The document discusses key aspects of government budgets in India including: - Budget receipts include estimated money receipts from various sources like taxes, fees, and borrowings. Expenditures include outlays for various programs and public services. - The budget can be balanced, in surplus, or in deficit depending on whether receipts equal, exceed, or are less than expenditures. Deficit budgets aim to boost aggregate demand during economic downturns while surplus budgets help control inflation. - Key parts of the budget include the revenue budget focused on public welfare and capital budget influencing growth through investment. Objectives range from GDP growth to regional development.

1. GOVERNMENT BUDGET
AND THE ECONOMY

2. INTRODUCTION
February 1 is a well-known date in India when the Finance Minister presents annual budget of
the government for its approval by the parliament.
The budget unfolds:
The financial performance of the government over the past one year
The financial programmes and policies of the government for the next one year.

3. FISCAL POLICY
THE PROGRAMES AND POLICIES OF THE GOVERNMENT AS
PRESENTED IN THE BUDGET ARE KNOWN AS BUDGETARY POLICY OR
FISCAL POLICY OF THE GOVERNMENT.

4. OBJECTIVES OF GOVERNMENT BUDGET
1. GDP Growth
2. Allocation of resources
3. Provision of public goods
4. Redistribution of income and wealth
5. Balanced regional growth
6. Employment opportunities
7. Economic stability

5. STRUCTURE OR COMPONENTS OF THE
BUDGET
BUDGET
BUDGET
RECEIPTS
REVENUE
RECEIPTS
TAX RECEIPTS
NON-TAX
RECEIPTS
CAPITAL
RECEIPTS
RECOVERY OF
LOANS
BORROWINGS
AND OTHER
LIABILITIES
OTHER RECEIPTS
BUDGET
PAYMENTS
REVENUE AND
CAPITAL
EXPENDITURE
REVENUE
EXPENDITURE
CAPITAL
EXPENDITURE
PLAN AND NON-
PLAN
EXPENDITURE
PALN
EXPENDITURE
NON-PLAN
EXPENDITURE

6. BUDGET RECIPTS
BUDGET RECEIPTS REFER TO ESTIMATED MONEY RECEIPTS OF THE
GOVERNMENT FROM ALL SOURCES DURING THE FISCAL YEAR.

7. REVENUE RECEIPTS
REVENUE RECEIPTS ARE THOSE RECEIPTS WHICH NEITHER CREATES
ANY CORRESPONDING LIABILITY NOR CAUSE ANY REDUCTION IN
ASSETS OF THE GOVERNMENT.

8. COMPONENTS OF REVENUE RECEIPTS
REVEUE
RECEIPTS
TAX RECEIPTS
INCOME TAX
CORPORATION
TAX
ESTATE DUTY GIFT TAX
CUSTOM DUTY EXCISE DUTY
GST
NON-TAX
RECEIPTS
FEES FINES
ESCHEAT
SPECIAL
ASSESSMENT
INCOME FROM
PUBLIC
ENTERPRISES
INCOME FROM
SALE OF
SPECTRUM
GRANTS

9. TAX RECEIPTS
A TAX IS A COMPULSORY PAYMENT TO THE GOVERNMENT BY THE
HOUSEHOLDS, FIRMS OR OTHER INSTITUTIONAL UNITS.

10. TYPES OF TAX
TAXES
PROGRESSIVE
AND REGRESSIVE
TAXES
PROGRESSIVE
TAXES
REGRESSIVE
TAXES
VALUE ADDED
AND SPECIFIC
TAXES
VALUE ADDED
TAXES
SPECIFIC TAXES
DIRECT AND
INDIRECT TAXES
DIRECT TAXES
INDIRECT TAXES

11. DIFFERENCE BETWEEN PROGRESSIVE
AND REGRESSIVE TAXES
PROGRESSIVE TAX
A tax is said to be progressive when the rate
of tax increases with an increase in income.
It causes a greater burden over the rich than
the poor.
REGRESSIVE TAX
A tax is said to be regressive when the rate
of tax decreases with an increase in income.
It causes a greater burden over the poor
than the rich.

12. DIFFERENCE BETWEEN VALUE ADDED
TAX AND SPECIFIC TAXES
VALUE ADDED TAX
Value added tax is an indirect tax which is
imposed on value added at the various
stages of production.
GST is an important form of value added tax.
SPECIFIC TAX
When a tax is levied on a commodity on the
basis of its units, size or weight, it is called
the specific tax.

13. DIFFERENCE BETWEEN DIRECT AND
INDIRECT TAXES
DIRECT TAX
It is the tax which is finally paid by the
person on whom it is legally imposed.
The burden of direct taxes cannot be shifted
to other person.
Direct taxes are generally progressive in
nature.
INDIRECT TAX
It is the tax which is imposed on one person
but is paid by another.
The burden of indirect taxes can be shifted
to other person.
Indirect taxes are generally regressive in
nature.

