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
Contents 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.
Meaning of 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 -:
Objective of the Government
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.
Objective of the Government
Components of budget refer to structure of the budget. Two main components
Components of Government Budget:
Components of budget can also be
categorized according to 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
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
Recovery of loans :- These are Capital receipts because they
reduce financial assets of the government .
Borrowings: - Funds raised by the government form the
borrowing are treated as capital receipts such receipts creates
Capital 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 .
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.
How to classify a tax as Direct Tax or Indirect Tax
Value added tax
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.
How to classify a receipt as Revenue
Receipt or Capital Receipt?
Budget expenditure refers to the estimated
expenditure of the government during a
given fiscal year.
An expenditure which do not creates assets or reduces liability is called Revenue
It is recurring nature.
It is incurred on normal functioning of the government and the provisions for
• Examples are – Salaries of government employees, interest payment on loan
taken by the government, pension, subsidies, grants etc.
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
An expenditure is a revenue expenditure ,if it
satisfies the following two essential condition.:
It refers to the expenditure which leads to creation of assets and reduction in
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.
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
An expenditure is a capital expenditure, if it
satisfies any one of the following two
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
How to classify Expenditure as Revenue of Capital
Plan expenditure refers to the expenditure that is
incurred on the programmes detailed in the current five
Non-plan expenditure refers to the expenditure other
than the expenditure related to the current five-year
plan. Budget expenditure Plan expenditure Non-
Plan and Non- plan Expenditure
Plan expenditure is spent on current development and
It arises only when the plans provide for such expenditure. non-
plan expenditure . It is spent on the routine functioning of the
It is a must for every economy and the government cannot
escape from it.
Plan expenditure vs. non-plan expenditure Plan
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
How to classify an expenditure as plan or
non- plan expenditure?
It refers to the expenditure which is directly related to economic and social development of the
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
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
It is not concerned with the productivity of working class.
Developmental and Non- developmental
Expenditure 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.
How to classify an expenditure as
developmental expenditure and non
Types:- Deficit Budget:- When government expenditure
exceeds government receipts in the budget is said to be a
Government deficit Revenue Deficit:- Fiscal deficit &
Measures of government deficit
Revenue deficit refers to the excess of revenue
expenditure of the government over its revenue
Revenue deficit = Total revenue expenditure –
Total revenue receipts.
Fiscal deficit is defined as excess of total
expenditure over total receipts .
Fiscal Deficit = Total budget expenditure -
Total budget receipts net of borrowings.
It refers to the difference between fiscal deficit of
the current year and interest payments on the
Primary deficit= fiscal deficit - interest payments .
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