GOVERNMENT BUDGET AND THE ECONOMY

GOVERNMENT BUDGET AND THE ECONOMY. BY KRISHNA KUMAR C S , PGT ECONOMICS, DAV – BHEL SCHOOL, RANIPET..

A government budget is an annual statement of estimated income and expenditure of the government during a financial year..

ESTIMATED RECEIPTS = ESTIMATED EXPENDITURE.

ESTIMATED RECEIPTS > ESTIMATED EXPENDITURE. SURPLUS BUDGET.

EV NU XPE Dl URE. ESTIMATED EXPENDITURE > ESTIMATED REVENUE.

OBJECTIVES OF BUDGET ECONOMIC GROWTH MANAGING STATE OWNED ENTERPRISES GROWTH WITH EQUITY PROPER ALLOCATION OF RSEOURCES.

Economic growth Government allocates resources for various development and welfare programmes in its budget. Funds are allocated for the defense of the country. Resources are allocated for educational and health sectors. Resources are allocated for the development of various sectors of the economy. Balanced allocation of resources help in balanced economic growth. Backward areas are given more resources..

Role of Government Budget in the allocation of resources (I) The Government can impose heavy tax on dangerous and harmful goods. This will discourage their production. (ii) The Government can provide subsidies to encourage the production of essential commodities. (iii) Heavy tax can be imposed on luxury goods so that their production can be discouraged..

ECONOMIC EQUALITY The Government may impose heavy tax on rich man’s income and luxury goods. Progressive rate of taxation can be followed. Poor man’s income and necessary goods may be exempted from taxation. The money collected from the rich can be used for various welfare programmes for the poor people. Food can be supplied at low rates. Educational and health services can be developed..

ECONOMIC STABILITY Economic stability can be achieved by controlling inflation and deflation. During inflation, the Government can prepare a surplus budget. Taxes can be increased and expenditure can be reduced. This will reduce money supply and help in controlling inflation. During deflation, the Government can prepare deficit budget. Taxes can be reduced and expenditure can be increased. This will increase money supply in the economy..

Management of Public Enterprises: Allocation of funds for the public sector enterprises is done through the budget..

STRUCTURE OF GOVERNMENT BUDGET.

REVENUE RECEIPTS. RECEIPTS THAT DO NOT CAUSE LIABILITY TO GOVERNMENT.

CAPITAL RECEIPTS. RECEIPTS THAT CAUSE LIABILITY TO GOVERNMENT.

REVENUE EXPENDITURE. EXPENDITURE THAT DOES NOT REDUCE THE LIABILITY OF THE GOVERNMENT.

CAPITAL EXPENDITURE. EXPENDITURE THAT REDUCE THE LIABILITY OF THE GOVERNMENT.

a. Receipts from sale of shares of public sector undertaking. It is a capital receipt because it results in the reduction of assets. b. Borrowing from public This is a capital receipt because it increases the liability of the government. c. Profits of public sector undertakings: It is a revenue receipt because profit doesn’t create a liability or reduce assets of the government. e. Disinvestment . This is a capital receipt because it reduces the assets of the government..

f. Customs duty. It is a revenue to the government. It is a revenue receipt. It does not create a liability. It does not reduce the assets too. g. Construction of buildings. This creates assets. So it’s a capital expenditure. h. Interest Payment, subsidies and grants given to states. These things do not create assets or reduce the liability. So they come under revenue expenditure. i . Income tax, Excise duty, Fees and fines. These are revenue receipts because these do not create a liability or reduce the assets of the government..

Sources of Public Expenditure. Public Expenditure refers to the money spend by the Government for various purposes during a financial year. Public Expenditure is classified into Plan and Non-Plan expenditure..

( i ) Plan expenditure: It refers to the amount spent on activities included in Five Year Plans. Thus it shows the central plan allotment for various projects, programmes , schemes and the central assistance for the state and union territories. (ii) Non-Plan expenditure: It refers to the money spent on the items which are not included in the five year plan but are included in the budget. Example: Interest payments, defense revenue expenditure, subsidies etc..

Both Plan expenditure and Non Plan expenditure are divided in to revenue expenditure and capital expenditure. They are further divided in to Developmental Expenditure and Non Developmental Expenditure. Developmental expenditure: It refers to the money spent on those items which are directly related to economic and social development of the economy. For example, expenditure on capital assets , infrastructure, railways , posts etc..

Non-Developmental expenditure: It refers to the money spent on those items which do not contribute to development. Example: defense, interest payments, old age pensions & unemployed allowances etc..

BUDGETARY DEFICIT.

( i ) Revenue deficit: If revenue expenditure is more than revenue receipts, it is called revenue deficit (ii) Fiscal deficit: It refers to the excess of total expenditure over total revenue receipts and capital receipts excluding borrowings. (iii) Primary deficit: It is defined as fiscal deficit less interest payments..

DEFICIT FINACING Deficit Financing refers to the financing of the budgetary deficits..

THE SOURCES OF DEFICIT FINANCING ARE : ( i ) Expansion in money supply: The Central Bank may print money equal to the deficit against of treasury bills of the Government. (ii) Public Borrowings: The Government borrows from the public through market loans. It can also borrow from international agencies..