Introduction

Article 112 of the Constitution requires the government to present to

Parliament a statement of estimated receipts and expenditure in

respect of every financial year, from April 1 to March 31. This

statement is called the annual financial statement.

Union Budget keeps the account of the government's finances for the

fiscal year that runs from 1st April to 31st March. Union Budget is

classified into Revenue Budget and Capital Budget.

Revenue budget includes the government's revenue receipts and

expenditure. There are two kinds of revenue receipts - tax and non-tax

revenue. Revenue expenditure is the expenditure incurred on day-to-

day functioning of the government and on various services offered to

citizens. If revenue expenditure exceeds revenue receipts, the

government incurs a revenue deficit.

Capital Budget includes capital receipts and payments of the

government. Loans from public, foreign governments and RBI form a

major part of the government's capital receipts. Capital expenditure is

the expenditure on development of machinery, equipment, building,

health facilities, education etc. Fiscal deficit is incurred when the

government's total expenditure exceeds its total revenue

OBJECTIVES OF GOVERNMENT BUDGET

Budget is not only an annual statistical statement of government

revenue and expenditure but it also reflects government policies and a

set of Objectives which the government has to fulfil through

budget. Government tries to fulfil the following objectives through

budget.

1) Encouragement of Economic Development: - The basic

objective of the budget is to accelerate the place of economic

development in the country. For accelerating the palace of

economic development.

a. Government may grant tax rebates to production activities

b. Government may develop infrastructure like roads canals

power bridges etc. by increasing public expenditure and

c. Government may establish public enterprises.

2) Balanced Regional Development: -Through budget

government may promote the development in backward areas

for ensuring balanced regional development in the economy.

 Government may grant tax rebates to these areas may

establish public enterprises in these areas and may allocate

more funds for infrastructural development in these backward

areas.

3) Re-distribution of Income and Property: - Budget plays a

vital role in reducing the economic disparities in the

economy. Many steps can be taken in the budget for reducing

the economic disparities in the economy. For example, i

heavy taxes on higher income group ii tax exemption to lower

income group iii higher taxes on goods consumed by higher

income group.

4) Economic Stability : - Economy faces the cycles of boom and

depression and the budget aims to put a control on these

cycles. Government may adopt ‘Surplus budget’ during boom

and ‘deficit budget’ during depression.

5) Creation of Employment: - Employment creation is one of

the important objectives of government budget. Government

may promote labourintensive techniques in public works

 programmers and may also initiate various employment

generation programmers in the economy.

6) Management of public enterprises: - Government may

establish public enterprises for ensuring social Justice in the

economy because the aim of public enterprises is to ensure

social welfare and not earning profit.

Components of Budgets

There are mainly two components of budget, i.e.,

(i) Revenue Budget and (ii) Capital Budget.

1. Revenue Budget

The revenue budget includes the revenue aspect of the Government

budget. This budget shows the current receipts of the Government

and the expenditure that can be met from these receipts. A Revenue

Budget is a statement of estimated revenue receipts and expenditures

during the fiscal year. It describes how the revenue is

generated(collected) by the Government and how it is distributed

among various heads of expenditure.

The Revenue Budget can be further classified into two parts:

(i) Revenue Receipts:

Revenue receipts are those estimated receipts of the Government

during the fiscal year which do not affect the assets or liabilities

status of the Government. The Government receives it in everyday

activities. it refers to those receipts of the central government, which

are received on annual basis. It does not create any debt liability for

the government.

Tax Revenue: -The tax revenue comes from direct and indirect

taxes. The direct taxes include personal income tax, corporate tax,

wealth tax, capital gains tax, etc. the indirect taxes include customs

duties, excise duties, services tax, central value added tax, etc.The

tax revenue provides a major shareof revenue receipts to the central

government. In India, it is about 80% of total revenue receipts of

Central Government.

