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1. GOVERNMENT
BUDGET
BY- ASHMIT GUPTA
STUDENTAT ST.JOSEPH’S

2. WHAT IS GOVERNMENT
BUDGET ?
A government budget is a document prepared by the
government and/or other entities presenting its anticipated
revenues/tax revenues income tax, corporation tax, import
taxes) and proposed government
expenditures/spending/expenditure for the coming financial
year. In most parliamentary systems, the budget is presented
to the legislature and often requires approval of the
legislature.Through this budget, the government implements
economic policy and realizes its program priorities. Once the
budget is approved, the use of funds from individual chapters
is in the hands of government, ministries and other
institutions. Revenues of the state budget consist mainly of
taxes, customs duties, fees and other revenues. State budget
expenditures cover the activities of the state, which are either
given by law or the constitution.The budget in itself does not
appropriate funds for government programs, hence need for
additional legislative measures.

3. OBJECTIVES OF GOVERNMENT BUDGET
1. Reallocation of resources – It helps to distribute resources,
keeping in view the social and economic advantages of the
country.The factors that influence the allocation of resources are:
2. Allowance orTax concessions –The government gives
allowance and tax concessions to manufacturers to encourage
investment.
3. Direct production of goods and services –The government can
take the production process directly if the private sector does not
show interest.

4. OBJECTIVES OF GOVERNMENT BUDGET
4. Minimize inequalities in income and wealth – In an economic
system, income and wealth inequality is an integral part. So, the
government aims to bring equality by imposing a tax on the elite
class and spending extra on the well-being of the poor.
5. Economic stability –The budget is also utilised to avoid
business fluctuations to accomplish the aim of financial stability.
Policies such as deficit budget during deflation and excess budget
during inflation assist in balancing the prices in the economy.

5. OBJECTIVES OF GOVERNMENT BUDGET
6. Economic growth – A country’s economic growth is based on
the rate of investments and savings.Therefore, the budgetary
plan focuses on preparing adequate resources for investing in the
public sector and raising the overall rate of investments and
savings.

6. COMPONENTS OFTHE BUDGET
The budget is classified into two segments.
(i) Revenue budget –The revenue budget contains revenue
expenditure and receipts. In these receipts, both tax revenue
(such as excise duty, income tax) and non-tax revenue (like
profits, interest receipts) are recorded.
(ii) Capital budget –The capital budget includes the capital
receipts (such as disinvestment, borrowing) and lengthy capital
expenditure (for instance, long-term investments, creation of
assets). Capital receipts are government liabilities or decreased
financial assets, such as the recovery of loans, market borrowing,
etc.

7. BUDGET
RECEIPTS
Budget receipt refers to the
estimated receipts of the
government from various
sources during a fiscal year. It
shows the sources from where
the government intends to get
money to finance the
expenditure.
Broadly, the budget receipts are
classified as:
1. Revenue Receipts
2. Capital Receipts

8. REVENUE
RECEIPTS
• Government receipts, which
-> Neither create any
liabilities for the government;
and
-> Nor cause any reduction in
assets of the government, are
called revenue receipts.
Revenue Receipts are broadly
classified as tax receipts and
non-tax receipts.

9. TAX RECEIPTS
It refers to the receipts from
taxes and other duties
imposed by the government.
E.g. Income tax, GST etc.
Tax is a compulsory payment
made by the people and firms
to the government without
reference to any direct benefit
in return.
Taxes are classified into two
main groups – Direct tax and
Indirect tax.

10. DIFFERENCE BETWEEN DIRECTTAX AND INDIRECT TAX
DIRECTTAX INDIRECTTAX
It refers to a tax where the ‘liability to
pay’ (impact) and ‘the actual burden’
(incidence) of the tax lies on the same
person.
It refers to a tax where the ‘liability to
pay’ (impact) and ‘the actual burden’
(incidence) of the tax lies on different
persons.
The actual burden of the tax cannot be
shifted or passed on to a third person
(i.e. Incidence of tax cannot be shifted)
The actual burden of the tax can be
shifted on to the consumers/ buyers in
the form of increased prices. (i.e.
Incidence of tax can be shifted)
E.g. Income tax, Wealth tax, Corporation
tax. Wealth tax
E.g.VAT, Goods and ServicesTax, Excise
duty, Custom duty etc.

11. NON-TAX
RECEIPTS
Receipts of the government (Current
Income) from all other sources other
than those of tax receipts are termed
as Non-Tax Revenue Receipts.
It includes –
(a) Interest received on loans given by
government to state government,
union territories, private enterprises
and general public
(b) Profits of Public Sector
Undertakings like Railways, LIC etc.
(Profits received from sale proceeds of
the products of public enterprises)

12. NON-TAX
RECEIPTS
(c) Dividends received by
government from its
investment in other
companies
(d) Fees and Fines collected
by the government E.g.
License fees
(e) Gifts and Grants received
by the government from
foreign countries, foreign
government or international
organizations.

