Question

What are the main components of budget.

Answer 1

Meaning: -Budget is a document containing estimates of revenue and capital receipts as also expenditure of the government for the next financial year. Budget of the government indicates next year’s expenditure plans and programmes and attempts to find resources for the same.
The components (parts) of government budget can be broadly divided into three groups.

(a) RECEIPTS

The receipts of the government can be broadly divided into two groups.

Revenue Receipts: it refers to those receipts of the central government, which are received on annual basis. It does not create any debt liability for the government.

Tax Revenue: -The tax revenue comes from direct and indirect taxes. The direct taxes include personal income tax, corporate tax, wealth tax, capital gains tax, etc. the indirect taxes include customs duties, excise duties, services tax, central value added tax, etc.The tax revenue provides a major shareof revenue receipts to the central government. In India, it is about 80% of total revenue receipts of Central Government.

Non-Tax Revenue: - It comes from registration fees, court fees, and surpluses from public sector undertakings, fines and penalties and so on. The non-tax revenue share is less than that of tax revenue of the central government. In India, it is about 20% of total revenue receipts of Central Government.

Capital Receipts: -Capital receipts include borrowings and other liabilities, recovery of loans and other capital receipts:

Borrowings and Other Liabilities: -It includes borrowings from internal sources such as market loans, issue of bonds and treasury bills. Also borrowings from external sources such a World Bank, foreign governments, etc. the other liabilities include capital receipts by the way of provident funds, small savings, (such as national savings certificates), and reserve funds and deposits from government departments such as Department of Railways.

Recovery of Loans: -It consists of recovery of loans mainly from states and union territories.

Other Capital Receipts: - The capital receipts also include other capital receipts, such as receipts by way of disinvestment of PSUs.

(b) EXPENDITURE

The expenditure of the government can be broadly divided into two groups

Revenue Expenditure: -The revenue expenditure is recurring in nature. It does not result in creation of assets. It does not directly increase the productive capacity of a nation. In India, a major portion of revenue expenditure of Central Government is non-development in nature.

Interest Payments: - A major part of revenue expenditure is interest payment. In India, about 30% of central Government’s revenue expenditure is interest payments.

Subsidies: -The Central government provides subsidies on several items like food products (sold through ration shops) fuels, fertilizers, etc. the subsidy is the different between the cost price to the Government the issue price to the consumer.

Administration: -Government incurs lot of revenue expenditure on administration of education, law and order, health services, etc. a major part of administration is the salry bills of the Government employees.

Defence Revenue Expenditure: -The Government incurs revenue as well as capital expenditure on defence. The defence is vital to protect national security.

Capital Expenditure: -Government incurs capital expenditure on creation of assets such as infrastructure. It directly increases the productivity capacity of a nation. The main features of capital expenditure include:

Productive in Nature: Certain Capitalexpenditure is productive in nature. Such as expenditure on infrastructure like roads construction, irrigation projects, power generation, etc.

Non-productive in nature: - Certain capital expenditure is non-productive in nature, such as expenditure on gardens, parks, housing of government staffs, etc.

Social development: -Certain Capital expenditure leads to social development, such as expenditure on construction of schools, colleges, hospitals, etc.

Remunerative in Nature:-Certain capital expenditure generates revenue to the government. Such as expenditure on power, oil, gas projects.

DEFICITS/SURPLUSES: -

The budget also indicates deficits or surpluses. In India, the budget normally indicates deficits. The deficits take place due to excess of expenditure over surplus. In India, the following deficits are shown in the budget.

Revenue Deficit: -It takes place when the revenue expenditure is more than revenue receipts. It is expected that revenue deficit of Central Government may be wiped (Wash) out in the near future, and thereafter, there may be revenue surplus.

Fiscal Deficit: -It takes place when the total expenditure (revenue + capital) is more than total receipts. In India, Central Government covers fiscal deficit by way of borrowings.