KISHAN BHUTANI(9045876022)
GOVERNMENT BUDGET AND THE ECONOMY
GOVT. BUDGET :: It is annual financial statement of the estimated
receipt and expenditure of govt. over fiscal year i.e from 1st April
to 31st March.
It also known as union budget.
OBJECTIVE OF GOVERNMENT BUDGET:
A) REALLOCATION OF RESOURCES: Through the government
policy, government aims to reallocate resources in
accordance with the economic(profit maximization) and
social (public welfare) priorities of the country. Government
can influence allocation of resources through
1) TAX CONCESSION OR SUBSIDIES: To encourage investment,
government can give tax concession, subsidies etc to the
producers. For Example government discourages the
production of harmful consumption goods (like Liquor,
Cigarettes, etc.) through heavy taxes and encourages the use
of Khadi products by providing subsdies.
2) DIRECTLY PRODUCING GOODS AND SERVICES: If private
sector does not take interest, government can directly
undertake the production.
B) REDUCING INEQUALITIES OF INCOME AND WEALTH:
Economic inequalities is an inherent problem of every
economic system. Government aims to reduce such
inequalities of income and wealth through its budgetary
policy. Government aims to influence distribution of income
by imposing taxes on the rich and spending more on the
welfare of the poor. It will reduce income of the rich and
raises standard of living of the poor, thus reducing
inequalities in the distribution of income.
C) ECONOMIC STABILITY: Government budget is used to
prevent business fluctuation of inflation or deflation to
achieve the objective of economic stability. The government
aims to control the different phases of business environment
through its budgetary policy. Policy of surplus budget during
inflation and deficit budget during deflation help to maintain
stability of prices in the economy.
KISHAN BHUTANI(9045876022) Page 1
, KISHAN BHUTANI(9045876022)
D) MANAGEMENT OF PUBLIC ENTERPRISES: There are large
numbers of public sector industries, which are established
and managed for social welfare of the public. Budget is
prepared with the objective of making various provisions for
managing such enterprises and providing them financial
help.
E) REDUCING REGIONAL DISPARITIES: The government budget
aims to reduce regional disparities through its taxation and
expenditure policy for encouraging setting up of production
units in economically backward regions.
STRUCTURE / COMPONENTS OF BUDGET
.It is classified into
(1) Revenue Receipts
(2) Capital Receipts
REVENUE RECEIPTS :: These are those receipts which
(a) Don’t create any liability for the Government &
(b) Don’t cause any reduction in assets of the govt.
e.g Tax is a revenue receipt because it is one-sided payment and
doesn’t create any liability of repayment
REVENUE RECEIPTS are further classified into
(I) TAX RECEIPTS :: Tax is a compulsory payment by the
household, firms or other institutional units to the government
without getting anything in return. If a person fails to pay tax , he
is liable to penal action.
It can be
(a) Direct Taxes
(b) Indirect Taxes
(2) NON- TAX RECEIPTS: All those receipts which are received
from sources other than taxes like interest, dividend etc. It also
includes income from Public Enterprises like Railways , Indian Oil
, Bhilai Steel plant , and income from Postage , tolls etc.
(b) Interest and Dividend received on investment made by the
government.
(c)Gifts and Cash In Grants Received by the government from
public and rest of the world
KISHAN BHUTANI(9045876022) Page 2
, KISHAN BHUTANI(9045876022)
FEES :: It is payment to the govt. for recovering the cost of
services that it renders to the
public e.g Land registration fees , Passport fees, Birth and Death
registration fees
LICENCE :: It is payment made to the govt. in order to get
permission for something E.g
Diving Licence , Import Licence
ESCHEAT :: It refers to the claim of the govt. on the property
of a person who dies without
having any legal heirs or without leaving a will
FINES and PENALTIES :: It refers to payment made by the
Law-breaker to the govt. by way of economic punishment. E.g Fine
for not filling Tax return in Time
SPECIAL ASSESSMENT :: It is that payment which is made by
the owners of those properties whose value has appreciated due
to development activities of the government .
E.G when as a result of construction of public park or roads , the
value of property or its rental value appreciates, then a part of
development expenditure is recovered from the owners of such
property by way of special assessment
CAPITAL RECEIPTS :: These are those receipts which either
(a) Create a liability for the Government These are debt creating
capital receipts
(b) Cause reduction in assets of the Government These are non -
debt creating capital receipts.
E.g receipts of the govt. from sale of share of Maruti Udyog
causes reduction of assets and hence is capital receipts .
E.g loans taken by the government is a liability as it has to be paid
back .
CHECK YOUR CONCEPT’s
(Ques) Identify the following as revenue receipts and capital
receipts. Give reasons.
