Budget & Fiscal Deficit
17.1 Budget
Budget is the statement of
estimates of the Government receipts and Government expenditure for the
forthcoming financial year. A government budget is a financial plan concerning
outlay and receipts of the government. Budget helps execution of future
activities in preplanned way.
a.Budget Receipts
Budget receipts refer to
estimated money receipts of the govt. from all sources during the financial
year.
The budget receipts are
further classified into two parts --- Revenue Receipts and Capital Receipts.
i. Revenue Receipts: Revenue receipts consists of following items:
A. Tax Receipts:-
(a) Wealth Tax
(b) Income Tax
(c) Corporation Tax
(d) Excise Duty
(e) Customs Duty
(f) Gift Tax
B. Non – Tax Revenue Receipts:-
Non tax revenue receipts
include receipts from sources other than taxes, like
(a) Fees
(b) License and Permit
(c) Fines and Penalties
(d) Special Assessment
(e) Income from Public Enterprises
(f) Gift and Grants
ii. Capital Receipts: Capital receipts are those monetary receipts which either generate
liability for the government or decrease the assets of the government. Capital
receipts of the government budget are further classified as:
(a) Recovery of loans
(b)
Borrowing and other
Liabilities
b.Budget Expenditure
Estimated
expenditure of the government on its ‘development’ and ‘non-development’
programmes, or on its ‘plan and non-plan programmes; during the concerned
financial year is termed as Budget expenditure.
Segregation of Budget expenditure of the
government:
i. Revenue Expenditure
ii. Capital Expenditure
iii. Other Public Expenditure.
Revenue expenditure:
-
These expenditures do not create assets for the government
-
These expenditure don’t cause any reduction of liability of the
government
Capital expenditure:
-
This expenditure creates assets for the government
-
Capital Expenditure may cause decrease in liabilities of the government
Other public expenditure
-
Development Expenditure
-
Non-Development Expenditure
-
Plan Expenditure
-
Non-plan Expenditure
-
Transfer Expenditures
-
Non-Transfer Expenditure
17.2 Budget Deficit
Budget
Deficit means a situation when Budget Expenditure of the government is more
than the Budget Receipts. In other words, budget deficit means excess of total
expenditure (revenue expenditure and capital expenditure) over and above the
total receipts (revenue receipts and capital receipts) of the government.
Budget Deficit = (Budget Expenditure or Total Expenditure) –(Budget
Revenue or Total Revenue).
-
Balanced budget : When budget revenue
equal expenditure it is termed as balanced budget. [Q:36]
-
Deficit budget : When the economy is
experiencing deflation, Deficit budget should be prepared by the government.
-
Capital Deficit : If Borrowings and Other
Liabilities are added to the Budget Deficit, we get Capital Deficit.
-
Surplus Budget : Surplus Budget should be prepared to curb an
inflationary situation in the economy.
a.FRBM Act : Fiscal Responsibility and
Budget Management (FRBM) Bill was introduced in 2000. FRBM Act aims to reduce
gross fiscal deficit by 5%.
b.Budget Deficit
According
to the budget of the Government of India, there are three important types of
budget deficit:
-
Revenue Deficit
-
Fiscal deficit
-
Primary deficit
i. Revenue Deficit: Revenue deficit may be defined as a situation where revenue expenditure
exceeds revenue incomes.
Revenue Deficit = Revenue Expenditure – Revenue
Receipts
In the case of high revenue
deficit, govt. is left with no options than either to cut its expenditure, or
increase its tax or non-tax receipts. But, in case of less developed and poor
countries, government is compelled to cope with high revenue deficit by way of
borrowing and disinvestment. A well planned process is needed to strike a
balance between assets and liabilities. Otherwise, the whole financial system
of the economy may get destabilized.
ii. Fiscal Deficit: Fiscal deficit implies the excess of total expenditure (Revenue +
Capital) over total receipts (Revenue & Capital Receipts other than
borrowing).
Fiscal Deficit = Budget
Expenditure (Revenue Expenditure + Capital Expenditure) – (Budget Receipts
other than borrowing i.e. Revenue Receipts + Capital Receipts other than
borrowings)
Fiscal deficit is the total
borrowings and other liabilities of the government. Fiscal deficit is estimated
to know about the extent of borrowings required by the government. Higher
fiscal deficit depicts higher amount of borrowing by the government. It may
lead to inflation, increase foreign dependence and accumulate financial burden
for future generation.
iii. Primary Deficit: Primary Deficit is the difference between fiscal deficit and interest
payment. It is estimated as under:
Primary Deficit = Fiscal
Deficit − Interest Payment.
c.Deficit financing:
-
If public expenditure exceeds public revenue, then it is called deficit
financing.
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Deficit financing is most important sources of plan finance to cover up
gap between intended expenditure and available resource.
-
Deficit may be financed by government through borrowing from the
commercial banks borrowing from RBI and
issue of new currency.
-
Deficit financing includes borrowing from the central bank, issue of the
currency by the government & withdrawal of past accumulated cash balance by
the government.
17.4 Importance of Budget
Budget plays a great role
in financial and economic management of the economy. Budget gives detailed
understanding of the size and sources of government revenue, and details of the
government expenditure. Detailed study of the government expenditure shows
direct and indirect participation of the government in development and, welfare
programmes of the country. Government participates indirectly with expenditure
on irrigation projects, roads, dams, bridges, power etc. Budget also shows the
extent of privatization, liberalization and globalization of development
efforts of government. This is the summary statement of the fiscal policy of
the government. Government performance can be measured by comparing actual
expenditure and receipts with budget figures.
Government Borrowing : Government Borrowing refers to Borrowing from the
market by way of 91 days Treasury Bills & Raising
funds from public through National Savings Schemes, Post Office saving
Deposits, Provident Fund Collections, etc.
Zero base budgeting : Zero base budgeting system is a budgeting technique in which budget
is prepared without consulting any previous budget. It is a system of a fresh
budget preparation from the root.