13. CAPITAL RECEIPTS
Government receipts, that either creates liabilities
(of payment of loan) or reduce assets (on
disinvestment) are called capital receipts.
In capital receipts any one of the conditions must be
satisfied.

14. COMPONENTS OF CAPITAL RECEIPTS
• Borrowing (Domestic and External): Borrowings are
made to meet the financial requirement of the country.
• Recovery of Loans andAdvances: Loans offered to
others are assets of the government. It includes recovery
of loans granted by the central government to state and
union territory governments. It is a capital receipt because
it reduces financial assets of the government.
Disinvestment:A government raises funds from
disinvestment also. Disinvestment means selling whole or
a part of the shares (i.e., equity) of selected public sector
enterprises held by government.As a result, government
assets are reduced.

15. BUDGET
EXPENDITURE
It refers to the estimated expenditure
of the government expected to be
incurred under various heads during a
given fiscal year.
It is broadly classified into two groups
Revenue expenditure and Capital
expenditure.

16. REVENUE
EXPENDITURE
It refers to those expenditures which
neither create any asset nor causes
any reduction in any liability of the
government.
It is regular/ recurring in nature. It is
incurred on normal functioning of the
government and provision of various
services.

17. CAPITAL
EXPENDITURE
It refers to those expenditures which
either create (or increase) an asset or
cause a reduction in the liabilities of
the government.
It is non-recurring (or irregular) in
nature.

18. TYPES OF BUDGET
BALANCED
BUDGET
(TE=TR)
• ESTIMATEDTOTAL EXPENDITURE = ESTIMATEDTOTAL RECEIPTS
(REVENUE+CAPITAL) (REVENUE+CAPITAL)
SURPLUS
BUDGET
(TE<TR)
• ESTIMATEDTOTAL EXPENDITURE< ESTIMATEDTOTAL RECEIPTS
DEFICIT
BUDGET
(TE>TR)
• ESTIMATEDTOTAL EXPENDITURE>ESTIMATEDTOTAL RECEIPTS

19. WHAT IS BUDGET DEFICIT ?
A budgetary deficit is referred to as the situation in which the spending is more
than the income. Although it is mostly used for governments, this can also be
broadly applied to individuals and businesses.
In other words, a budgetary deficit is said to have taken place when the individual,
government, or business budgets have more spending than the income that they
can generate as revenue.
There are three types of budget deficit.They are explained follows:
1. Revenue deficit
2. Fiscal deficit
3. Primary deficit

20. REVENUE DEFICIT
Revenue expenditure is defined as the excess of
total revenue expenditure over the total revenue
receipts. In other words, the shortfall of revenue
receipts as compared to that of the revenue
expenditure is known as revenue deficit.
Revenue deficit signals to the economists that the
revenue earned by the government is insufficient to
meet the requirements of the expenditures
required for the essential government functions.
The formula for revenue deficit can be expressed as
follows:
Revenue deficit =Total revenue expenditure –Total
revenue receipts
IMPLICATIONS
1.Reduction in assets: For meeting
the shortfall in the form of revenue
deficit, the government has to sell
some assets.
2.It leads to the conditions of inflation
in the economy.
3.A large amount of borrowing leads
to a greater debt burden on the
economy.

21. FISCAL DEFICIT
Fiscal deficit is defined as the excess of total
expenditures over the total receipts, excluding the
borrowings in a year. In other words, this can be
defined as the amount that the government needs
to borrow in order to meet all expenses.
The more the fiscal deficit, the more will be the
amount borrowed. Fiscal deficit helps in
understanding the shortfall that the government
faces while paying for the expenditures in the
absence of lack of funds.
The formula for calculating fiscal deficit is as
follows:
Fiscal deficit =Total expenditures –Total receipts
excluding borrowings
IMPLICATIONS
1.Unnecessary expenditure: A high fiscal
deficit leads to unnecessary expenditure
done by the government that leads to
potential inflationary pressure on the
economy.
2.Printing more currency by RBI for
meeting the deficit, also known as deficit
financing, leads to the availability of more
money in the market, leading to inflation.
3.Borrowing more will hinder the future
growth of the economy, as most of the
revenue will be utilised towards meeting
debt payments.

22. PRIMARY DEFICIT
Primary deficit is said to be the fiscal deficit of the current year subtracted by the interest payments
that are pending on previous borrowings. In other words, the primary deficit is the requirement of
borrowing without the interest payment.
Primary deficit, therefore, shows the expenses that government borrowings are going to fulfil while
not paying for the income interest payment.
A zero deficit shows that there is a requirement for availing credit or borrowing for clearing the
interest payments pending.
The formula for the primary deficit is expressed as follows:
Primary deficit = Fiscal deficit – Interest payments