14. CAPITAL RECEIPTS
CAPITAL RECEIPTS ARE THOSE RECEIPTS WHICH EITHER CREATES A
CORRESPONDING LIABILITY OR CAUSE A REDUCTION IN ASSETS OF
THE GOVERNMENT.

15. COMPONENETS OF CAPITAL RECEIPTS
CAPITAL
RECEIPTS
RECOVERY OF
LOAN
BORROWINGS
AND OTHER
LIABILITIES
GENERAL PUBLIC
RESERVE BANK
OF INDIA
THE REST OF THE
WORLD
OTHER RECEIPTS

16. BUDGET EXPENDITURE
BUDGET EXPENDITURE REFERS TO ESTIMATED EXPENDITURE OF THE
GOVERNMENT DURING THE FISCAL YEAR.

17. REVENUE EXPENDITURE
REVENUE EXPENDITURE ARE THOSE EXPENDITURE WHICH NEITHER
REDUCES ANY LIABILITY NOR INCREASE IN ASSETS OF THE
GOVERNMENT.

18. IMPORTANT ITEMS OF REVENUE
EXPENDITURE
REVENUE
EXPENDITURE
WAGE BILL OF
THE
GOVERNMENT
INTEREST
PAYMENTS
EXPENDITURE
ON SUBSIDIES
DEFENCE
PURCHASES

19. CAPITAL EXPENDITURE
CAPITAL EXPENDITURE ARE THOSE EXPENDITURE WHICH EITHER
REDUCES A LIABILITY OR INCREASES THE ASSETS OF THE
GOVERNMENT.

20. IMPORTANT ITEMS OF CAPITAL
EXPENDITURE
CAPITAL EXEPNDITURE
EXPENDITURE ON
LAND AND BUILDING
EXPENDITURE ON
MACHINERY AND
EQUIPMENTS
PURCHASE OF SHARES
LOANS BY THE
CENTRAL
GEVERNMENT TO THE
STATE GOVERNMENT

21. DIFFERENCE BETWEEN PLAN AND NON-
PLAN EXPENDITURE
PLAN EXPENDITURE
Plan expenditure refers to that expenditure
which relates to specified plans and
programmes of development and assistance
of the central government to the state
government.
NON-PLAN EXPEDITURE
Non-plan expenditure relates to expenditure
on routine functioning of the government.

22. BUDGET DEFICIT
BUDGET RECEIPTS REFERS TO A SITUATION WHEN BUDGET EXPENDITURE OF
THE GOVERNMENT ARE GREATER THAN THE BUDGET RECEIPTS.
BUDGET DEFICIT = TOTAL EXPENDITURE (REVENUE EXPENDITURE + CAPITA L
EXPENDITURE) – TOTAL RECEIPTS (REVENUE RECEIPTS + CAPITAL RECEIPTS)

23. TYPES OF BUDGET DEFICIT
BUDGET
DEFICIT
REVENUE
DEFICIT
FISCAL
DEFICIT
PRIMARY
DEFICIT

24. REVENUE DEFICIT
Revenue deficit is the excess of revenue expenditure over revenue receipts.
Revenue Deficit = Revenue Expenditure – Revenue Receipts
Implications:
1. Because of revenue deficit, the government may have to cut its expenditure on several
welfare programmes in the country.
2. The government may have to raise funds through borrowing.
3. The government may be compelled for disinvestment selling its ownership to public
enterprises.

25. FISCAL DEFICIT
FISCAL DEFICIT IS THE EXCESS OF TOTAL EXPENDITURE OVER TOTAL REC EIPTS OTHER THAN
BORROWINGS.
FISCAL DEFICIT = TOTAL EXPENDITURE (REVENUE EXPENDITURE + CAPITA L EXPENDITURE)
– TOTAL RECEIPTS (REVENUE RECEIPTS + (CAPITAL RECEIPTS – BORROWINGS))

26. IMPLICATIONS OF FISCAL DEFICIT
IMPLICATIONS OF
FISCAL DEFICIT
INFLATIONARY
SPIRAL
NATIONAL DEBT
VICIOUS CYCLE OF
HIGH FISCAL DEFICIT
AND LOW GDP
CROWDING OUT
EROSION OF
GOVERNMENT
CREDEBILITY

27. GROSS FISCAL DEFICIT
GROSS FISCAL DEFICIT SHOWS ESTIMATED BORROWINGS BY THE
GOVERNMENT TO COPE WITH ITS EXPENDITURES DURING THE
YEAR.

28. PRIMARY DEFICIT
Primary deficit is the difference between fiscal deficit and interest payment.
Primary Deficit = Fiscal Deficit – Interest Payment
Implications:
Implication of primary deficit are similar to those of fiscal deficit. The only difference is that
primary deficit does not carry the load of interest payment on account of the past loans.
Primary deficit just indicates borrowings when current year expenditure > current year
revenue.

