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Sybcom Business Economics Sem Iv CH 13-Types of Budget & Concepts of Deficit

This document discusses government budgets and budget deficits. It defines key budget terms like revenue budget, capital budget, budget surplus, and different types of deficits. It explains that a government budget is a statement of estimated revenues and expenditures that allows a government to allocate resources and implement fiscal policy. The main types of deficits discussed are revenue deficit, fiscal deficit, primary deficit, and effective revenue deficit. The document also provides an overview of India's Fiscal Responsibility and Budget Management (FRBM) Act, which aims to reduce deficits and bring more transparency to government finances.

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215 views13 pages

Sybcom Business Economics Sem Iv CH 13-Types of Budget & Concepts of Deficit

This document discusses government budgets and budget deficits. It defines key budget terms like revenue budget, capital budget, budget surplus, and different types of deficits. It explains that a government budget is a statement of estimated revenues and expenditures that allows a government to allocate resources and implement fiscal policy. The main types of deficits discussed are revenue deficit, fiscal deficit, primary deficit, and effective revenue deficit. The document also provides an overview of India's Fiscal Responsibility and Budget Management (FRBM) Act, which aims to reduce deficits and bring more transparency to government finances.

Uploaded by

PriPat Gaming
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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SYBCom Business Economics Sem IV

Ch 13- Types of Budget & Concepts of


Deficit

- Alisha Liz Varghese


MA (Economics); NET
GOVERNMENT BUDGET

- Tool for implementation of policy decisions to


achieve desired objectives
- Ensuring effective & efficient allocation
- Equitable distribution of income & wealth
- Maintaining economic stability- High employment,
income, stable prices, etc.
- Economic & Financial Management of the economy
- Accountability by the Govt
• Budget: A budget is a
formal statement of
estimated income and
expenses based on future
plans and objectives
• Government Budget /
Public Budget: An annual
financial statement
showing item wise
estimates of expected
revenue and anticipated
expenditure during a fiscal
year of the Government.
→ Expected Revenue- sources
like tax & non-tax revenue
→ Planned expenditure-
allocation for social welfare
programs, subsidies,
infrastructure, etc.
• Govt Revenue > Govt Expdt → Budget Surplus
• Govt Revenue < Govt Expdt → Budget Deficit
• Govt Revenue = Govt Expdt → Balanced Budget

Govt
Govt Expdt & Revenue
Revenue
Balanced Budget
Budget Surplus
Govt Expdt
E
Budget
Deficit

O
National Income
Objectives of Public Budget
• Before Great Depression- Laissez faire economy- Public
Budget: Statement of receipts & expdt of the Govt
• After Great Depression- Welfare State- Public Budget:
Instrument of effective implementation of fiscal policy
Allocation of Resources Reduction of poverty &
Tax concessions, income inequalities
subsidies & direct progressive tax, social
allocation security benefits, subsidies

Economic Growth
Tax incentives to mobilise savings, ↑
investments, low direct tax, progressive
tax- ↑ effective demand
Economic Stability
Management of Public
Recession: Deficit Budget-
Enterprises
*Automatic Stabilisers: ↓ tax rev,
Job creation, prevent private
↑ pub expdt
monopolies, low prices,
* Discretionary policy: Job
disinvestment of unsustainable
creation programs
enterprises, etc.
INFLATION: Surplus Budget

Employment Generation
Govt programs, subsidies, etc.
Types of Public Budget
Balanced & Unbalanced Budget
• Balanced→ Revenue = Expenditure
• Unbalanced → Deficit or Surplus

Zero Based & Traditional Budget


• Traditional→ Changes in the budget are to be justified; programs of previous years automatically
approved
• Zero based → Every item must be approved, used when limited resources available

Performance & Programme Budget


• Performance→ Result oriented, input costs dependent on end result & past performance
• Programme→ Considers a program as a unit, all programs carried out with given budget

Multiple & Unified Budget


• Multiple→ Budget divided into parts & each part highlights a specific function
• Unified → Comprehensive measure of Govt finances

Legislative & Executive Budget


• Legislative → Prepared by legislature- elected representatives
• Executive → Prepared by executive- responsible for implementation of proposals
Revenue & Capital Budget
• Revenue→ Recurring items
• Capital → Acquiring & disposal of capital assets Revenue from direct
taxes
Tax Revenue
Revenue from
Revenue Receipts indirect taxes

Interest, dividend,
Non-Tax Revenue fees, fines, etc.
Revenue Budget
Maintenance of existing
Revenue level of public services.
Budget

Expenditure Should be financed by


revenue receipts

Market borrowings, Provident


Funds, Disinvestment
Capital Receipts receipts, Recovery of loan

Capital Budget
Debt repayment, expdt
Capital
on creation of assets
Expenditure
Structure of Union Budget in India
• 3 tier structure of Govt
• Presented before both Houses of
Parliament
 Actuals for preceding year
 Budget estimate for current year
 Revised estimate for current year
 Budget estimate for upcoming year
Concepts of Deficit
Revenue Budget
• Revenue Deficit
Revenue Deficit→ Revenue Revenue Revenue
Receipts Expenditure
expenditure > Revenue receipts
Deficit/ Surplus may be carried Tax Revenue
Interest
payments on
over to capital budget public debt

Non- Tax Administration


Revenue costs
• Budgetary Deficit
Total expenditure> Total Revenue Defense
expenditure
Met by deficit financing &
borrowings through T-Bills
• Fiscal Deficit
Total expenditure – Total Receipts net of borrowings
BORROWINGS

REVENUE & REVENUE CAPITAL


CAPITAL RECEIPTS RECEIPTS
EXPDT
Financed by borrowings

• Primary Deficit
Primary deficit = Fiscal Deficit – Interest payments → Real position of
Govt finances
• Monetised Deficit:
Increases in net RBI credit to the Govt
• Effective Revenue Deficit
Revenue Deficit- grants for capital asset creation
FRBM Act 2003
• Fiscal Responsibility & Budget Management Rules
- Reduce revenue & fiscal deficit
- No additional liabilities > 9% GDP
- In medium term, deficits, revenues, liabilities, etc. to be
projected as % of GDP
- Transparency by Central Govt
• Borrowing from RBI
- Central Govt shall not borrow from RBI
- Borrow temporarily to meet excess of cash disbursement over
cash receipts
• Measures for Fiscal Transparency
- Greater transparency in fiscal operations of Govt
- Disclose changes in accounting stds, policies, etc.
• Measures to enforce compliance of rules
- Review & statement by Finance Minister
Limitations

FRBM Act rules


Strict targets for
may cause neglect Primary deficit
Gross Fiscal Deficit
of social sector

Non- Coverage of Neglects


State developmental
Governments needs

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