Class 12 PPT on Government Budget Made by Amitesh Yadav

2. Contents Government Budget –
Meaning, Objective
• Components of Government Budget.
• Classification of receipts – Capital and revenue .
• Classification of expenditure - Capital and
revenue .
• Balanced budget surplus budget, deficit budget -
meaning and implication .
• Revenue deficit, Fiscal deficit, primary deficit -
Meaning and implication

3. Meaning of Government Budget
• A government budget is an annual statement of
the estimated receipts and estimated
expenditure of the government during a fiscal
year .
• Fiscal year is taken from 1st April to 31st
March.

4. Objective of the Government
Budget
• It means managed and proper distribution of resources.
As private sector can not provide all the goods and
services the government has to provide these goods.
• Through budget government tries to reduce the gap
between Rich and poor. This is achieved through taxing
the rich and subsidizing the needs of poor people.
• There may be inflation or depression in the economy.
Inflation is the situation of rise in price level whereas
depression is lack of demand. Both the situations are
undesirable. During depression government reduces rate
of tax and borrowing and increases public expenditure.
During inflation government increases the rate of tax
and borrowing and decreases public expenditure.
Reallocation of resources -: To reduce inequalities in
income and wealth-: . To achieve economic stability -:

5. Objective of the Government
Budget
• IV. Large no: of Public Enterprises which are
established and managed for social welfare of the
public. V. depends upon rate of saving and
investment.
• Through taxation and expenditure policy.
Management of Public Enterprises . To achieve
economic growth Reducing regional disparities.

6. Components of Government Budget:
Components of budget refer to structure of the
budget. Two main components are:
• Revenue Budget
• Capital Budget

7. Components of budget can also be
categorized according to receipts
and expenditures
• Budget Receipts
• Budget Expenditure

8. Budget Receipts
• Budget receipts refer to the estimated money
receipts of the government from all sources
during a given fiscal year. Budget Receipts
Revenue receipts Capital receipts Tax revenue
Non-tax revenue Recovery of loans Borrowing
Other receipts

9. How to classify Expenditure as Revenue of
Capital Expenditure?
An expenditure is a capital expenditure, if it
creates an asset or reduces a liability.
An expenditure is revenue expenditure, if it
neither creates any asset nor reduces an
liability.

10. Capital Receipts: -
• Capital Receipts refer to those receipts of the government
which i) tend to create a liability or ii) Causes reduction in
its assets. All the Capital receipts are broadly classified into
three categories.
• Recovery of loans :- These are Capital receipts because they
reduce financial assets of the government .
• Borrowings: - Funds raised by the government form the
borrowing are treated as capital receipts such receipts creates
liability.
• Other Receipts: - Funds raised through disinvestment are
included in this category. By this government assets are
reduced.

11. Revenue Receipts
• Any receipts which do not either create a liability or
lead to reduction in assets is called revenue receipts.
Two sources of revenue receipts Tax Revenue Non-Tax
Revenue. Revenue receipts Tax revenue Non-tax revenue
Direct Tax Indirect Tax. Interest Profit and dividend
Fees and fines Gifts and grants .

12. How to classify a tax as Direct Tax
or Indirect Tax
• A tax is a direct tax, if its burden cannot
be shifted. For example, income tax is a
burden tax as its impact and incidence is
on the same person.
• A tax is a indirect tax, if its burden can be
shifted. For example, sales tax is an
indirect tax as its impact and incidence is
on different persons.

13. • Corporation tax
• Value added tax
• Service tax
• Excise duty
• Wealth tax
• Sales tax

14. How to classify a receipt as Revenue
Receipt or Capital Receipt?
• A receipt is a capital receipt, if it creates a
liability or reduces an asset.
• A receipt is a revenue receipt, if it neither
creates a liability nor reduces any asset.

15. Budget Expenditure
• Budget expenditure refers to the
estimated expenditure of the government
during a given fiscal year.

16. Revenue Expenditure
• An expenditure which do not creates
assets or reduces liability is called
Revenue Expenditure.
• It is recurring nature.
• It is incurred on normal functioning of
the government and the provisions for
various services.
• Examples are – Salaries of government
employees, interest payment on loan
taken by the government, pension,

17. An expenditure is a revenue expenditure ,if it
satisfies the following two essential condition.:
• The expenditure must not create an asset
of the government. The expenditure must
not cause decrease in any liability.
• Revenue expenditure Neither creates an
Asset Nor reduces any liability

18. CAPITAL EXPENDITURE:-
 It refers to the expenditure which leads to creation of
assets and reduction in liabilities .
 It is non-recurring in nature
 It adds to capital stock of the economy and increases its
productivity through expenditure in long period
development programmes like Metro or Flyover.
 eg. Expenditure incurred on construction of building,
roads, bridges etc.

19. An expenditure is a capital expenditure, if it
satisfies any one of the following two
conditions:
 The expenditure must create an asset for
the government. Eg: construction of metro.
 The expenditure must cause a decrease in
the liabilities. Eg: repayment of
borrowings. Capital expenditure Either
creates an Asset Or reduces a liability

20. Plan and Non- plan Expenditure
• Plan expenditure refers to the expenditure
that is incurred on the programmes
detailed in the current five year.
• Non-plan expenditure refers to the
expenditure other than the expenditure
related to the current five-year plan.
Budget expenditure Plan expenditure Non-
expenditure

21. Plan expenditure vs. non-plan
expenditure Plan expenditure
• Plan expenditure is spent on current
development and investment outlays.
• It arises only when the plans provide for
such expenditure. non-plan expenditure . It
is spent on the routine functioning of the
government.
• It is a must for every economy and the
government cannot escape from it.

22. How to classify an expenditure as
plan or non- plan expenditure?
• An expenditure is a plan expenditure,
if it arises due to planned proposals.
• An expenditure is a non-plan
expenditure, if it is out of the scope
off government plans.

23. Developmental and Non- developmental
Expenditure Developmental Expenditure
• It refers to the expenditure which is directly related to
economic and social development of the country.
• It directly contributes to development of the economy.
 It is productive in nature as it adds to the flow of
goods and services. Non- developmental Expenditure .
 It refers to the expenditure which is incurred on the
essential general services of the government .
 It does not contribute directly to the development , but
it lubricates the wheels of economic development.
 It is not concerned with the productivity of working
class.

24. How to classify an expenditure as
developmental expenditure and non
developmental expenditure
• An expenditure is a developmental
expenditure, if it directly adds to the flow
of goods and services.
• An expenditure is a non-developmental
expenditure, if it indirectly contributes to
economic development.

25. Types:- Deficit Budget:- When government
expenditure exceeds government receipts in
the budget is said to be a deficit budget.
Government deficit Revenue Deficit:-
Fiscal deficit & Primary deficit:-

26. Revenue Deficit
• Revenue deficit refers to the excess of
revenue expenditure of the
government over its revenue receipts.
• Revenue deficit = Total revenue
expenditure – Total revenue receipts.

27. Fiscal deficit
• Fiscal deficit is defined as excess of
total expenditure over total receipts .
• Fiscal Deficit = Total budget
expenditure - Total budget receipts
net of borrowings.

28. Primary deficit
• It refers to the difference between
fiscal deficit of the current year and
interest payments on the previous
borrowings.
• Primary deficit= fiscal deficit -
interest payments .