1. (B) Budget Expenditure
Budget expenditure or government expenditure refers
to the estimated expenditure of the government, on its
‘development and non development programmes’ or on
its ‘plan and non plan programmes’ during the fiscal
year.
2. (a) Revenue and Capital Expenditure
(i) Revenue Expenditure
● This expenditure:
• does not create assets of the government,
• does not cause a reduction in liabilities of the govt.
For example, old age pensions, salaries and scholarship
etc.
(ii) Capital Expenditure
● This expenditure:
• either create assets of the government or,
• causes a reduction in liabilities of the govt.
For example, purchase of shares of MNC’s, repayment of
loans etc.
3. (b) Plan Expenditure and Non-plan Expenditure
(i) Plan Expenditure
● It is incurred during the year in accordance with the
central plan of the country.
● It is incurred on financing the objectives of central
plans of different sectors of the economy.
For example, planned expenditure on health, education
law and order etc.
(ii) Non- Plan Expenditure
● It Non- plan refers to all such government
expenditures which are non-planned.
● It is incurred on financing those projects which are not
planned in the central plan.
For example, expenditure as a relief to the earthquake
victims etc.
4. (c) Development Expenditure and Non-
development Expenditure
(i) Development Expenditure
● It is incurred on economic and social development of
the country.
● It relates to growth and development projects of
the country.
For example, expenditure on development of agriculture,
industries, health, education etc.
(ii) Non- development Expenditure
● It is incurred on general services of the government
which do not usually promote economic
development.
● It relates to non-developmental activities of the
government.
For example, expenditure on administration, defence, justice
etc.
5. Difference b/w Revenue Expenditure
and Capital Expenditure
Basis Revenue Expenditure Capital Expenditure
1. Creation of
Assets
2. Reduction
in
Liabilities
3. Effect on
assets &
It does not create
any corresponding
asset.
It does not cause
any reduction in the
liabilities.
Assets and
liabilities are not
liabilities of affected.
Govt.
It creates
corresponding asset.
It causes a reduction
in the liabilities.
Assets and liabilities
are not affected.
6.
7. Budget Deficit
Budgetary deficit is defined as the excess of total
estimated expenditure over total estimated revenue.
When the government expenditure exceeds its revenue it
incurs a budgetary deficit.
Budget Deficit = BE (RE +CE) ─ BR (RR + CR)
9. I. Revenue Deficit (RD)
● This deficit occurs in revenue budget of the govt.
Revenue deficit is concerned with the revenue
expenditure and revenue receipts of the government.
Revenue deficit = RE - RR
● In other words, government’s revenue is insufficient
to meet the expenditure on normal functioning of
government departments and provisions for various
services.
10. Implications of Revenue Deficit
(i)It indicates the inability of the govt. to meet the
expenditure on routine functioning of the economy.
(ii) Includes current income & expenditure of the
government.
(iii) It implies dis-savings on government account.
(iv) Govt. has to finance it from capital receipts.
Measures to reduce Revenue Deficit
• Govt. should reduce its wasteful expenditure.
• By curtailing non-plan expenditure.
• Increase in existing tax rate and impose new taxes.
• Tax evasion should be controlled.
11. (II) Fiscal Deficit (FD)
● Fiscal deficit refers to the excess of total
expenditure over total receipts (excluding
borrowings) during a given fiscal year.
Fiscal Deficit = TE - TR (Excluding Borrowings)
12. Implications of Fiscal Deficit
(a)Debt Trap – Fiscal deficit increases the future liability
of the Govt. in the form of payment of interest &
repayment of loans. This may increase the revenue
deficit. Therefore, the Govt. is required to borrow more
to pay interest & repay old loans. It is known as debt
trap.
(b)Causes Inflation – Govt. generally borrows from RBI.
RBI prints more currency to meet the fiscal deficit. It
increases the circulation of money supply in the
economy & causes inflation. It is also known as deficit
financing.
(c) Increase in Foreign Dependence
(d) Financial Burden for Future Generations
13. Measures to finance Fiscal Deficit
(a) Borrowings
(b) Deficit financing
Measures to reduce Revenue Deficit
• Govt. should reduce its wasteful expenditure.
• By curtailing non-plan expenditure.
• Increase in existing tax rate and impose new taxes.
• Tax evasion should be controlled.
14. (iii) Primary Deficit (PD)
● Primary deficit refers to the difference between
fiscal deficit of the current year and interest
payments on the previous borrowings.
Primary Deficit = FD - Interest Payments
● To calculate the amount of borrowings on account
of current expenditure exceeding revenue, we
need to calculate the amount of the primary deficit.
It is done by subtracting interest from fiscal deficit.
15. Implications of Primary Deficit
(i)It indicates how much govt. borrowings are required
to meet its existing expenses other than interest
payments on public debt.
(ii)A zero primary deficit means that the govt. has to
resort to borrowings only to meet its interest
payments on public debt.
Measures to Reduce Primary Deficit
(a) Efforts should be made to reduce fiscal deficit.
(b)To reduce fiscal deficit, interest payments should
be reduced through repayment of loans as early as
possible.
17. (A) Balanced Budget – A govt. Budget is said to be
balanced budget in which government estimated
receipts are equal to government estimated
expenditure. This budget has a neutral effect on the
level of economic activity.
18. (B) Unbalanced Budget - An unbalanced budget is
that budget in which receipts and expenditure of the
government are not equal.
It may be:
(i) Surplus Budget - Surplus budget is a budget in
which the govt. Estimated receipts are greater than
govt. estimated expenditure.
Here the govt. soaks money supply.
19. (ii) Deficit Budget - Deficit budget is the budget in
which estimated govt. expenditure are greater than
govt. receipts.
Here the govt. injects more money supply.
