduces rate of tax and borrowing and increases public
expenditure. During inflation government increases the rate of tax
and borrowing and decreases public expenditure. Reallocation of
resources -: To reduce inequalities in income and wealth-: . To
achieve economic stability -:
5. IV. Large no: of Public Enterprises which are
established and managed for social welfare of the
public. V. depends upon rate of saving and
investment.
Through taxation and expenditure policy.
Management of Public Enterprises . To achieve
economic growth Reducing regional disparities.
6. Components of budget refer to structure of the
budget. Two main components are:
Revenue Budget
Capital Budget
8. Budget receipts refer to the estimated money
receipts of the government from all sources during
a given fiscal year. Budget Receipts Revenue
receipts Capital receipts Tax revenue Non-tax
revenue Recovery of loans Borrowing Other
receipts
9. Capital Receipts refer to those receipts of the government
which i) tend to create a liability or ii) Causes reduction in
its assets. All the Capital receipts are broadly classified into
three categories.
Recovery of loans :- These are Capital receipts because they
reduce financial assets of the government .
Borrowings: - Funds raised by the government form the
borrowing are treated as capital receipts such receipts creates
liability.
Other Receipts: - Funds raised through disinvestment are
included in this category. By this government assets are
reduced.
10. Any receipts which do not either create a liability
or lead to reduction in assets is called revenue
receipts. Two sources of revenue receipts Tax
Revenue Non-Tax Revenue. Revenue receipts Tax
revenue Non-tax revenue Direct Tax Indirect Tax.
Interest Profit and dividend Fees and fines Gifts
and grants .
11. A tax is a direct tax, if its burden cannot
be shifted. For example, income tax is a
burden tax as its impact and incidence is
on the same person.
A tax is a indirect tax, if its burden can be
shifted. For example, sales tax is an
indirect tax as its impact and incidence is
on different persons.
12. Corporation tax
Value added tax
Service tax
Excise duty
Wealth tax
Sales tax
13. A receipt is a capital receipt, if it creates a
liability or reduces an asset.
A receipt is a revenue receipt, if it neither
creates a liability nor reduces any asset.
14. Budget expenditure refers to the
estimated expenditure of the government
during a given fiscal year.
15. An expenditure which do not creates assets or
reduces liability is called Revenue Expenditure.
It is recurring nature.
It is incurred on normal functioning of the
government and the provisions for various
services.
• Examples are – Salaries of government
employees, interest payment on loan taken by the
government, pension, subsidies, grants etc.
16. The expenditure must not create an asset
of the government. The expenditure must
not cause decrease in any liability.
Revenue expenditure Neither creates an
Asset Nor reduces any liability
17. It refers to the expenditure which leads to creation of
assets and reduction in liabilities .
It is non-recurring in nature
It adds to capital stock of the economy and increases
its productivity through expenditure in long period
development programmes like Metro or Flyover.
eg. Expenditure incurred on construction of building,
roads, bridges etc.
18. The expenditure must create an asset for
the government. Eg: construction of metro.
The expenditure must cause a decrease in
the liabilities. Eg: repayment of
borrowings. Capital expenditure Either
creates an Asset Or reduces a liability
19. An expenditure is a capital expenditure, if
it creates an asset or reduces a liability.
An expenditure is revenue expenditure, if
it neither creates any asset nor reduces an
liability.
20. Plan expenditure refers to the expenditure
that is incurred on the programmes detailed
in the current five year.
Non-plan expenditure refers to the
expenditure other than the expenditure
related to the current five-year plan. Budget
expenditure Plan expenditure Non-
expenditure
21. Plan expenditure is spent on current
development and investment outlays.
It arises only when the plans provide for
such expenditure. non-plan expenditure . It is
spent on the routine functioning of the
government.
It is a must for every economy and the
government cannot escape from it.
22. An expenditure is a plan expenditure,
if it arises due to planned proposals.
An expenditure is a non-plan
expenditure, if it is out of the scope
off government plans.
23. It refers to the expenditure which is directly related to economic and
social development of the country.
It directly contributes to development of the economy.
It is productive in nature as it adds to the flow of goods and
services. Non- developmental Expenditure .
It refers to the expenditure which is incurred on the essential general
services of the government .
It does not contribute directly to the development , but it lubricates
the wheels of economic development.
It is not concerned with the productivity of working class.
24. An expenditure is a developmental
expenditure, if it directly adds to the flow
of goods and services.
An expenditure is a non-developmental
expenditure, if it indirectly contributes to
economic development.
25. Types:- Deficit Budget:- When government
expenditure exceeds government receipts
in the budget is said to be a deficit budget.
Government deficit Revenue Deficit:-
Fiscal deficit & Primary deficit:-
26. Revenue deficit refers to the excess of
revenue expenditure of the
government over its revenue receipts.
Revenue deficit = Total revenue
expenditure – Total revenue receipts.
27. Fiscal deficit is defined as excess of
total expenditure over total receipts .
Fiscal Deficit = Total budget
expenditure - Total budget receipts
net of borrowings.
28. It refers to the difference between
fiscal deficit of the current year and
interest payments on the previous
borrowings.
Primary deficit= fiscal deficit -
interest payments .
