Class 12 Economics Project

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GOVERNMENT BUDGET AND THE
ECONOMY
MODULE- 2/2 (PPT)
PREPARED BY
MRS TANUPRIYA SINGH
PGT (ECO)
AECS-2, JADUGODA

2. BUDGET EXPENDITURE
It is the estimated expenditure of the government relating to
its development and non- development programmes during a
fiscal year.
Budget expenditure of the government is broadly
classified as:
Revenue Expenditure Capital Expenditure
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3. REVENUE EXPENDITURE
Revenue Expenditure of the government is that expenditure
which shows the following two characteristics:
(i) It does not create any asset for the government.
Example:- Expenditure by government on old-age pension,
salaries and scholarship.
(ii) It does not cause any reduction in liability of the
government.
Example:- Expenditure by way of grants to the state
government to cope with natural calamities.
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4. CAPITAL EXPENDITURE
Capital expenditure of the government is that expenditure
which shows the following two characteristics:
(i) It creates assets for the government.
Example:- Equity (or shares) of the domestic or
multinational corporation purchased by the government may
be cited as an example.
(ii) It causes reduction in liabilities of the government.
Example:- Repayment of loans reduces liability of the
government.
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5. PLAN EXPENDITURE
Plan Expenditure is related to specified plans and programmes
of development, as well as assistance of the central government
to the state governments.
Example: Expenditure on the construction of canals for
irrigation.
NON- PLAN EXPENDITURE
Non - plan is related to expenditure on routine functioning of the
government.
Example: Expenditure on law and order,
Expenditure on defence and subsidies.
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6. GUGL
STRUCTURE OF
GOVERNMENT BUDGET
AT A GLANCE
REVENUE BUDGET CAPITAL BUDGET
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7. REVENUE EXPENDITURE CAPITAL EXPENDITURE
(i) Revenue expenditure does not
impact assets - liability status of the
government.
Assets and liabilities are not increased
or decreased
(i)Capital expenditure impacts assets-
liability status of the government.
Assets are raised or Liabilities are
lowered.
(ii) Revenue expenditure (subsidies and
law & order) focuses on welfare of
the people. It does not directly
contribute to GDP growth.
(ii) Capital expenditure (public
investment) focuses on GDP growth. It
directly contributes to GDP growth.
(iii) High revenue expenditure by the
government (by way of subsidies or old-
age pension) points to poverty of the
people or backwardness of the
economy.
(iii) High capital expenditure by the
government points to the lack of private
investment in the economy. Capital
expenditure by the government is raised
when the economy is suffering from
deflationary gap
DIFFERENCE BETWEEN REVENUE EXPENDITURE AND CAPITAL
EXPENDITURE
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8. TYPES OF BUDGET
❖ Balanced Budget:
Budget Receipts = Budget Expenditure
❖ Deficit Budget:
Budget Receipts < Budget Expenditure
❖ Surplus Budget:
Budget Receipts > Budget Expenditure
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9. BUDGET DEFICIT
Budget deficit (also called as government deficit) refers to a
situation when budget expenditure of the government are
greater than the budget receipts.
There are three important types of budget deficit
(i) Revenue Deficit,
(ii) Fiscal Deficit, and
(iii) Primary Deficit
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10. REVENUE DEFICIT
Revenue deficit is the excess of revenue expenditure
over revenue receipts:
Revenue Deficit = Revenue Expenditure – Revenue Receipts
IMPLICATIONS:
Since revenue receipts and revenue expenditure are related
largely to recurring expenses of the government (on
administration and maintenance ), high revenue deficit gives a
warning to the government either to cut its expenditure or
increases its tax/ non-tax receipts.
RD = RE - RR
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11. FISCAL DEFICIT
Fiscal Deficit is equal to the excess of total
expenditure over the sum of revenue receipts and capital
receipts excluding borrowing.
Fiscal Deficit = (Revenue Expenditure + Capital Expenditure)
– (Revenue Receipts + Capital Receipts other than
Borrowing)
IMPLICATIONS:
(i) Inflationary spiral
(ii) National Debt,
(iii) Vicious circle of high fiscal deficit and low GDP growth,
(iv) Crowding –out
(v) Erosion of government credibility
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12. PRIMARY DEFICIT
Primary deficit is the difference between fiscal deficit and
interest payment.
Primary Deficit = Fiscal Deficit – Interest payment
IMPLICATION:
Primary deficit indicates the extent to which the government
needs to borrow to implement its budgetary programmes and
policies for the year ahead.
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13. NUMERICALS
Q1) Calculate revenue deficit from the following:
Items (₹ in crores)
(i) Revenue Receipts 50,000
(ii) Revenue Expenditure 60,000
Sol. Revenue Deficit = Revenue Expenditure – Revenue Receipts
= 60000 - 50000
= 10000
Revenue Deficit = ₹ 10,000 cr.
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14. Q2) Calculate Fiscal Deficit from the following data:
Items (₹ in crore)
(i) Total expenditure 75000
(ii) Revenue receipts 60000
(iii) Non-debt capital receipts 5000
Sol. Fiscal Deficit = Total expenditure – Revenue receipts –
Non-debt capital receipts
= 75000 – 60000 – 5000
= 10000
Fiscal deficit = ₹ 10000 cr.
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15. Q3) From the following data about a government
budget, find out (a) Revenue Deficit, (b) Fiscal Deficit and
(c) Primary Deficit
Items (₹ in crores)
(i) Tax revenue 47
(ii) Capital receipts 34
(iii) Non- Tax revenue 10
(iv) Borrowings 32
(v) Revenue expenditure 80
(vi) Interest payment 20
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16. Sol.(a) Revenue Deficit = Revenue Expenditure – Revenue
Receipts (Tax revenue + Non- Tax revenue)
= 80 – (47 + 10)
= 80 – 57
= 23
Revenue Deficit = ₹ 23 cr.
(b) Fiscal Deficit = Borrowing = ₹ 32 cr.
(c) Primary Deficit = Fiscal Deficit – Interest Payment
= 32 – 20
= 12
Primary Deficit = ₹ 12 cr
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17. SASAS
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