Non-Tax Revenue: - It comes from registration fees, court fees, and

surpluses from public sector undertakings, fines and penalties and so

on. The non-tax revenue share is less than that of tax revenue of the

central government. In India, it is about 20% of total revenue

receipts of Central Government.

(ii) Revenue Expenditure:

Revenue Expenditures are those estimated expenditures of the

Government during the fiscal year which do not affect the assets or

liabilities status of the Government. The revenue expenditure is

recurring in nature. It does not result in creation of assets. It does not

directly increase the productive capacity of a nation. In India, a

major portion of revenue expenditure of Central Government is non-

development in nature.

Interest Payments: - A major part of revenue expenditure is interest

payment. In India, about 30% of central Government’s revenue

expenditure is interest payments.

Subsidies: -The Central government provides subsidies on several

items like food products (sold through ration shops) fuels, fertilizers,

etc. the subsidy is the different between the cost price to the

Government the issue price to the consumer.

Administration: -Government incurs lot of revenue expenditure on

administration of education, law and order, health services, etc. a

major part of administration is the salry bills of the Government

employees.

Defence Revenue Expenditure: -The Government incurs revenue as

well as capital expenditure on defence. The defence is vital to protect

national security.

2. Capital Budget

The capital budget includes the capital aspect of the Government

budget. It is an account of assets and liabilities of the Central

Government, which considers changes in capital. This budget shows

the capital receipts of the Government and the expenditure that can

be met from these receipts. A Capital Budget is a statement of

estimated capital receipts and expenditures during the fiscal year.

The capital budget can be further classified into two parts:

(i) Capital Receipts:

Capital receipts are those estimated receipts of the Government

during the fiscal year which reduce financial assets or create

financial liabilities. These are obtained by the Government by raising

funds through borrowings, recoveries of loans, and selling assets.

Borrowings and Other Liabilities: -It includes borrowings from

internal sources such as market loans, issue of bonds and treasury

bills. Also borrowings from external sources such a World Bank,

foreign governments, etc. the other liabilities include capital receipts

by the way of provident funds, small savings, (such as national

savings certificates), and reserve funds and deposits from

government departments such as Department of Railways.

Recovery of Loans: -It consists of recovery of loans mainly from

states and union territories.

Other Capital Receipts: - The capital receipts also include other

capital receipts, such as receipts by way of disinvestment of PSUs.

(ii) Capital Expenditure:

Capital Expenditures are those estimated expenditures of the

Government during the fiscal year which result in the formation of

physical or financial assets or a reduction in financial liabilities. It

includes acquisition of machinery and equipment, investment in

shares, and advances by the Central Government. It directly

increases the productivity capacity of a nation. The main features of

capital expenditure include:

Productive in Nature: Certain Capitalexpenditure is productive in

nature. Such as expenditure on infrastructure like roads construction,

irrigation projects, power generation, etc.

Non-productive in nature: - Certain capital expenditure is non-

productive in nature, such as expenditure on gardens, parks, housing

of government staffs, etc.

Social development: -Certain Capital expenditure leads to social

development, such as expenditure on construction of schools,

colleges, hospitals, etc.

Remunerative in Nature:-Certain capital expenditure generates

revenue to the government. Such as expenditure on power, oil, gas

projects.

DEFICITS/SURPLUSES: -

The budget also indicates deficits or surpluses. In India, the budget

normally indicates deficits. The deficits take place due to excess of

expenditure over surplus. In India, the following deficits are shown

in the budget.

Revenue Deficit: -It takes place when the revenue expenditure is

more than revenue receipts. It is expected that revenue deficit of

Central Government may be wiped (Wash) out in the near future,

and thereafter, there may be revenue surplus.

Fiscal Deficit: -It takes place when the total expenditure (revenue +

capital) is more than total receipts. In India, Central Government

covers fiscal deficit by way of borrowings.

TYPES OF BUDET

There are a Three main types of budgets that exist, as Balanced

Budget, Surplus Budget and Deficit Budget.

