The document discusses key concepts related to government budgets and deficits. It defines a government budget as an annual statement of estimated receipts and expenditures. The objectives of a budget include managing resources, reducing inequality, and achieving economic stability. Budgets have two main components - revenue and capital. Receipts are classified as revenue (e.g. taxes) or capital (e.g. borrowings), and expenditures are classified as revenue (e.g. salaries) or capital (e.g. infrastructure). Deficit measures include the revenue deficit, fiscal deficit, and primary deficit, which refer to excesses of expenditures over receipts from different sources.

1. GOVERNMENT BUDGET AND THE
ECONOMY

2. Contents
Government Budget – Meaning, Objective
• Components of Government Budget
• Classification of receipts – Capital and revenue
• Classification of expenditure
- Capital and revenue
• Balanced budget surplus budget, deficit budget
- meaning and implication
• Revenue deficit, Fiscal deficit, primary deficit
- Meaning and implication.

3. Meaning of Government Budget
• A government budget is an annual statement
of the estimated receipts and estimated
expenditure of the government during a fiscal
year
• Fiscal year is taken from 1st April to 31st
March.

4. Objective of the
Government Budget
• It means managed and proper distribution
of resources. As private sector can not
provide all the goods and services the
government has to provide these goods.
• Through budget government tries to
reduce the gap between Rich and poor.
This is achieved through taxing the rich
and subsidizing the needs of poor people.
• There may be inflation or depression in
the economy. Inflation is the situation of
rise in price level whereas depression is
lack of demand. Both the situations are
undesirable. During depression
government reduces rate of tax and
borrowing and increases public
expenditure. During inflation government
increases the rate of tax and borrowing
and decreases public expenditure.
Reallocation of
resources -:
To reduce
inequalities in income
and wealth-:
. To achieve
economic stability -:

5. Objective of the
Government
Budget
IV. Large no: of Public
Enterprises which are
established and managed for
social welfare of the public.
V. depends upon rate of saving
and investment
• Through taxation and
expenditure policy.
Management of
Public Enterprises
. To achieve
economic growth
Reducing regional
disparities.

6. Components of Government Budget:
Components of budget refer to structure of the
budget. Two main components are:
• Revenue Budget
• Capital Budget

7. Components of budget can also be categorized
according to receipts and expenditures
• Budget Receipts
• Budget Expenditure.

8. Budget Receipts
Budget receipts
refer to the
estimated money
receipts of the
government from
all sources during
a given fiscal year.
Budget Receipts
Revenue
receipts
Capital
receipts
Tax
revenue
Non-tax
revenue
Recovery
of loans
Borrowing
Other
receipts

9. Budget Receipts
Capital Receipts: - Capital Receipts refer to those receipts of the
government which i) tend to create a liability or ii) Causes reduction in its
assets. All the Capital receipts are broadly classified into three categories.
1) Recovery of loans :- These are Capital receipts because
they reduce financial assets of the government
2) Borrowings: - Funds raised by the government form the borrowing
are treated as capital receipts such receipts creates liability.
3) Other Receipts: - Funds raised through disinvestment are included in
this category. By this government assets are reduced

10. Revenue Receipts:-
Any receipts which
do not either create a
liability or lead to
reduction in assets is
called revenue
receipts. Two sources
of revenue receipts
Tax Revenue
Non-Tax Revenue.
Revenue
receipts
Tax
revenue
Non-tax
revenue
Direct
Tax
Indirect
Tax.
Interest
Profit
and
dividend
Fees
and
fines
Gifts
and
grants

11. How to classify a tax as Direct Tax or
Indirect Tax
• A tax is a direct tax, if its burden cannot be shifted.
For example, income tax is a burden tax as its impact
and incidence is on the same person.
• A tax is a indirect tax, if its burden can be shifted.
For example, sales tax is an indirect tax as its impact
and incidence is on different persons.

12. • Corporation tax
• Value added tax
• Service tax
• Excise duty
• Wealth tax
• Sales tax

13. How to classify a receipt as Revenue
Receipt or Capital Receipt?
• A receipt is a capital receipt, if it creates a liability or
reduces an asset.
• A receipt is a revenue receipt, if it neither creates a
liability nor reduces any asset.

