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Government budget is an annual
statement, showing item wise
estimates of receipts and
expenditure during fiscal year i.e.
financial year. The receipts and
expenditure, shown in the budget,
are not the actual figure, but the
estimated values for the coming
OBJECTIVES OF GOVERNMENT
INCOME AND WEALTH
Components of budget refers to structure of the budget.
Two main components of Budget are:
Revenue Budget: It deals with the revenue aspect of the
government budget. It explains how revenue is
generated or collected by the government and how it is
allocated among various expenditure heads. Revenue
budget has two parts:
i. Revenue Receipts
ii. Revenue Expenditures
Capital Budget: it deals with the capital aspect of the
government budget and it consists of:
i. Capital Receipts
ii. Capital Expenditures
Budget Receipts refer to the estimated money receipts of
the government from all sources during a given fiscal
year. Budget receipts may be further classified as:
i. Revenue Receipts
ii. Capital Receipts
Revenue receipts refer to those receipts which
neither create any liability nor cause any
reduction in the assets of the government. They
are regular and recurring in nature and
government receives them in its normal course of
A receipts Is revenue receipt, if it satisfies the
following two essential conditions:
The receipts must not create a liability for the
The receipts must not cause decrease in the
Capital receipts refer to those receipts
which either create a liability or cause a
reduction in the assets of the government.
They are non-recurring and non-routine in
nature. A receipt is a capital receipt if it
satisfies any one of the two conditions:
The receipt must create a liability for the
The receipts must cause a decrease in
Budget expenditure refers to the
estimated expenditure of the
government during a given fiscal
year. The budget expenditure can
be broadly categorised as:
Revenue Expenditure refers to the expenditure which
neither creates any asset nor causes any reduction in
any liability of the government. It is recurring in nature.
It is incurred on normal functioning of the
Examples: Payment of salaries, pensions, interests,
An expenditure is a revenue expenditure, if it satisfies
the following two essential condition:
a) The expenditure must not create an asset of the
b) The expenditure must not cause decrease in an
Capital expenditure refers to the expenditure which either
creates an asset or causes a reduction in the liabilities of
the government. It is non-recurring in nature.
It adds to capital stock of the economy and increases its
productivity through expenditure on long period
Examples: Loan to states and Union Territories, etc.
An expenditure is a capital expenditure, if it satisfies any
one of the following two conditions:
1. The expenditure must create an asset for the
2. The expenditure must cause a decrease in the liabilities.
There are three types of budgets:
o Balanced Budget: Government budget is said to be
balanced budget if estimated government receipts
are equal to the estimated government
o Surplus Budget: If estimated government receipts
are more than the estimated government
expenditure, then the budget is termed as “Surplus
o Deficit Budget: If estimated government receipts
are less than the estimated government
expenditure, then the budget is termed as “Deficit
Budgetary deficit is defined as the excess of
total estimated over total estimated revenue.
When the government spends more than it
collects, then it incurs a budgetary deficit.
With reference to budget of Indian
government, budgetary deficit can be of 3
1) Revenue Deficit
2) Fiscal Deficit
3) Primary Deficit
Revenue Deficit is concerned with the
revenue expenditures and receipts of the
government. It refers to excess of revenue
expenditure over revenue receipts during the
given fiscal year.
Revenue Deficit = Revenue Expenditure – Revenue
It signifies that government’s own revenue is
insufficient to meet the expenditures on
normal functioning of government
departments and provisions for various
Fiscal deficit presents a more comprehensive view of
budgetary imbalances. Fiscal Deficit refers to the
excess of total expenditure over total receipts
(excluding borrowings) during the given fiscal year.
Fiscal Deficit= Total Expenditure – Total Receipts
Sources Of Financial Fiscal Deficit:
Government has to look out for different options to
finance the fiscal deficit. The main two sources are:
Borrowings: Fiscal Deficit can be met by borrowings
from the internal sources or external sources.
Deficit Financing: Government may borrow from RBI
against its securities to meet the fiscal deficit. RBI
issues new currency for this purpose. This process
is known as deficit financing.
Primary deficit refers to difference between fiscal
deficit of the current year and interest payments on the
Primary Deficit = Fiscal Deficit – Interest Payments
Implications Of Primary Deficit:
It indicates, how much of the government borrowings
are going to meet expenses other than the interest
payments. The difference between fiscal deficit and
primary deficit shows the amount of interest payments
on the borrowings made in past. So, a low or zero
primary deficit indicates that interest commitments
have forced the government to borrow.