29. DIFFERENCE BETWEEN REVENUE, FISCAL
AND PRIMARY DEFICIT
REVENUE DEFICIT
1. It is the excess of total
expenditure over total
receipt, other than
borrowings.
2. It reflects the extent of
borrowings by the
government when interest
payment is accounted for.
3. High fiscal deficit in terms of
borrowings pointes to lack
of fiscal discipline in the
country. It is a hurdle in the
process of GDP growth.
FISCAL DEFICIT
1. It is the difference between
fiscal deficit and interest
payment.
2. It reflects the extent of
borrowings by the
government when interest
payment is not accounted
for.
3. It points to the need for
borrowings even when the
interest payment on the
existing loans is ignored. It
reflects continuous lack of
fiscal discipline in the
country.
PRIMARY DEFICIT
1. It is the excess of
revenue expenditure
over revenue receipt.
2. It reflects the need for
borrowings by the
government to manage
its budgetary
expenditure.
3. High revenue deficit
arises largely because of
low tax receipts and
high expenditure on
subsidies. It points to
overall poverty in the
country.
REVENUE DEFICIT

30. DIFFERENCE BETWEEN REVENUE AND
CAPITAL BUDGET
REVENUE BUDGET
1. It includes revenue receipts and revenue
expenditure of the government.
2. It does not impact asset and liability
status.
3. It focuses on welfare of the people by
way of direct benefit transfer. It does not
directly contribute to GDP growth.
4. High revenue receipts in the revenue
budget lead to low capital receipts in the
capital budget. It is a sign of growing
economy.
CAPITAL BUDGET
1. Capital budget includes capital receipts
and capital expenditure of the
government.
2. It impact asset and liability status.
3. It focuses on GDP growth by the way of
public investment.
4. High capital receipts are often related to
compulsions of borrowings. It is a sign of
a backward economy.

31. TYPES OF BUDGET
BUDGET
BALANCED
BUDGET
UNBALANCED
BUDGET
SURPLUS
BUDGET
DEFICIT
BUDGET

32. BALANCED BUDGET
A BALANCED BUDGET IS THAT BUDGET IN WHICH GOVERNMENT RECEIPTS AR E
EQUAL TO GOVERNMENT EXPENDITURE.
BALANCED BUDGET: GOVERNMENT RECEIPTS = GOVERNMENT EXPENDITURE

33. MERITS AND DEMERITS OF BALANCED
BUDGET
Merits:
1. The government does not indulge in wasteful expenditure.
2. It signals fiscal discipline in the economy.
Demerits:
1. Balanced budget does not offer any solution to the problem of employment. Particularly,
when unemployment is linked with the lack of demand.
2. Balanced budget is not conductive to growth in less developed countries. Kick start of
growth in these economies depends on a big push of investment expenditure by the
government. This often leads to deficit budget.

34. UNBALANCED BUDGET
AN UNBALANCED BUDGET IS THAT BUDGET IN WHICH RECEIPTS
AND EXPENDITURE OF THE GOVERNMENT ARE NOT EQUAL.

35. SURPLUS BUDGET
SURPLUS BUDGET IS A BUDGET IN WHICH GOVERNMENT RECEIPTS ARE
GREATER THAN GOVERNMENT EXPENDITURE.
SURPLUS BUDGET: ESTIMATED GOVERNMENT RECEIPTS > ESTIMATED
GOVERNMENT EXPENDITURE

36. MERITS AND DEMERITS OF SURPLUS
BUDGET
Merits:
Surplus budget is desired when the economy is battling inflation due to excess AD. Surplus
budget plugs inflationary gap by lowering the level of AD. AD is lowered on account of:
1. Rise in revenue collection by the government.
2. Fall in government expenditure.
Demerits:
As surplus budget tends to lower the level of AD in the economy, it is not desired during the
period of depression. If surplus budget policy is constantly pursued by the government, AD may
reduce to a level that causes unemployment in the economy. The economy may be driven into
a low level equilibrium trap.

37. DEFICIT BUDGET
DEFICIT BUDGET IS A BUDGET IN WHICH GOVERNMENT EXPENDITURE ARE
GREATER THAN GOVERNMENT RECEIPTS.
DEFICIT BUDGET: ESTIMATED GOVERNMENT EXPENDITURE > ESTIMATED
GOVERNMENT RECEIPTS

38. MERITS AND DEMERITS OF DEFICIT
BUDGET
Merits:
Keynes recommends deficit budget as a key instrument to convert the state of depression. According
to him, depression is that phase of economic activity when the level of investment is low owing to
the low level of AD. Consequently, planned output is much lower than the full employment level of
output. Unemployment becomes a national problem. It raises the level of AD in two ways:
1. Directly by way of high government expenditure.
2. Indirectly by inducing greater expenditure by the people.
Demerits:
Deficit budget is not desired during periods of inflation. It is a period when the AD exceed AS at full
employment. Deficit budget in such situations when AS cannot increase would further increase the
gulf between AD and AS. Consequently, inflationary gap would rise and wage price spiral when we
just increases with price and prices increases with which me set in.