BUDGET ITS COMPONENTS AND DEFICIT

Transcription

1 BUDGET ITS COMPONENTS AND DEFICIT

2 Government budget Government budget is an annual statement, showing item wise estimates of receipts and expenditure during fiscal year i.e. financial year. The receipts and expenditure, shown in the budget, are not the actual figure, but the estimated values for the coming fiscal year.

3 OBJECTIVES OF GOVERNMENT BUDGET Reallocation Of Resources Reducing Inequalities In Income And Wealth Economic Stability Management Of Public Enterprises

4 Component of Budget 1. Revenue Budget a. Revenue Receipts Tax Revenue Non-tax revenue b. Revenue Expenditure plan revenue expenditure non-plan revenue expenditure 2. Capital Budget a. Capital receipts b. Capital Expenditure plan capital expenditure Non-plan expenditure

5 Revenue Budget: It deals with the revenue aspect of the government budget. It explains how revenue is generated or collected by the government and how it is allocated among various expenditure heads. Capital Budget: it deals with the capital aspect of the government budget

6 Budget Receipt Budget Receipts refer to the estimated money receipts of the government from all sources during a given fiscal year. Budget receipts may be further classified as: i. Revenue Receipts ii. Capital Receipts

7 Revenue Receipts Revenue receipts refer to those receipts which neither 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.

8 A receipts is revenue receipt, if it satisfies the following two essential conditions: The receipts must not create a liability for the government. The receipts must not cause decrease in the assets.

9 Capital Receipts Capital receipts refer to those receipts which either create a liability or cause a reduction in the assets of the government. They are non-recurring and nonroutine in nature.

10 A receipt is a capital receipt if it satisfies any one of the two conditions: The receipt must create a liability for the government The receipts must cause a decrease in the assets

11 Budget Expenditure Budget expenditure refers to the estimated expenditure of the government during a given fiscal year. The budget expenditure can be broadly categorised as: Revenue Expenditure Capital Expenditure

12 Revenue Expenditure Revenue Expenditure refers to the expenditure which neither creates any asset nor causes any reduction in any liability of the government. It is recurring in nature. It is incurred on normal functioning of the government. Examples: Payment of salaries, pensions, interests, etc.

13 An expenditure is a revenue expenditure, if it satisfies the following two essential condition: a) The expenditure must not create an asset of the government. b) The expenditure must not cause decrease in an liability.

14 Capital expenditure Capital expenditure refers to the expenditure which either creates an asset or causes a reduction in the liabilities o the government. It is nonrecurring in nature. It adds to capital stock of the economy and increases its productivity through expenditure on long period development programmes. Examples: Loan to states and Union Territories, etc.

15 An expenditure is a capital expenditure, if it satisfies any one of the following two conditions: 1. The expenditure must create an asset for the government. 2. The expenditure must cause a decrease in the liabilities.

16 Types of budget There are three types of budgets: Balanced Budget Surplus Budget Deficit Budget

17 Balanced Budget: Government budget is said to be balanced budget if estimated government receipts are equal to the estimated government expenditure.

18 Surplus Budget If government estimated receipts are more than the estimated government expenditure, then the budget is termed as Surplus Budget.

19 Deficit Budget If government estimated receipts are less than the estimated government expenditure, then the budget is termed as Deficit Budget.

20 Measure of government deficit Budgetary deficit is defined as the excess of total estimated over total estimated revenue When the government spends more than it collects, then it incurs a budgetary deficit. With reference to budget of Indian government, budgetary deficit can be of 3 types: 1) Revenue Deficit 2) Fiscal Deficit 3) Primary Deficit

21 Revenue deficit Revenue Deficit is concerned with the revenue expenditures and receipts of the government. It refers to excess of revenue expenditure over revenue receipts during the given fiscal year. Revenue Deficit = Revenue Expenditure Revenue Receipts It signifies that government s own revenue is insufficient to meet the expenditures on normal functioning of government departments and provisions for various services.

22 Fiscal deficit Fiscal deficit presents a more comprehensive view of budgetary imbalances. Fiscal Deficit refers to the excess of total expenditure over total receipts (excluding borrowings) during the given fiscal year. Fiscal Deficit= Total Expenditure Total Receipts excluding borrowings

23 Sources Of Financial Fiscal Deficit: Borrowings: Fiscal Deficit can be met by borrowings from the internal sources or external sources. Deficit Financing: Government may borrow from RBI against its securities to meet the fiscal deficit. RBI issues new currency for this purpose. This process is known as deficit financing.

24 Primary deficit Primary deficit refers to difference between fiscal deficit of the current year and interest payments on the previous borrowings. Primary Deficit = Fiscal Deficit Interest Payments

25 Implications Of Primary Deficit: It indicates, how much of the government borrowings are going to meet expenses other than the interest payments. The difference between fiscal deficit and primary deficit shows the amount of interest payments on the borrowings made in past. So, a low or zero primary deficit indicates that interest commitments have forced the government to borrow.

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