A Brief Overview of Budget : Introduction, Meaning of Government Budget, Objective of Government Budget, Components of Budget, Revenue Receipts, Capital Receipts, Budget Expenditure, Measures of Government Deficit (with some latest data)

1. GOVERNMENT BUDGET
AND
ITS COMPONENTS
PRESENTED BY: NEERAJ GARWAL

2. • Introduction
• Meaning of Government Budget
• Objective of Government Budget
• Components of Budget
• Revenue Receipts
• Capital Receipts
• Budget Expenditure
• Measures of government Deficit
INDEX

3. • In the modern world every government aims at maximization of
the welfare of its country.
• It requires a number of infrastructural economic and welfare
activities.
• All these activities requires huge expenditure to be incurred.
• This requires appropriate planning and policy.
• Budget helps in Planning and framing policies.
INTRODUCTION

4. The term budget is derived from the French word "Budgette" which means a "leather bag"
or a "wallet". It is a statement of the financial plan of the government.
"A budget is a document containing a preliminary approved plan of public revenues and
expenditure". - Rene Stourm
In general Government Budget is an annual statement’ showing items wise estimates of
receipts and expenditures during a fiscal year. The receipts and expenditure shown in the
budget are not the actual figures but only the estimated values for the coming year. The
fiscal year is considered from 1st April to 31st March.
MEANING OF BUDGET

5. • Budget is prepared by government at all level i.e., central government state
government and local government prepare its respective annual budget .
However, we restrict our studies to budget of central government known as Union
Budget.
• Estimated expenditures and receipts are planned as per the objective of the
government.
• In India, Budget is presented in parliament on such a day as the president may
direct by convention, It is presented on last working day of February, each year.
• It is required to be approved by the parliament before it can be implemented.
IMPORTANT POINTS OF GOVERNMENT BUDGET

6. • Government prepares the Budget for fulfilling certain objectives. These
objectives are the direct outcome of government economic , social and
political policies . The various objectives of Government Budget etc.
 1) Reallocation of Resources: Through the Budgetary policies, government
aims to reallocate resources in accordance with the economic and social
priorities of the country.
 Tax concessions or subsidies:- to encourage investment government can give tax
to producers for ex: government discourage the production of harmful by
providing subsidies.
 Directly producing goods and services:-If private sector does not take interest,
government can directly undertake the production.
OBJECTIVES

7. 2) Reducing inequalities in income and wealth: Economic inequalities is
an inherent part of every economic system. Government aims to reduce
inequalities of income and wealth through its budgetary policy. Government
aims to influence distribution of income by imposing taxes on the rich and
spending more on the welfare of the poor. It will reduce income of rich and
raise standard of living of the poor, thus reducing inequalities in the
distribution of income.
3) Economic Stability: Government budget is used to prevent business
fluctuations of inflation or deflation to achieve the objective of economic
stability.
 Inflationary tendencies emerge when aggregate demand is higher than
expenditure.
 During deflation, government can increase its expenditure and give tax
concessions and subsidies.

8. 4) Financing and management of public sector enterprises: There
are large number of public sector industries and managed for social
welfare of the public budgets prepared with the objective of making
various provision for managing such enterprises and providing them
financial help.
5) Economic Growth: the growth rate of a country depends on rate of
saving and investment for this purpose budgetary policy aims to
mobilize sufficient resources for investment I the public sector.
Through the government makes various provisions in the Public
Sector . Therefore the government makes various rate of saving and
investments in savings.
6) Reducing regional disparities: The government budget aims to
reduce regional disparities through its taxation and expenditure policy
for encouraging setting up of production units in economically
backward regions.

