GOVERNMENT BUDGET

 

GOVERNMENT BUDGET 

Government budget is an annual financial statement in which government shows its anticipated receipts and estimated expenditure during the financial year from 1 April XXXX to 31^st March XXXX.

TYPES OF RECEIPTS

There are basically two types of receipts which are as follows

*Revenue receipts which neither increase the liabilities of the government nor decrease the assets of the government are known as revenue receipts. For example:- interest received on borrowings, tax receipts etc.

TYPES OF REVENUE RECIEPTS

Tax receipt

Tax is a compulsory payment which every individual is ought to pay and there is no quid-pro-quo.

There are two types of taxes that is direct tax and indirect tax.

Non tax receipt- Those receipts which increase the revenue of the government apart from the tax reception known as non tax receipts

Some of the non-tax receipts are as follows

*Fees- Government receives many types of fees in the form of registration like licence fee.

*Fines and penalties- Important source of non tax receipts is fines and penalties received by the government in the form of challan when an individual violate the guidelines or does not abide with the rule of the government.

*Escheat- It is a type of receipts received by the government when somebody dies without leaving a legally binding will All legal heir than the estate of the particular person goes to the government.

*Gifts and grants- Several grants(financial help) are received by the government from the various international organisations like WHO and UNICEF and such grants are not a fix source of revenue and generally received during a war or national crisis or pandemic.

*Income from PSUs- Apart from the above receipts government also generate revenue by providing services such as transportation, storage and administrative services. For example:- Metro, Cold storage, E-stamping, etc.

*Special assessment- Government also receive revenue in the form of developmental charges when any type of developmental activities done by the government like construction of road, electrification, cricket stadium, etc is done in your area which leads to appreciation in value of the property is known as special assessment.

Capital receipts

It refers to all those receipts or inflows to the consolidated fund of India which either create a liability of repayment or involve reduction in the asset of the government. These are of  three types:-

*Recovery of loans: - Government also receive payment in against of loan given to different countries for developmental activities like construction of bridges and ports etc.

*Borrowings and other Liabilities:- Government also borrow funds from other countries for developmental activities in our country, like loan taken for construction of metro, roads etc.

*Disinvestment :- It refers to selling of shares a public undertakings to the private company for better productivity or if it was a loss making sector for the government. In other words, it refers to selling of shares of public enterprises to private fully or partly. This happens when government needs to improve efficiency and productivity of the organisation or when government are in need of funds. Basically sale of public enterprises is known as disinvestment.

Types of expenditure

There are two types of expenditure which are as follows

# Revenue expenditure- Those expenditure which neither leads to increase in assets of the government nor decrease the liabilities of a government is known as revenue expenditure.

 For example:- Interest paid on borrowings or Maintenance expenditure on PSUs.

# Capital expenditure- Those expenditure which leads to increase in assets of the government or decrease in liabilities of the government are known as capital expenditure, these expenditure are long term expenditure and increases the efficiency of the government. For example:- construction of metro or repayment of loan by the government, etc

Types of expenditure

*Development expenditure:- It is the expenditure made on growth of developmental activities taken by the government sectors expenditure on education, health, agriculture, etc

*Non developmental expenditure:- It refers to expenditure on non developmental activities of the government which includes expenditure on administration, defence expenditure and collection of taxes, etc

*Plan expenditure:- It refers to expenditure which is already planned and already present in the budget to be spent on various projects, programs and schemes included in the central government plans it includes both consumption and investment expenditure of the government like salary to staff or construction of roads etc.

*Non plan expenditure- Those expenditure which are not covered or not included in the plan. It includes both expenditure during disaster management and expenditure on reconstruction of the economy after the effect of epidemic or loss occurred by pandemic.

