budget & economy
TRANSCRIPT
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Government Budget
&
the EconomySonu MalikDPS Vasant Kunj
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Meaning of a Government Budget
Budget is a statement showing the estimated income and
expenditure of a government during a fiscal year
Fiscal Year : 1 April 31 March
Budget is NOT actual expenditures and receipts
It is expected expenditures and receipts
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Impact of a Budget on the Economy
Deficit Budget
Estimated Receipts < Estimated Expenditure
impact : AD increases
Used to rectify a situation of Deficient Demand
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Impact of a Budget on the Economy
Surplus BudgetEstimated Receipts > Estimated Expenditure
impact of a Large Surplus budget : AD
decreases
Used to rectify a situation of Excess Demand
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Commercial revenue
Interest received
Dividends & profits
Administrative revenue
Structure of The Indian Governments Budget
Budget
Expenditure
Plan Non-Plan
Revenue Capital Revenue Capital
Receipts
Revenue Capital
TaxNon-Tax
Direct Indirect
Market Borrowing
Recovery of loans
Issuance of treasury bills
Other liabilities
Other receipts
Devt Devt DevtDevt
Non-
Devt
Non-
Devt
Non-
DevtNon-
Devt
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Budgetary Receipts
Revenue Receipts
Do not create a liability Do not reduce the value of an asset
Revenue Receipts
Tax
Commercial revenues: toll,
railway fares
Interest and dividend
Grants Foreign government/
aid agencies
Administrative Revenue Fee
License fee
Fines
Forfeitures
Escheat
Indirect
Sales tax
Excise duty
Direct
Income tax
Corporate tax
Govt.
payer +
bearer
Govt.
Rs. 100
Collected by
firm
customer(bearer)
Rs. 100 as taxRs. 100
paid by firm
as tax
Firm
(payer)
Non Tax
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Budgetary Receipts
Capital Receipts
Create a liability Reduce the value of an asset
Include:
Borrowing
Recovery of loans
Other liabilities
Other receipts - Disinvestment Funds
Market Loans
Issuance of treasury bills
Loans from foreign governments
Budgetary Receipts
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Budgetary Expenditures
Plan
Expenditure incurred onprogrammes under current
five year plan
Revenue Does not create an asset
Does not reduce liability
Developmental Expenditures directly impact
the social and economic
development of the country
Non-Plan
Expenditure not as percurrent five year plan
Capital Create as asset
Reduce liability
Non-Developmental Expenditures on essential,
general services of
government
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Measures of Deficit Revenue Deficit
Revenue Deficit = Total Revenue Expenditure
Total Revenue Receipts
Signifies: Governments own revenue is insufficient to meet its normal running
Government needs to make up short fall from capital receipts
Revenue deficit increases the liabilities of government
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Measures of Deficit Fiscal Deficit
Fiscal Deficit = Total Budget Expenditure
Revenue receiptsCapital receipts excluding borrowing
Signifies Borrowing of government
Measures the extent to which government needs to borrow to finance its
expenditure
borrowing
interest burdenVicious circle ofDebt
revenue deficit
(receipts constant)
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Measurement of Deficit Primary Deficit
Primary Deficit = Fiscal Deficit Interest payments
Signifies: Extent to which government is borrowing to meet interest burden of
previous loans
Low deficit government is largely borrowing to meet previous
years debt obligations
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Importance of Government Budget
Used as a policy instrument for: Enhancing productivity in the economy
Reducing inequalities in income and wealth
Channelising consumption
Reallocating resources to areas where private investment is not forthcoming
Controlling aggregate demand
Tax Expenditure
Fiscal Policy