Budget of The Goi 85

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Budget
The budget is a statement of the estimated receipts and expenditure of the Government
of India in a financial year, which begins on 1 April and ends on 31 March of the
following year.
Article 112: Annual Financial Statement (The term ‘Budget’ is nowhere mentioned in
the constitution)
In respect of each financial year, the President shall cause a statement of the total
revenues and expenditure of the Government of India for that year, to be laid to both
Houses of Parliament.
It is a constitutional obligation of the government to represent the Budget using the
distinction of Revenue/Current Account and Capital Account.
In Budget 2020-21, there will be:
1. Budget (Provisional) Estimates for 2020-21
2. Revised Estimates for 2019-20
3. Actual figures for 2018-19
Composition of Budget:
The two main accounts, upon which a budget is based, are:
1. Revenue Account & 2. Capital Account
1. Revenue Account
All those transactions which have less maturity period (less than one year) or are
recurring in nature or those which do not result in asset creation, come under this head.
Revenue account can be classified into the following two accounts:
I. Revenue Receipts: shows income of the government over a short period
II. Revenue Expenditure: shows the expenditure of the government over a short period
2. Capital Account
Under this head, all those lump-sum transactions (not recurring) are covered, which
have maturity period of more than one year or which are used to create or dilute assets.
Capital account can be classified into the following two accounts:
III. Capital Receipts: shows income of the government over a long period
IV. Capital Expenditure: shows the expenditure of the government over a long period
I. Revenue/Current Receipts (day-to-day receipts of the Govt.)
a) Tax receipts:
• Direct tax receipts: CIT, PIT, MAT, etc.
• Indirect tax receipts: e.g. GST
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b) Non-tax receipts:
i) Dividends of PSUs
ii) Interest incomes on loans given by the Govt.
iii) Fees, fines & user charges to Govt. for providing various services
iv) Grants received by the Govt.
v) Income from the mint
II. Revenue/Current Expenditure (day-to-day expenditures of the Govt.)
Developmental Expenditure Non- Developmental Expenditure
1. Expenditures incurred by the 1. Expenditure on law & order
government for providing various 2. Expenditure on defence
services like education, health, 3. Expenditure on subsidies
irrigation and other socio- 4. Expenditure on civil
economic services. administration like salaries,
pensions, etc.
2. Expenditure on maintenance & 5. Grants given by the government
repair of assets like roads, bridges, 6. Interest payments on loans
highways, etc.
III. Capital Receipts (lump sum receipts with repayment liabilities)

a) Receipts from disinvestment of PSUs
b) Receipts from the sale of assets by the government, e.g., sale of coal-blocks, auction of
spectrum, Govt. lands & buildings, etc.
c) Recovery of past loans (principal amount)
d) Borrowings (domestic as well as foreign) of the government from banks, financial
institutions, etc. (This part comprises of huge repayment liabilities)
IV. Capital Expenditure (lump sum expenditure; mostly for capital asset creation)
a) Repayment of loans
b) Loans given to states & UTs
c) Expenditure on infrastructure
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Budget is always balanced, i.e., Total Receipts (I + III) = Total Expenditure (II + IV)
The balancing component is the government’s borrowings.
Under the head of Capital receipts (III):
• Non-Debt-creating receipts comprise of components ‘a’, ‘b’ and ‘c’ of III, whereas
• Debt-creating receipts comprise of component ‘d’, i.e. borrowings
Types of Deficits:
1. Revenue Deficit = Revenue Expenditure – Revenue Receipts
• It is usually in the range of 2-3%
• 1st golden rule of FRBM Act, 2003: Revenue deficit should be zero.
• Kelkar Task Force (2003) stated that within 3 years of the implementation of
GST, the government would be able to bring RD to 0 (zero).
2. Fiscal Deficit = [Revenue Expenditure + Capital Expenditure] – [Revenue Receipts +
Non-debt creating portion (a, b, c) of Capital Receipts]
• Fiscal deficit represents the total borrowing requirements of the government.
• Higher fiscal deficit ≡ Higher interest rates ≡ lower credit rating of the country.
• 2nd golden rule of FRBM Act, 2003: Fiscal deficit should be below 3% of the GDP.
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3. Primary Deficit = Fiscal Deficit – Interest Payments in Revenue Expenditure

• It would show the true position of the government finances if interest payments
were not there.
• Interest is paid on loans taken in past years.
• PD generally lies at around 0.1-0.2% of GDP.
• High FD and Low PD show that the burden of interest payments is high.
4. Effective Revenue Deficit = Revenue Deficit – Grants given out for capital asset
creation
• It is also referred to as Real Deficit
• This term (ERD) was coined by Pranab Mukherjee.

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III. Capital Receipts (lump sum receipts with repayment liabilities)

3. Primary Deficit = Fiscal Deficit – Interest Payments in Revenue Expenditure

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