Government Budget class 12th CA-Inter Macroeconomics Macroeconomics Economics Class XII Unit 4 Government Budget and the Economy

1. Macroeconomics
Unit-4 Government Budget and the Economy

2. Learning Outcomes
• Meaning of Budget.
• Objective of Budget.
• Budget Components.
• Measure of Budget Deficits.

3. Meaning
• A government budget is a the annual financial statement of estimated receipts and
expenditure of the government over a fiscal year.
• Financial Year: 1st April to 31st March
• Budget 2021-22
• Total Revenue: ₹19.76 trillion
• Total Expenditure: ₹34.83 trillion

4. Facts about Indian Budget.
• First Union Budget of India was came on 7th April 1860.
• First Budget of Independent India was introduced on 26
November 1947.
• 93 crore which was 46% of the budget was allocated to
defence.
• In 2017 Railway budget was merged with union budget.

5. Government Budget
• Union Budget
• State Budget
• Local Government
• Gram Panchayat
• Municipality
• BMC Budget is greater than the budget of several states like Manipur,
Mizoram, Sikkim, Meghalaya, Arunachal Pradesh, Nagaland and Tripura.

6. Objective
• Allocation of resources.
• Economic Growth.
• Management of public enterprises.
• Reducing Income and Wealth Inequality.
• Reducing Regional Inequality.

7. Allocation of Resources
• The government through its budgetary policy
reallocates resources so that social (public welfare) and
economic (profit maximization) objectives are met.
• Tax concession and Subsidy.
• Direct Production of Goods and Services.

8. Budget
Education
School
Education
Higher
Education
Defence Healthcare Agriculture Infrastructure
Social
Infrastructure
Economic
Infrastructure

9. Economic Growth
• Investment and Saving Rate.
• Empirical evidence shows that developing economies have a
positive long-term correlation between savings and
growth.
• In a fast-growing economy like India, investments generally
outpace domestic savings, and the gap gets funded by
foreign savings.

12. Management of Public Enterprises
• Many public sector industries are built for the social
welfare of people. The budget is planned to deliver different
provisions for operating such business and imparting
financial help.
• Public Goods are:
• Non Rival
• Non Excludable

14. Reducing Income and Wealth Inequality
• Tax on rich.
• Subsidies to poor.

16. Reducing Regional Inequality
• It aims to diminish regional inequalities by implementing
taxation and expenditure policy and promoting the
installation of production units in underdeveloped
regions.

18. Component
Government
Budget
Capital
Budget
Revenue
Budget

19. Capital Budget
• These receipts and expenditures are related to assets and
liabilities of the government.
• It consists of capital receipts and capital expenditure.

20. Capital Receipts
• It 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 (irregular) in nature.
• Example: Sale and Purchase of Govt Security, Recovery of Loan, FDI,
Disinvestment.

21. 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.
• It adds to the capital stock of the economy and increases its
productivity through expenditures on long period development
programmes like construction of metro, flyovers etc.

22. Revenue Budget
• These receipts and expenditures are of current financial
year, related to day to day functioning of the government.
• It consists of revenue receipts and revenue expenditure.

23. Revenue Receipts
• Revenue receipts are those receipts which neither create any
liability nor lead to any reduction in assets of the government.
• They are regular and recurring in nature and government receives
them in normal course of activities.
• Types of Revenue Receipts: Tax and Non- Tax Receipts

24. 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.
• Examples: Payment of salaries to the government employees,
pensions, interest payment, expenditure on the administrative services,
defence services, health services, subsidies, grants to the state
government etc.

25. Budget Receipts & Expenditure
• Total Receipts = Revenue Receipts + Capital Receipts
• Total Expenditure = Revenue Expenditure + Capital Expenditure

26. Types of Budget
• Balance Budget: Total Receipts = Total Expenditure
• Surplus Budget: Total Receipts > Total Expenditure
• Deficit Budget: Total Receipts < Total Expenditure

27. Types of Deficit
• Revenue Deficit = Revenue Expenditure – Revenue Receipts
• Fiscal Deficit = Total Expenditure – Total Receipts ( Excluding Borrowings)
• Primary Deficit = Fiscal Deficit – Interest Payments

28. Revenue Deficit
• The revenue deficit refers to the excess of government’s revenue expenditure
over revenue receipts.
• Significance: The revenue deficit includes only such transactions that affect
the current income and expenditure of the government. When the
government incurs a revenue deficit, it signifies that government’s own
revenue is insufficient to meet the normal functioning of government
departments and provision of services.

29. Fiscal Deficit
• The Fiscal Deficit in a government budget refers to the excess of
government’s total expenditure over its total receipts excluding borrowings.
• Significance: It indicates the total borrowing requirements of the
government from all sources during the budget year. It shows the amount by
which an economy’s expenditure exceeds its receipts excluding borrowings.

30. Primary Deficit
• It refers to the difference between fiscal deficit of the current year and
interest payments on the previous borrowings.
• Significance: The borrowing requirement of the government includes
interest obligations on accumulated debt. Primary Deficit indicates how
much borrowings are required by the government to meet expenses other
than the interest payments.

31. Learning Check

32. Multiple Choice Questions
Question-1: An annual statement of the estimated receipts and
expenditure of the government over the fiscal year is known as____
Budget
Income estimates
Balance of Payment
Account

33. Multiple Choice Questions
Question-1: An annual statement of the estimated receipts and
expenditure of the government over the fiscal year is known as____
Budget
Income estimates
Balance of Payment
Account

34. Multiple Choice Questions
Question-2: What is the period of a fiscal year?
1 January to 31 Dec
1 April to 31 March
1 March to 28 February
None of these

35. Multiple Choice Questions
Question-2: What is the period of a fiscal year?
1 January to 31 Dec
1 April to 31 March
1 March to 28 February
None of these

36. Multiple Choice Questions
Question-3: Which of the following is the objective of government
budget?
Economic Growth
Employment Generation
Reduction in Regional Inequality
All of these

37. Multiple Choice Questions
Question-3: Which of the following is the objective of government
budget?
Economic Growth
Employment Generation
Reduction in Regional Inequality
All of these

38. Multiple Choice Questions
Question-4: The fiscal deficit is the difference between the government’s
total expenditure and its total receipts excluding ______
Interest
Tax
Borrowing
Spending

39. Multiple Choice Questions
Question-4: The fiscal deficit is the difference between the government’s
total expenditure and its total receipts excluding ______
Interest
Tax
Borrowing
Spending

40. Multiple Choice Questions
Question-5: The amount collected by the government in the form of
interest, fees, and dividends is known as ________
Non Tax Revenue Receipts
Tax-Revenue Receipts
Borrowing
Capital Receipts

41. Multiple Choice Questions
Question-5: The amount collected by the government in the form of
interest, fees, and dividends is known as ________
Non Tax Revenue Receipts
Tax-Revenue Receipts
Borrowing
Capital Receipts