Government Budget

Government Budget

What is government budget?

 “Government budget is a statement of the estimate of the government receipts and government expenditure during the period of financial year”

It is important to know:

i)                   To know the financial performance of the govt. over past one year and,

ii)                To knew the financial programmes and policies of the government for next one year.

In India, article 112 of the constitution requires the central govt. to prepare ‘annual financial statement’ for the country as a whole. This is called budget of central govt. the govt. require to present this budget every year before Lok Sabha and Rajya Sabha.

Components of the Budget:

 

It has two broad components:  (a) revenue budget and (b) capital budget.

Revenue budget includes ‘revenue receipts’ and ‘revenue expenditure’ of the government. Capital budget includes ‘capital receipts’ and ‘capital expenditure’ of the government.

The whole budget can be divided into 2 categories:-

i)                   Budget receipts

ii)                Budget expenditure

i)                   Budgeted receipts: - refers to estimated money receipts of the government from all sources during the fiscal year. Broadly budget receipts are classified as: - a) revenue receipts b) capital receipts.

a)     Revenue receipts: - Those money receipts of the govt. are known as revenue receipts which satisfy two related characteristic:

1)     These receipts do not create any corresponding liability for the government. For ex. Tax receipts is revenue receipts because it does not involve any corresponding liability for the govt.

2)     These receipts do not cause any reduction in asset of the government. For ex. Receipts of  govt. when it sell its shares of company say Maruti , cause reduction in assets of govt. so it can’t be termed as revenue receipts .

So in short revenue receipts of the govt. are those money receipts which do not either create a liability or lead to reduction of assets.

Revenue receipts have two categories:-

          Tax receipts: - which includes both direct and indirect tax.

          Non-tax receipts: - includes fees, license, permits fines and penalties income from public enterprises etc.

b)    Capital receipts :- Those money receipts of the govt. are known as Capital receipts which satisfy two related characteristic:

1)    These receipts create a liability for the government. For example loan by the government.

2)    These receipts cause reduction in assets of the government. For ex. Money received by govt. by selling it share which reduce the assets of govt.

In India capital receipts are classified under 3 heads:-

          Recovery of loan

          Borrowing and other liability

          Other receipts

ii)                Budgeted Expenditure:- refers to estimated expenditure of the govt. on its ‘development and non development programmes’ or on its ‘planed and non planned programmes’ during the fiscal year.

It is further classified into two categories: - a) revenue expenditure b) capital expenditure.

a)     Revenue expenditure :- of revenue expenditure are those expenditure which satisfy two conditions :-

1)    This expenditure does not create assets for the govt.

2)    This expenditure does not create any reduction in liability of the govt.

For ex. Expenditure on old-age pensions are to be treated as revenue expenditure because it satisfies both conditions. But expenditure related to re payment of loan cause reduction in liability so can’t be taken as revenue expenditure.

b)    Capital expenditure:- of capital expenditure are those expenditure which satisfy two conditions :-

1)    Creates asset for govt.

2)    Cause reduction in liability of the govt.

For ex. Repayment of loan reduces the liability so it is capital expenditure.

           

PLAN EXPENDITURE: - refers to that expenditure which in incurred by the govt. to fulfill its planned development programmes. This includes investment and expenditure by the govt. on planned activities.

NON-PLAN EXPENDITURE:- refers to all such government expenditure which are beyond the scope of planned development programmes.

DAVELOPMENT EXPENDITURE: - this relates to growth and development activities of the govt.  Such as education, health  etc.

NON-DAVELOPMENT EXPENDITURE: - This relates to non development of the govt. for ex. Interest on loans, old age pensions, defense etc.