BALANCED BUDGET

A government budget is said to be a balanced budget if the estimated

government expenditure is equal to expected government receipts in a

particular financial year. Advocated by many classical economists,

this type of budget is based on the principle of “living within means.”

They believed the government’s expenditure should not exceed their

revenue. Depending on the feasibility of these estimates, budgets are

of three types -- balanced budget, surplus budget and deficit budget.

Think Stock Photos Though an ideal approach to achieve a balanced

economy and maintain fiscal discipline, a balanced budget does not

ensure financial stability at times of economic depression or deflation.

Theoretically, it’s easy to balance the estimated expenditure and

anticipated revenues but when it comes to practical implementation,

such balance is hard to achieve.

MERITS OF A BALANCED BUDGET.

* Ensures economic stability, if implemented successfully.

* Ensures that the government refrains from imprudent expenditures.

DEMERITS OF A BALANCED BUDGET.

* Unviable at times of recession and does not offer any solution to

problems such as unemployment.

* Inapplicable in less developed countries as it limits the scope of

economic growth.

* Restricts the government from spending on public welfare.

Surplus Budget.

When the government’s predicted income or revenue exceeds planned

expenditures, this type of budget is called a surplus budget. If the

government’s long-term financial planning is stable and effective, it

can lead to surplus budgets where the government has extra revenue

to spare. When there is too much inflation, the government can use a

surplus budget as a tool to lower aggregate demand and there

Deficit Budget.

A government budget is said to be a deficit budget if the estimated

government expenditure exceeds the expected government revenue in

a particular financial year. This type of budget is best suited for

developing economies, such as India. Especially helpful at times of

recession, a deficit budget helps generate additional demand and

boost the rate of economic growth. Here, the government incurs the

excessive expenditure to improve the employment rate. This results in

an increase in demand for goods and services which helps in reviving

the economy. The government covers this amount through public

borrowings (by issuing government bonds) or by withdrawing from

its accumulated reserve surplus.

MERITS OF A DEFICIT BUDGET.

Helps in addressing public concerns such as unemployment at times

of economic recession. Enables the government to spend on public

welfare.

DEMERITS OF A DEFICIT BUDGET.

Can encourage imprudent expenditures by the government. Increases

burden on the government by accumulating debts.

MEASURES OF GOVERNMENT DEFICIT

There are few measures that fathom the government deficit, and they

have their own understanding of the economy. They are

Revenue Deficit

 A revenue deficit comes into play when the said net income is

less than the estimated net income.

 It happens when the legal and said amount of revenue and the

actual amount of expenditures do not comply with the budgeted

revenue and expenditures.

 So the excess of estimated government expenditure over receipts

during a fiscal year in the revenue account is a revenue deficit.

 Effective Revenue Deficit

 Effective Revenue Deficit is the difference between revenue

deficit and grants for the creation of capital assets.

 Every year the Central Government gives grants to State

governments and Union Territories and with the help of these

grants both create capital assets however these capitals are not

added to the capital expenditure of the central government.

 Formula: Effective Revenue Deficit = Revenue Deficit -

Grants in aid for capital assets

Fiscal deficit

 The difference between total revenue and total

expenditure of the government is termed a fiscal deficit.

 It signifies the total borrowings needed by the government and

when the total revenue is calculated the borrowings are not

taken into consideration.

 The excess amount of the total government expenditure over

receipts from tax and non-tax sources except the borrowings,

during a fiscal year in both current and capital accounts, is a

fiscal deficit.
Primary deficit

 A primary deficit is known as the difference between the

current year’s fiscal deficit and the interest payment on the

previous borrowings.

 It indicates the sum of borrowing which is needed by the

government without an interest component.

