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    This document contains a summary of key aspects of government budgets and expenditures in India. It discusses the classification of budget expenditures into revenue and capital expenditures. Revenue expenditures do not create assets and include things like salaries, while capital expenditures create assets and reduce liabilities. It also discusses the differences between plan and non-plan expenditures, revenue and fiscal deficits, and provides examples of calculations for each. The document aims to provide an overview of the structure and components of government budgets in India.

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    This document contains a summary of key aspects of government budgets and expenditures in India. It discusses the classification of budget expenditures into revenue and capital expenditures. Revenue expenditures do not create assets and include things like salaries, while capital expenditures create assets and reduce liabilities. It also discusses the differences between plan and non-plan expenditures, revenue and fiscal deficits, and provides examples of calculations for each. The document aims to provide an overview of the structure and components of government budgets in India.

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    © All Rights Reserved
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    64 views17 pages

    m02 Government Budget and The Economy

    Uploaded by

    Aman patidar
    This document contains a summary of key aspects of government budgets and expenditures in India. It discusses the classification of budget expenditures into revenue and capital expenditures. Revenue expenditures do not create assets and include things like salaries, while capital expenditures create assets and reduce liabilities. It also discusses the differences between plan and non-plan expenditures, revenue and fiscal deficits, and provides examples of calculations for each. The document aims to provide an overview of the structure and components of government budgets in India.

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    of 17

    GOVERNMENT BUDGET AND THE

    ECONOMY
    MODULE- 2/2 (PPT)

    PREPARED BY
    MRS TANUPRIYA SINGH
    PGT (ECO)
    AECS-2, JADUGODA

    PAGE NO-1
    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

    PAGE NO-2
    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.
    PAGE NO-3
    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.
    PAGE NO-4
    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.
    PAGE NO-5
    REVENUE BUDGET CAPITAL BUDGET

    GUGL

    STRUCTURE OF
    GOVERNMENT BUDGET
    AT A GLANCE
    PAGE NO-6
    DIFFERENCE BETWEEN REVENUE EXPENDITURE AND CAPITAL
    EXPENDITURE
    REVENUE EXPENDITURE CAPITAL EXPENDITURE
    (i) Revenue expenditure does not (i)Capital expenditure impacts assets-
    impact assets - liability status of the liability status of the government.
    government. Assets are raised or Liabilities are
    Assets and liabilities are not increased lowered.
    or decreased

    (ii) Revenue expenditure (subsidies and (ii) Capital expenditure (public


    law & order) focuses on welfare of investment) focuses on GDP growth. It
    the people. It does not directly directly contributes to GDP growth.
    contribute to GDP growth.

    (iii) High revenue expenditure by the (iii) High capital expenditure by the
    government (by way of subsidies or old- government points to the lack of private
    age pension) points to poverty of the investment in the economy. Capital
    people or backwardness of the expenditure by the government is raised
    economy. when the economy is suffering from
    deflationary gap
    PAGE NO-7
    TYPES OF BUDGET

    ❖ Balanced Budget:
    Budget Receipts = Budget Expenditure

    ❖ Deficit Budget:
    Budget Receipts < Budget Expenditure

    ❖ Surplus Budget:
    Budget Receipts > Budget Expenditure
    PAGE NO-8
    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
    PAGE NO-9
    REVENUE DEFICIT

    Revenue deficit is the excess of revenue expenditure


    over revenue receipts:

    Revenue Deficit = Revenue Expenditure – Revenue Receipts

    RD = RE - RR

    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.
    PAGE NO-10
    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
    PAGE NO-11
    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.
    ...................................................x....................................................
    PAGE NO-12
    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.

    PAGE NO-13
    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.

    PAGE NO-14
    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

    PAGE NO-15
    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
    ...................................................x....................................................
    PAGE NO-16
    SASAS
    PAGE NO-

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