9. 2018-2019
Actuals
(in ₹ crore)
2019-2020 Budget
estimates
(in ₹ crore)
2019-2020 Revised
Estimates
(in ₹ crore)
2020-2021 Budget
Estimates
(in ₹ crore)
1. Revenue Receipts 1552916 1962761 1850101 2020926
2. Capital Receipts 762197 8 823588 848451 1021304
3. Total Receipts 2315113 2786349 2698552 3042230
4. Centre’s Expenditure 2419793 2849690 2706987 3037187
5. Transfers 477968 597130 616670 713246
6. Total Expenditure 2315113 2786349 2698552 3042230
7. Revenue Deficit 454483 485019 499544 499544
8. Effective Revenue Deficit 262702 277686 307807 402719
9. Fiscal Deficit 649418 703760 766846 796337
10. Primary Deficit 66770 43289 141741 88134
2020-21 Budget at a Glance

10. 2020-21 BUDGET AT A GLANCE
1 RUPEE COMES FROM 1 RUPEE GOES TO

11. COMPONENTS OF BUDGET
Two major components of Budget are :
1. Revenue Budget : It deals with the revenue aspect to the
government budget. It explains how revenue is generated or
collected .
2. Capital Budget : Capital Budget consists of capital receipts
and payments. It also incorporates transactions in the Public
Accounts.

12. The components of Budget can also be categorized according to receipts and expenditure.
On this basis two broad components are :
1) Budget Receipts
2) Budget Expenditure
Budget Receipts :
Budget receipts refers to the estimated money receipt of this government from all
sources during a given fiscal year.
COMPONENTS

13. Revenue Receipts : Revenue Receipts refers to those receipts which
 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
activities.
 A receipt is a revenue receipt is satisfies the following two essential conditions:-
i. The receipt must not create a liability for government for ex:- taxes levied by the government are
revenue receipts as they do not create any liability. However any amount borrowed by the
government is not a revenue receipt as it cause an increase in the liability in terms of repayment of
borrowings.
ii. The receipt must not cause decrease in the asset for ex:- receipts from sale of shares of a public
enterprise is not a revenue receipt as it leads to a reduction in assets of the government.

14. SOURCES OF REVENUE
Revenue Receipts of the government are generally classified under two heads:
 Tax Revenue
 Non Tax Revenue
 Tax Revenue refers to sum total of receipts from taxes and duties imposed
by the government . Tax is compulsory payment made by people and
companies of the government without reference to any direct benefit in
return .It means there are two aspects of taxes
o Tax is a compulsory payment no one can refuse to pay it.
o Tax receipts are spent by the government for common benefit of people
in the country.

15. 1. Direct Taxes : They are imposed on property and income of individual and
companies and are paid directly by the government.
a. They are imposed on individuals and companies.
b. The liability to pay the tax actual burden of tax lie on the same person i.e.
burden can not be shifted to others. E.g. income tax, wealth tax
2. Indirect Taxes : Refers to those taxes which affect the income and property of
individuals and companies through their consumption expenditure. E.g. Vat,
GST, entertainment tax.
TYPES OF TAXES

16. Non tax revenue refers to receipts of the government from all services other than
those tax receipts.
The main sources of non tax revenue are:-
1. Interest : Government receives interest on loans given by it to state
government union territories private enterprises and general public
2. Fees : It refers to charges imposed by government cover the cost of recurring
provided by it court fees, registration fees etc. are some example of fees.
NON TAX REVENUE

17. 3. License Fees : It is a payment charged by the
government to grant permission of something license
fees paid for permission of keeping a gun or to obtain.
National permit for commercial vehicles.
4. Fines and Penalties : They refers to those payment
which are imposed on Law Breakers E.G: fine for
jumping light, for non-payment of tax the latter is
imposed to generate revenue.
5. Escheats : It refers to claim of the government on
the property of a person who dies without leaving
behind a heir or a will.

18. 6. Gifts and Grants : Government receives gifts and grants from foreign
government and international organizations. Sometimes, individuals and
companies money to the government received during national crisis such as
war food etc.
7. Forfeitures : These are in the form of penalties which are imposed by the
court of non-compliance of others contract etc.
8. Special Assessment : It refers to the payment made by the owners of
those properties whose value has appreciated due to development activities
of the government expenditure is recovered from owners

19. COMPONENTS OF CAPITAL BUDGET
Capital Receipts
Capital receipts refers 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
1. The receipts must create a liability for the government borrowings are capital
receipts as they lead to an increase in the liability of the government . However tax
received is not a capital receipt as it does not result in creation of any liability.
2. The receipts must cause a decrease in the assets receipts fro, scale of share of
public enterprises is a capital receipt as it leads to reduction in assets of the
government.