Objectives of Government Budget

*Reallocation of Resources:-  It help us to distribute resources keeping in view that social and economic advantages of the country. The factors that influence the allocation of resources are:

i) Allowance or tax Concessions:- Government give allowances and tax concessions to the manufacturers to encourage investment.

ii) Direct production of goods and services- Government can do the production process itself if the private sector do not show any interest. This objective is satisfied by keeping in mind  that the resources are being utilised in an efficient manner.

*Economic stability- The budget is also utilised to avoid business fluctuations / cycle that is inflation or deflation to accomplish the aim of financial stability. Fiscal policy is used to maintain money supply in the economy which helps in maintaining the price stability in the economy.

*Success of planning / economic growth- The main objective of the Planning is to achieve planning targets like success of five years plan and the country’s economy growth is based on the amount of investment and savings, more the saving and investment in the economy better the economic growth.

*Managing Public Sector Undertakings:- Many PSUs are built for the social welfare of the people. The budget is maintained to deliver the expenses required for operating such businesses.

* Reduction in income inequalities in the economy:- Through its fiscal policy, the government can bring positive effects on distribution of income in favour of the poor. So the government impose taxes on the elite classes who have more ability to pay and spend that money on the upliftment of the weaker sections of people in the form of education, free health facilities etc.

*Reduction in regional disparities:- It aims to diminish the regional inequalities by implementing taxations and expenditure policy which helps in promoting the installation of production units in underdeveloped Nations or states and improvement in infrastructure of those particular region. 

Budgetary Deficit

It is defined as the excess of the total estimated expenditure over the total estimated receipts and making difference to budget of India. They are of 3 Types which are follows:-

 Revenue deficit:-     

It is concerned with the revenue expenditure and the revenue receipts of the government.  When the revenue expenditure becomes excess of the revenue receipts during the fiscal year cause revenue deficit.

Revenue deficit = Revenue Receipts – Revenue Expenditures

Implications / effects

Now the government is unable to meet regular recurring expenditure in the proposed project, it leads to dis-saving that is the government will use its past saving of its PSUs to finance its consumption expenditure. Higher revenue deficit gives warning signal to the government that there is need to increase its revenue receipts.

Fiscal deficit- It refers to excess of total expenditure over total receipts excluding borrowings during the fiscal year.

Fiscal deficit = Total Expenditure – Total Receipts(Excluding Borrowings) 

Implications:-

# Increase in interest burden- As the government will borrow to meet out the deficit that leads to increase in interest burden on the economy.

# Inflationary spiral- After the borrowing, the government will spends money in the economy which cause in increase in the money supply of the economy that leads to inflationary pressure in the economy.

# Foreign dependence- Government also borrow from rest of the world which raises its foreign dependence on other countries as well as foreign interference of other countries that will be bad for economic growth.

# Hampers the future growth- Due to increase in borrowings the financial burden on future generation will increase that may affect the future growth and the development prospective the country as most of the receipts will be spent on meeting out its past burden.

Primary deficit

It refers to the difference between fiscal deficit of the current year and the interest payable on the previous borrowings.

It reflects the interest commitments that have come to such extent which have forced or compelled the government to borrow even to makes the interest payment.

Primary deficit= Fiscal Deficit – Interest Payments

Implications of Primary Deficit

It indicates that the government has made the economy in the position of dead trap that future generation will also suffer for the interest payment of borrowing made in past. A low or zero primary   deficit shows that the interest commitment on earlier loan have force the government to borrow.

Types of Budget:-

# Balanced budget- When the expenditure of the government is equal to its receipt is known as balanced budget this budget is useful for developed economy as there the government wants to increase the national income of the nation by spending of devlopment expenditure. Ex:- US.

# Surplus budget- When  the  receipt of the government are excess of its expenditure are known as surplus budget. This type of budget is not suitable for any economy as what the government do by saving money when it may be used for economic growth.

# Deficit budget- When the estimated expenditure of the government are more than its anticipated receipts it is known as deficit budget. It is always good for a developing economy as its help in creation of better infrastructure and assets in the economy.

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