Indian Economy- Notes for student

1. Budget
The Budget is the Annual Financial Statement which consist of all revenues and expenditures that the
Government expects to receive and plan to spend during the following year.
• In India as per Article 112 of Indian Constitution the Government has to present in the Parliament an annual
financial statement showing estimates of revenue and expenditure.
• The budget is presented in the parliament by the Union Finance Minister.
• State Governments have also to present the budget in the State Legislatures as per Article 202 of the Indian
Constitution.
Definition
“A budget is a pre-determined statement of management policy during a given period which provides a standard
for comparison with the results actually achieved.”-----Crown and Howard.
B.E Buck defines budget as, “(a) finance plan, (b) a procedure formulating, authorizing, executing and
controlling this plan and (c) some government authority responsible for each successive step in this procedure.”

2. Objectives of a budget
The main objectives of a budget are the following:
Re-allocation of resources
Re-distribution of resources
Stabilization of resources
Sources of information to the public of the past, present and future activities, plans and programmes of the
relevant governments.
Tool of government policy
To estimate income and expenditure
An instrument of fiscal policies
Basis of public welfare
To ensure financial and legal accountability
To serve as a tool of management for controlling administrative efficiency.

3. Features of Budget
1) It is a statement of expected revenue and proposed expenditure.
2)It is sanctioned by some authority.
3) It is periodicity, generally annual and
4) It prescribes the manner in which revenue is collected and expenditure is incurred.
5) Budget is prepared on cash basis.
6) Rule of lapse- All unutilized funds within the year ‘lapse’ at the end of the financial year.
7) Realistic Estimation.
8) Budget is on Gross/ Net basis.
9) Form of Estimate is to Correspond to Accounts.
10) Estimates to be on Departmental Basis.

4. Components of a Budget
The government budget is divided into Revenue Budget and Capital Budget.
Revenue Budget or Revenue Account is related to current financial transactions of the government which are of
recurring in nature.
Revenue Budget
Revenue receipts
Taxation, profits of enterprise, other
nontax receipts like administrative
revenue (fees, fines, special assessment
etc.)
Revenue expenditure
interest-payments, defence expenditure,
major subsidies, pensions etc.
Capital budget is a statement of estimated capital receipts and payments of the government over fiscal year.
Capital Budget
Capital receipts
a) Borrowings b) Recovery of loans and
advances c)Disinvestments and d) Small
savings.
Capital expenditure
a) Developmental Outlay b) Non-
developmental
outlay c) Loans and advances and d)
Discharge of debts.

5. Types of Budgets
Based on the balancing of revenue and expenditure, budgets are divided into Balanced Budget and Unbalanced
Budget.
Balanced Budget: - A balanced budget is that over a period of time, revenue does not fall short of expenditure.
i.e., revenue is equal to expenditure (Revenue = Expenditure).
Unbalanced Budget
The Budget imbalance may be due to an excess of expenditure over income or an excess of income over
expenditure. In other words, budget may either be surplus or deficit. A budget is said to be surplus when public
revenue exceeds public outlay (R>E.).
A deficit budget means a budget when expenditure exceeds revenue (R<E.)