20. Capital Receipts are broadly classified into three groups :
1. Borrowings : Borrowings are the funds raised by government to meet excess expenditure.
• Government Open Market
• Reserve Bank Of India
• Foreign Government
• International Institutions
Borrowings are capital receipts as they create a liability for the government.
2. Recovery of Loans : Government grants various loans to state government or union
territories assets of the government.

21. 3. Other Receipts : These include the following :
 Disinvestment : Refers to the act of selling a part or the whole of shares of selection public
sector undertakings held by the government. They are termed as capital receipts as they reduce
the assets of the government . A part of or whole of its shares it leads to transfer of ownership
PSU to the private enterprises
 Small Saving : Refers to funds raised from the public in the form of post office deposits ,
National saving certificates , Kisan Vikas Patras etc. They are treated as capital receipts as
they lead to an increase liability.
Classification : A receipt is a capital, if it either create a liability or reduces an asset.

22. ITEMS CATEGORIZED AS REVENUE AND
CAPITAL RECEIPTS
1. Loan from the World Bank: It is a capital receipt as it creates liability for the
government.
2. Corporation Tax: It is revenue receipt as it neither creates any liability nor reduces any
asset.
3. Grants received from World Bank: It is a revenue receipt as it creates any liability nor
reduces any asset of the government.
4. Profits of Public Sector Undertaking: It is a revenue receipt as it neither creates liability
nor reduces asset of the government.
5. Sale of a Public Sector Undertaking: It is a capital receipt as it reduces assets of the
government.

23. 6. Foreign Aid against earthquake victims: It is a revenue receipt as it
neither creates any liability nor reduce any asset of the government.
7. Dividends on Investment made Government: It is revenue receipt as it
neither any liability nor reduces any asset of the government.
8. Borrowings from Public: It is a capital receipt as it creates liability.
9. Recovery of Loans: It is a capital receipt as it reduces assets of the
government.
10. Interest received : Its is a revenue receipt as it neither creates any
liability nor reduce liability any asset of the government.

24. BUDGET EXPENDITURE
Budget Expenditure refers to the estimated expenditure of the
government during a given fiscal year. The budget expenditure
can be broadly classified as:
1. Revenue Expenditure
2. Capital Expenditure

25. • Revenue expenditure refers to the expenditure which neither creates any
asset nor causes reduction in any liability of government
• It is recurring in nature.
• It is incurred on normal functioning of the government.
• The expenditure must not create an asset of the government. Payment of
salaries or pension is revenue expenditure as it does not create any asset
Development of Delhi metro is not a revenue expenditure as it leads to
creation of an asset.
REVENUE EXPENDITURE

26. • Capital Expenditure refers to the expenditure which either creates an asset or
cause a reduction in the liabilities of the government. It is non-recurring in
nature.
• It adds to capital stock of the economy and increase its productivity through
expenditure on long period like Metro or Flyover.
• The expenditure must create an asset for the government for ex:- School
building construction is capital expenditure as it leads to creation of asset
However, any amount paid as salaries to teachers is not a capital expenditure.
• Examples: loan to states and union territories expenditure on building, roads,
flyovers etc.
CAPITAL EXPENDITURE

27. • Plan Expenditure: Plan Expenditure refers to the expenditure that is
incurred on the programs detailed in the current five year plan for ex:-
expenditure on agriculture and allied activities, irrigation, energy, transport
etc.
 Projects covered under the central plans
 Central assistance for state and Union Territory.
• Non-Plan Expenditure: Non plan Expenditure refers to the expenditure
other than the expenditure related to the current five year plan and other
schemes.
PLAN AND NON PLAN EXPENDITURE

28. • Development Expenditure : refers to the expenditure which is directly
related to economic and social development of the country. Expenditure on
such services is not a part of the essential functioning of the government.
Developmental expenditure adds to the flow of goods services in the
economy.
• Non Developmental Expenditure : refers to the expenditure which is
incurred on the essential general services of the government. It does not
directly contributes to economic development but it directly help in the
development in the economy such expenditure is essential from the
administrative of view.
DEVELOPMENT AND NON DEVELOPMENT
EXPENDITURE

