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NATIONAL BUDGET
Introduction to National Budget(Union Budget)
• The dictionary meaning of budget is a systematic plan for the expenditure of
a usually fixed resource during a given period.
• National Budget is also known as Union Budget.
• Thus, Union Budget, which is a yearly affair, is a comprehensive display of
the Government’s finances.
• It is the most significant economic and financial event in India.
• The Finance Minister puts down a report that contains Government of
India’s revenue and expenditure for one fiscal year.
• The fiscal year(financial year) runs from April 01 to March 31.
Introduction to National Budget(Union Budget)
• The Union budget is preceded by an Economic Survey which outlines the
broad direction of the budget and the economic performance of the
country.
• The Budget is the most extensive account of the Government`s finances, in
which revenues from all sources and expenses of all activities undertaken
are aggregated.
• Barring a few exceptions -- like elections – Finance Minister presents the
annual Union Budget in the Parliament on the last working day of February.
• The budget has to be passed by the Lok Sabha before it can come into effect
on April 01
Introduction to National Budget(Union Budget)
• The Union Budget for a given year gives details of expenditures planned by
the government and expected revenues from the government's tax
machinery to finance them.
• The Union Budget uses the term "receipts" for incomes
Introduction to National Budget(Union Budget)
• Both receipts and expenditures are classified under two heads: Revenue
Account and Capital Account.
Union Budget
Revenue
Account
Revenue
Receipt
Revenue
Expenditure
Capital
Account
Capital
Account
Receipts
Capital
Account
Expenditure
What is revenue budget?
• The revenue budget consists of revenue receipts of the government (revenues from tax
and other sources) and the expenditure met from these revenues.
• Revenue receipts are divided into tax and non-tax revenue. Tax revenues are made up of
taxes such as income tax, corporate tax, excise, customs and other duties which the
government levies. Non-tax revenue consist of interest and dividend on investments
made by government, fees and other receipts for services rendered by Government.
• Revenue expenditure is the payment incurred for the normal day-to-day running of
government departments and various services that it offers to its citizens. The
government also has other expenditure like servicing interest on its borrowings,
subsidies, etc.
• Usually, expenditure that does not result in the creation of assets, and grants given to
state governments and other parties are revenue expenditures.
• The difference between revenue receipts and revenue expenditure is usually negative.
This means that the government spends more than it earns. This difference is called the
revenue deficit.
Introduction to National Budget(Union Budget)
• Government's revenue expenditure includes money spent on normal
running of government departments and various services, interest charges
on government debt, subsidies.
• Grants to State governments and other parties are also treated as revenue
expenditure.
• Capital expenditure includes payments made for acquisition of efforts like
land, buildings and machinery, as also investments in shares.
Capital budget
• It consists of capital receipts and payments.
• The main items of capital receipts are loans raised by Government from
public which are called Market Loans, borrowings by Government from
Reserve Bank and other parties through sale of Treasury.
• Bills, loans received from foreign Governments and bodies and recoveries of
loans granted by Central Government to State and Union Territory
Governments and other parties.
• Capital payments consist of capital expenditure on acquisition of assets like
land, buildings, machinery, equipment, as also investments in shares, etc.,
and loans and advances granted by Central Government to State and Union
Territory Governments, Government companies, Corporations and other
parties.
Direct and Indirect Taxes
• These are the taxes that are levied on the income of individuals or
organisations. Income tax, corporate tax, inheritance tax are some examples
of direct taxation.
• Income tax is the tax levied on individual income from various sources like
salaries, investments, interest etc.
• Corporate tax is the tax paid by companies or firms on the incomes they
earn.
• Indirect taxes are paid by consumers when they buy goods and services.
These include excise and customs duties.
Plan and non-plan expenditure
• Of these, plan expenditures are estimated after discussions between each of
the ministries concerned and the Planning Commission.
• Plan expenditure forms a sizeable proportion of the total expenditure of the
Central Government.
• Non-plan revenue expenditure is accounted for by interest payments,
subsidies (mainly on food and fertilisers) etc
• Non-plan capital expenditure mainly includes defence, loans to public
enterprises, loans to States, Union Territories and foreign governments.
Central Plan Outlay
• It is the division of monetary resources among the different sectors in the
economy and the ministries of the government.
Fiscal policy
• Fiscal policy is a change in government spending or taxing designed to
influence economic activity.
• These changes are designed to control the level of aggregate demand in the
economy.
• Governments usually bring about changes in taxation, volume of spending,
and size of the budget deficit or surplus to affect public expenditure.
fiscal deficit
• This is the gap between the government`s total spending and the sum of its
revenue receipts and non-debt capital receipts.
• It represents the total amount of borrowed funds required by the
government to completely meet its expenditure.