What is budget?
Budget is an organized plan in monetary terms
What is budgetary deficit?
A budget deficit is the amount by which an
individual, business, or government's income
falls short of the expectations set forth in its
budget over a given time period
TYPES OF BUDGETARY DEFICIT?
Cyclic budgetary deficit
Early budgetary deficit
Structural budgetary deficit
FINANCING A DEFICIT
The government can borrow from
Private sector (e.g. sale of bonds): expansionary
Reserve Bank (‘printing money’): money supply
Public (sale of securities to the public): neutral
Public sector borrowing requirement (PSBR)
increases in a budget deficit situation
‘Crowding-out’ (drain in the pool of funds available
for private borrowers)
WHY DO DEFICIT OCCURS?
Lack of availably of cash to cover the
Delay in collection of sales
Sales down tum forecast
CAUSES OF BUDGETARY DEFICIT
Composition of Spending May Not Be
Fixed Exchange Rate
Decline in Competitiveness
Recession in other countries.
LIMITATIONS OF BUDGETS AND
the benefit of the budget must exceed the cost
budget information may not be accurate
budgets may lead to disfunctional management
budgets may be set at too low a level
ECONOMIC EFFECTS OF A BUDGET DEFICIT
•Higher debt interest payments
•Higher Taxes and lower spending
•Increased Interest rates
GOVERNMENT DEFICIT : GOOD OR BAD
If the government borrows
to deal with a severe recession
help self defense
spends on public investment
(in infrastructure, education, basic research, or public
If the deficit finances wasteful expenditure
BUDGET DEFICIT MAY DROP TO 4.5%
India may be able to cut its fiscal deficit to 4.5
per cent of GDP by March 2011 due to revenues
from 3G auctions and robust economic growth.
3G auctions by themselves had the potential to
cut the deficit by about 100 basis points by
March 2011. He also said the government was
"very keen" to restrict India's fiscal deficit.
IMPLICATIONS OF HEAVILY BUDGET
DEFICIT IN INDIA
Economic growth in impeded,
Real incomes of the people is lower than their
Inflation in prices of commodities makes life of
common people miserable,
higher government borrowing, preventing a
decline in interest rates.
WHERE THE RUPEE COMES FROM?
Service & other taxes
Borrowings & other
Non tax revenue
Non debt capital
WHERE THE RUPEE GOES?
State plan assistance
Non plan assistance to
Other non plan
States’ share of
BUDGET REVENUE AND SPENDING
Direct taxation e.g.
Indirect taxation e.g.
Non-tax revenue e.g.
Asset sales, interest
Areas of spending
Social security and
Payments to state
Defence and public order
General public services
Public debt interest
Proper planning before implementing
Additional training provided to finance staff
More concentration on tracking each activities
to reduce corruption
Futuristic approach rather than considering only
the present scenario
Its difficult to eradicate deficit but by employing
proper measures it can be reduced to