29. Budgetary deficit is defined as the excess of total estimated expenditure over
total estimated revenue. When the govt. spends more than it collects then it
incurs a budgetary deficit with reference to budget of Indian Govt. Can be of
3 type :
1. Revenue Deficit
2. Fiscal Deficit
3. Primary Deficit
MEASURES OF GOVT. BUDGET DEFICIT

30. • Revenue Deficit is concerned with the revenue expenditure and revenue
receipts of the government. It refers to excess of revenue expenditure over
revenue receipts during the given Fiscal, year.
• Revenue Deficit signifies that government own revenue is insufficient to
meet the expenditures of government departments.
Revenue deficit= Revenue expenditure – Revenue Receipts
REVENUE DEFICIT

31. • It indicates the inability of the government to meet its regular and recurring expenditure in the
proposed budget.
• It implies that government is dis-saving i.e. government is using up saving or other sector of
the economy to finance its expenditure.
• It also implies that the government has to make up this deficit from capital receipts i.e. through
borrowings or reduces the assets.
• Use of capital receipts for meeting the extra consumption expenditure leads to an inflationary
situation in the economy.
• A high revenue deficit gives a warming signal to the government to either curtail its
expenditure.
• Reduce expenditure govt. should take serious steps to reduce its expenditure and avoid
unproductive or unnecessary expenditure.
IMPLICATIONS OF REVENUE DEFICIT

32.  A fiscal deficit occurs when a government's total expenditures exceed the
revenue that it generates, excluding money from borrowings.
 Fiscal Deficit presents a more comprehensive view of budgetary tool for
explaining and understanding the budgetary development in India.
 The extent of Fiscal deficit is an indication of how for the government is
spending beyond its means.
Fiscal Deficit= Total Expenditure- Total Receipts(excluding borrowings)
Fiscal Deficit = Borrowings
FISCAL DEFICIT

33. • Fiscal deficit indicates the total borrowings requirements of the govt.
borrowing not only repayment of principal amount, but also require
payment of interest .
• Government mainly borrow from Reserve Bank Of India to meet its Fiscal
Deficit.
• Government also borrow from rest of the world which raises its
dependence on their country.
• Borrowings increase the financial burden.
IMPLICATIONS

34. • Borrowings: Fiscal deficit can be meet by borrowings from the
internal sources on the external sources.
• Deficit Financing: Government may borrow from Reserve
Bank Of India against its securities to meet the fiscal deficit
.RBI issues new currency for this purpose.
SOURCES OF FINANCING FISCAL DEFICIT

35. • It indicates how much of the government borrowings are going to meet
expenditure other than. It indicates interest payments.
• The difference between Fiscal Deficit and Primary Deficit shows the
amount of interest payment on the borrowings, made in past.
Primary deficit = Fiscal Deficit – Interest Payments
• In India interest payment have considerably increased in the recent years.
High interest payment on past borrowings have greatly increased the fiscal
deficit. To reduce the fiscal deficit interest payment should be reduce4d
through repayments of loans as early as possible.
PRIMARY DEFICIT & IMPLICATIONS

36. • An Expenditure is a capital expenditure if it either creates an asset or
reduces a liability.
• An expenditure is revenue expenditure if it neither creates any asset nor
reduces any liability.
1. Subsidies: It is a revenue expenditure as it neither create any asset nor reduce any
of the government.
2. Defense capital equipment's purchased from Germany: It is a capital
expenditure as it increase asset of the government.
3. Grants given to State Governments: It is a revenue expenditure as it neither
creates any asset nor reduces any of the government.
HOW TO CLASSIFY EXPENDITURE AS REVENUE OR
CAPITAL EXPENDITURE?

37. • Macroeconomics: T.R.Jain & V.K.Ohri
• Macroeconomics: Sandeep Garg
• All in one : Akansha Sharma
• Modern Economic Theory By: K.K.Dewett
• www.wikipedia.com
• www.slideshare.com
• https://www.financialexpress.com/budget/
• https://www.indiabudget.gov.in/doc/Budget_at_Glance/bag6.pdf
• https://www.indiabudget.gov.in/doc/Budget_at_Glance/bag1.pdf
REFERENCES