 The primary deficit can be calculated by recouping interest

payments for the borrowings from the present year’s fiscal

deficit.
Budget at a Glance

Union Budget (2023-24) at Glance (Rs. In Crores)

2022-23 2023-24
2021-22 Budget 2022-23 Budget
Actuals Estimates Revised Estimates Estimates
1. Revenue Receipts ₹ 21,69,905 ₹ 22,04,422 ₹ 23,48,413 ₹ 26,32,281
2. Tax Revenue (Net to Centre) ₹ 18,04,793 ₹ 19,34,771 ₹ 20,86,662 ₹ 23,30,631
3. Non Tax Revenue ₹ 3,65,112 ₹ 2,69,651 ₹ 2,61,751 ₹ 3,01,650

4. Capital Receipts ₹ 16,23,896 ₹ 17,40,487 ₹ 18,38,819 ₹ 18,70,816

5. Recovery of Loans ₹ 24,737 ₹ 14,291 ₹ 23,500 ₹ 23,000
6. Other Receipts ₹ 14,638 ₹ 65,000 ₹ 60,000 ₹ 61,000
7. Borrowings and Other Liabilities ₹ 15,84,521 ₹ 16,61,196 ₹ 17,55,319 ₹ 17,86,816

8. Total Receipts (1+4) ₹ 37,93,801 ₹ 39,44,909 ₹ 41,87,232 ₹ 45,03,097

9. Total Expenditure (10+13) ₹ 37,93,801 ₹ 39,44,909 ₹ 41,87,232 ₹ 45,03,097

10. On Revenue Account of which ₹ 32,00,926 ₹ 31,94,663 ₹ 34,58,959 ₹ 35,02,136
11. Interest Payments ₹ 8,05,499 ₹ 9,40,651 ₹ 9,40,651 ₹ 10,79,971
12. Grants in Aid for creation of
capital assets ₹ 2,42,646 ₹ 3,17,643 ₹ 3,25,588 ₹ 3,69,988
13. On Capital Account ₹ 5,92,874 ₹ 7,50,246 ₹ 7,28,274 ₹ 10,00,961

14. Effective Capital Expenditure

(12+13) ₹ 8,35,520 ₹ 10,67,889 ₹ 10,53,862 ₹ 13,70,949

15. Revenue Deficit (10-1) ₹ 10,31,021 ₹ 9,90,241 ₹ 11,10,546 ₹ 8,69,855

Percentage of GDP 4.4 3.8 4.1 2.9

16. Effective Revenue Deficit (15-12) ₹ 7,88,375 ₹ 6,72,598 ₹ 7,84,958 ₹ 4,99,867

Percentage of GDP 3.3 2.6 2.9 1.7

17. Fiscal Deficit [9-(1+5+6)] ₹ 15,84,521 ₹ 16,61,196 ₹ 17,55,319 ₹ 17,86,816

Percentage of GDP 6.7 6.4 6.4 5.9

18. Primary Deficit (17-11) ₹ 7,89,022 ₹ 7,20,545 ₹ 8,14,668 ₹ 7,06,845

Percentage of GDP 3.3 2.8 3.0 2.3
Conclusion
A budget should be based on norms and standards. The budget should

be coordinated, integrated, organized, systematic, clear, and

comprehensive to accomplish optimal results. The budget preparation,

review, and evaluation process must be facilitated. An orderly

budgeting process will result in less cost, less man -hours, and

minimization of conflict and turmoil. It will require less revision at a

later date. The budget process must consider input -output

relationships. The budget aids in anticipating problems before they

become critical. Short-term budgets should be used for businesses

subject to rapid change. A budget is a tool for planning and for "what-

if" analysis. It aids in identifying the best course of action.

As it is in the computer world—garbage in, garbage out—so it is with

budgeting. If forecasts are inaccurate so will be the projections,

resulting in bad management decisions to the detriment of the firm. A

manager must be cautious when analysing past experience.

Unforeseen circumstances such as economic downturns and future

innovations have direct inputs on current operations. A manager

deviating from a budget target must explain why and, of course, is on

the defensive. Without proper justification for missing targets, the

manager may be dismissed.

The failure to budget may result in conflicting and contradictory plans

as well as in wasting corporate resources. Budget slack should be

avoided or minimized. Budget slack is the underestimation of

revenues ..