KISHAN BHUTANI(9045876022) Page 3
GOVERNMENT BUDGET AND THE ECONOMY
GOVT. BUDGET :: It is annual financial statement of the estimated
receipt and expenditure of govt. over fiscal year i.e from 1st April
to 31st March.
It also known as union budget.
OBJECTIVE OF GOVERNMENT BUDGET:
A) REALLOCATION OF RESOURCES: Through the government
policy, government aims to reallocate resources in
accordance with the economic(profit maximization) and
social (public welfare) priorities of the country. Government
can influence allocation of resources through
1) TAX CONCESSION OR SUBSIDIES: To encourage investment,
government can give tax concession, subsidies etc to the
producers. For Example government discourages the
production of harmful consumption goods (like Liquor,
Cigarettes, etc.) through heavy taxes and encourages the use
of Khadi products by providing subsdies.
2) DIRECTLY PRODUCING GOODS AND SERVICES: If private
sector does not take interest, government can directly
undertake the production.
B) REDUCING INEQUALITIES OF INCOME AND WEALTH:
Economic inequalities is an inherent problem of every
economic system. Government aims to reduce such
inequalities of income and wealth through its budgetary
policy. Government aims to influence distribution of income
by imposing taxes on the rich and spending more on the
welfare of the poor. It will reduce income of the rich and
raises standard of living of the poor, thus reducing
inequalities in the distribution of income.
C) ECONOMIC STABILITY: Government budget is used to
prevent business fluctuation of inflation or deflation to
achieve the objective of economic stability. The government
aims to control the different phases of business environment
through its budgetary policy. Policy of surplus budget during
inflation and deficit budget during deflation help to maintain
stability of prices in the economy.
KISHAN BHUTANI(9045876022) Page 1
, KISHAN BHUTANI(9045876022)
D) MANAGEMENT OF PUBLIC ENTERPRISES: There are large
numbers of public sector industries, which are established
and managed for social welfare of the public. Budget is
prepared with the objective of making various provisions for
managing such enterprises and providing them financial
help.
E) REDUCING REGIONAL DISPARITIES: The government budget
aims to reduce regional disparities through its taxation and
expenditure policy for encouraging setting up of production
units in economically backward regions.
STRUCTURE / COMPONENTS OF BUDGET
.It is classified into
(1) Revenue Receipts
(2) Capital Receipts
REVENUE RECEIPTS :: These are those receipts which
(a) Don’t create any liability for the Government &
(b) Don’t cause any reduction in assets of the govt.
e.g Tax is a revenue receipt because it is one-sided payment and
doesn’t create any liability of repayment
REVENUE RECEIPTS are further classified into
(I) TAX RECEIPTS :: Tax is a compulsory payment by the
household, firms or other institutional units to the government
without getting anything in return. If a person fails to pay tax , he
is liable to penal action.
It can be
(a) Direct Taxes
(b) Indirect Taxes
(2) NON- TAX RECEIPTS: All those receipts which are received
from sources other than taxes like interest, dividend etc. It also
includes income from Public Enterprises like Railways , Indian Oil
, Bhilai Steel plant , and income from Postage , tolls etc.
(b) Interest and Dividend received on investment made by the
government.
(c)Gifts and Cash In Grants Received by the government from
public and rest of the world
KISHAN BHUTANI(9045876022) Page 2
, KISHAN BHUTANI(9045876022)
FEES :: It is payment to the govt. for recovering the cost of
services that it renders to the
public e.g Land registration fees , Passport fees, Birth and Death
registration fees
LICENCE :: It is payment made to the govt. in order to get
permission for something E.g
Diving Licence , Import Licence
ESCHEAT :: It refers to the claim of the govt. on the property
of a person who dies without
having any legal heirs or without leaving a will
FINES and PENALTIES :: It refers to payment made by the
Law-breaker to the govt. by way of economic punishment. E.g Fine
for not filling Tax return in Time
SPECIAL ASSESSMENT :: It is that payment which is made by
the owners of those properties whose value has appreciated due
to development activities of the government .
E.G when as a result of construction of public park or roads , the
value of property or its rental value appreciates, then a part of
development expenditure is recovered from the owners of such
property by way of special assessment
CAPITAL RECEIPTS :: These are those receipts which either
(a) Create a liability for the Government These are debt creating
capital receipts
(b) Cause reduction in assets of the Government These are non -
debt creating capital receipts.
E.g receipts of the govt. from sale of share of Maruti Udyog
causes reduction of assets and hence is capital receipts .
E.g loans taken by the government is a liability as it has to be paid
back .
CHECK YOUR CONCEPT’s
(Ques) Identify the following as revenue receipts and capital
receipts. Give reasons.
KISHAN BHUTANI(9045876022) Page 3
