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Thursday, 1 November 2018

Government Budget : Meaning, Types, Deficit and Objectives

This article about government budget discuss about following topics

  • Meaning of Government Budget
  • Parts of Government Budget
  • Balanced budget and surplus budget
  • Objectives of Government Budget
  • Budget deficit ( Fiscal, Revenue and Primary)
(Scroll down the page to read specific content)

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What is Government Budget?

In India, people wait for last date of February because on this day finance minister of India presents annual budget of the government. This budget is required to be approved by Parliament.

Why do people wait for Government Budget?

People wait to know about future programmes and policies for the development of the countries. Government budget contains the details of past performance as well as future programmes and policies for the next year.

Budget is a statement which is prepared with expected receipt and expected expenditures during a financial year.

After analyzing, we can say that people are interested only to know about expected expenditures and receipts in next year.

“Government Budget is a statement in which details of past year and upcoming year in the form of receipts and expenditures are given.”

Government budget notes for class xii cbse

Parts of Government Budget

Revenue budget and Capital Budget are two components of Government Budget. Revenue Budget is known as Revenue account and Capital Budget is known as Capital account. Revenue account is debited with revenue expenditures and credited with revenue receipts. Capital account is debited with capital expenditures and credited with Capital Receipts.

Government Budget can be looked from different angle. It can be divided into two parts which are Budget Receipts and Budget expenditures.
A detailed explanation of both is given below:

Budget Receipts:

Government expects to receive money from different sources during the financial year . These are called Budget Receipts. Budget receipts are divided as:

1.    Revenue Receipts
2.    Capital Receipts

Revenue Receipts: If you want to identify and expenditure whether revenue or capital then you have to keep these two points in your mind. These two pints are

A.Revenue receipts do not create liabilities for the government.

B.Revenue receipts do not reduce any asset of the government.

e.g when tax is received by the government , there is no creation of liability and reduction of assets in return. Hence Tax receipt is a revenue receipt.

There are two types of receipts: 1. Tax receipts 2. Non-tax receipts

Non tax receipts is a revenue revenue receipt
Non-tax Receipts

“Revenue receipts do not create liabilities and do not reduce assets”

Capital Receipts: We can identify capital receipts if these two conditions are fulfilled:

C.   Capital Receipts create liability for the government.
D.   Capital Receipts reduce assets of the government.
Example: If government borrows from any person. Amount is to be paid back. Hence borrowing is capital receipt. If government sells its investments, assets are reduced because investment is an asset. Hence it is a capital receipt.

“Capital receipts are those monetary receipts which create liability or reduce assets”

“Government may borrow from general public, Reserve bank of India or foreign countries”

“Disinvestment is a capital receipt for the government. Government disposes its investment held in the form of shares in public enterprises to private sector. It causes reduction in assets of the government.

Budget Expenditure:

All expenditures of the government are divided into Revenue expenditure and Capital Expenditure.

A.    Revenue Expenditure: We shall identify expenditure as revenue expenditure with the help of following characters:

 1. These expenditures do not create assets. Examples: old age pensions, scholarship etc
 2. These expenditures do not cause reduction in the liability.

     B. Capital Expenditures:

      1. These expenditures create assets for the government.
      2. These expenditures cause reduction in the liability.

   Examples: Expenditures on land and building, Machine etc, Repayment of loan.

Classification of Government expenditure:

Total government expenditure is classified in plan and non-plan expenditure also. Plan expenditure relates to five year plan and assistance of central government to state government. These include both revenue and capital expenditure. Once a project which is related with five year plan is completed, it is said that plan expenditure is over. Subsequent expenditure for the maintenance of such project is known as non-plan expenditure.

Expenditure which is not related with five year plan and not in the form of help by central to state government is known as non-plan expenditure.

Balanced Budget and Surplus Budget

Budget is also classified into balanced budget and surplus budget.

Balanced budget

If government revenue is equal to the government expenditure, it is known as balanced budget. It is generally preferred when economy is stable.

Surplus Budget

If government revenue is greater than government expenditure, it is known as surplus budget because government has revenue after writing off all expenditures. It is just like profit. It is preferred when economy is in inflationary state.

Objectives Of Government Budget

1.Elimination of Poverty:

Government tries to eradicate poverty with the help of budget. Programmes are planned to provide employment opportunities. Systems are created to distribute basic needs to people. The ultimate objective of Government Budget is social welfare with equal justice.

2. To reduce inequality in income distribution

This is the biggest problem of any economy. The gap between rich and poor is wide. Government with the help of tax and subsidies tries to reduce this gap. Tax is levied on rich people and subsidies are given to poorer section of society. It results in flow of money from the pocket of rich to poor person.

3. Inflation Control

When there is too much supply of money in the economy, inflation starts. In the situation inflation, government reduce its expenditures to reduce supply of money in the economy. Taxes are increased to soak the money from the economy. Government starts to sell its securities to the general public. Overall objective is to reduce money from economy to control inflation.

4. Reallocation of Resources

Re-allocation means allocation of resources again in most useful purpose so that social and economic objectives can be achieved. Resources must be allocated in a manner to increase welfare of society by reducing gap between rich and poor etc.

Budget Deficit:

When Budget expenditures are greater than budget receipt, situation of budget deficit arises.

There are two major deficits:


Note: Borrowings are not included in total receipts.

We can estimate fiscal deficit by adding the following three items

Gross Fiscal Deficit =

1.Borrowing from Central Bank of home country
2.Borrowing from abroad
3.Borrowing from general public in home country.

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