14. Budget Expenditure
• Budget expenditure refers to the estimated
expenditure of the government during a given fiscal
year.
Budget
Expenditure
Capital
Expenditure:
-
Revenue
Expenditure:
-

15. Revenue Expenditure
• An expenditure which do not creates assets or reduces
liability is called Revenue Expenditure.
• It is recurring nature
• It is incurred on normal functioning of the government
and the provisions for various services.
• Examples are – Salaries of government employees,
interest payment on loan taken by the government,
pension, subsidies, grants etc.

16. An expenditure is a revenue
expenditure ,if it satisfies the
following two essential
condition.:
The expenditure
must not create an
asset of the
government.
The expenditure
must not cause
decrease in any
liability.
Revenue
expenditure
Neither
creates an
Asset
Nor reduces
any liability

17. Capital Expenditure:-
• It refers to the expenditure which leads to creation
of assets and reduction in liabilities
• It is non-recurring in nature
• It adds to capital stock of the economy and
increases its productivity through expenditure in
long period development programmes like Metro or
Flyover.
• eg. Expenditure incurred on construction of
building, roads, bridges etc.

18. An expenditure is a capital
expenditure, if it satisfies
any one of the following two
conditions:
The expenditure must create
an asset for the government. Eg:
construction of metro.
The expenditure must cause a
decrease in the liabilities. Eg:
repayment of borrowings.
Capital
expenditure
Either creates
an Asset
Or reduces a
liability

19. How to classify Expenditure as Revenue of
Capital Expenditure?
• An expenditure is a capital expenditure, if it creates
an asset or reduces a liability.
• An expenditure is revenue expenditure, if it neither
creates any asset nor reduces an liability.

20. Plan and Non-
plan Expenditure
Plan expenditure
refers to the
expenditure that is
incurred on the
programmes detailed in
the current five year.
Non-plan
expenditure refers to
the expenditure other
than the expenditure
related to the current
five-year plan.
Budget
expenditure
Plan
expenditure
Non-
expenditure

21. Plan expenditure vs. non-plan expenditure
Plan expenditure
• Plan expenditure is spent on
current development and
investment outlays.
• It arises only when the plans
provide for such
expenditure.
non-plan expenditure
• It is spent on the routine
functioning of the
government.
• It is a must for every
economy and the
government cannot escape
from it.

22. How to classify an expenditure as plan or
non- plan expenditure?
• An expenditure is a plan expenditure, if it arises due
to planned proposals.
• An expenditure is a non-plan expenditure, if it is out
of the scope off government plans.

23. Developmental and Non- developmental
Expenditure
Developmental Expenditure
• It refers to the expenditure which
is directly related to economic and
social development of the country.
• It directly contributes to
development of the economy.
• It is productive in nature as it adds
to the flow of goods and services.
Non- developmental Expenditure
• It refers to the expenditure which is
incurred on the essential general
services of the government .
• It does not contribute directly to the
development , but it lubricates the
wheels of economic development.
• It is not concerned with the
productivity of working class.

24. How to classify an expenditure as
developmental expenditure and non
developmental expenditure
• An expenditure is a developmental expenditure, if it
directly adds to the flow of goods and services.
• An expenditure is a non-developmental
expenditure, if it indirectly contributes to economic
development.

25. Measures of
government deficit
• Types:-
Deficit Budget:-
When government
expenditure
exceeds
government
receipts in the
budget is said to be
a deficit budget.
Government deficit
Revenue
Deficit:-
Fiscal
deficit
Primary
deficit:-

26. • Types:-
 Revenue Deficit:-
Revenue deficit refers to the excess of revenue expenditure of
the government over its revenue receipts.
Revenue deficit = Total revenue expenditure – Total revenue
receipts.
 Fiscal deficit :-
Fiscal deficit is defined as excess of total expenditure over total
receipts .
• Fiscal Deficit = Total budget expenditure - Total budget
receipts net of borrowings.
 Primary deficit:-
It refers to the difference between fiscal deficit of the current
year and interest payments on the previous borrowings.
Primary deficit= fiscal deficit - interest payments