Budget Chapter of Indian Economy PDF

BUDGET

Public Finance is one of the disciplines in economics that deals with resource mobilization for utilization of the same to accomplish State activities at all levels viz., central, state and local and governments.

This chapter covers general budget, types of deficits, types of budgets, tax, additional terms related to tax, Fiscal Responsibility and Budget Management (FRBM) Act and tax regime of Centre and State.

General Budget

Budget is an annual financial statement. In case of central government Article 112 and in case of state government Article 202 of the Indian constitution requires the annual financial statement to be laid before the respective legislatures. The budget is a statement of accounts of Government. Pranab Mukherjee observes. "The Union Budget cannot be a mere statement of Government accounts. It has to reflect the Government's vision and signal the policies to come in future." So, it is more than just a financial statement.

Railway budget was separated from General Budget in 1921 on the recommendation of "Acworth Committee". Aggregates of receipts and expenditure of the railways are incorporated in the General Budget. Demand for Grants relating to railway expenditure is presented to Parliament separately in advance of the general budget. Demand for Grants is a statement of estimates estimated expenditure to be made out of Consolidated Fund of India. t is required to be voted by Lok Sabha.

General budget contains estimated receipts and expenditure for one year usually.

i. Actual figure of the previous year

ii. Budget and Revised figure for current year

iii. Budget estimate for the upcoming year Budget year estimates.

RECEIPTS

Before getting into the details of receipts it is necessary to see the difference between receipts ai revenue. Revenue belongs to the receiver. It need not be repaid by the receiver. If we take an individua the salary received by his is his revenue. Receipts include revenue apart from others. For example, l0d received also included in receipts. The loan received needs to be repaid. The figure 5.2 explains relationship.

A. Revenue Receipts

Revenue receipts are those receipts which is need not to be paid again to the payee government and income from government assets. These are necessarily one was transaction i.e., no need to return the receipts and it is a onetime settlement.

Revenue receipts are three types:

1. Tax Revenues

2. Non-tax Revenues

3. Other non-tax receipts.

4. Non-tax Receipts from UTs

1. Tax Revenues

The revenue generated by levy and collection of taxes by central government is called tax revenue.

i. Union Excise Duties

It is the tax on production of commodities.

ii. Customs Duties

It is the tax on export and import of commodies from and to the country.

iii. Corporate Tax

It is levied on the company's profit income. There is not any separate tax called corporate tax. It is also income tax. But the contribution of tax from corporate to the income tax is large. So, it is shown in separate head.

iv. Income Tax (Personal income tax)

It is a tax on the personal income of the individuals, Hindu Undivided Families (HUFs), partnership firm etc.

v. Service Tax

It is a tax on the services consumed by consumers.

vi. Taxes of Union Territories

In India, Union Territories [except Delhi and Puducherry] are under direct administration of the Centre. So, their tax income is lumped and taken into account in the central budget.

vii. Other Taxes and Duties

Tax income from other taxes like wealth taxes are lumped together under this category.

2. Non-Tax Revenues

i. Interest Receipts

It is the interest income from the loans given by the central government to state governments and other government bodies.

ii. Dividends and Profits

Dividends are income from the shares held by governments in private enterprise and semi government enterprises. Profits are dividend income from the fully government owned enterprises.

3. Other Non-Tax Receipts

i. Fiscal Services

a) Currency, Coinage, Mint

These are profit from the circulation of currency and coins. The profit is the difference between the face value and cost incurred to produce it. For example, consider that cost incurred to produce a five-rupee coin is 50 paisa. Then profit to government is Rs. 4 50 from a five-rupee coin.

b) Other Fiscal Services

These receipts mainly consist of amount paid by RBI towards international obligations like subscriptions to international bodies and penalties charged by international financial bodies.

ii. Other General Services

Receipts from public services commission, central police etc. are included in this category.

iii. Social services

Receipts from departments like education, sports, culture, health, information and publicity etc. constitute this category.

iv. Economic services

Receipts of departments like Agriculture and allied activities, irrigation and flood control, energy transport and communication come under this category.

V. Grants in Aid Contributions

These are receipts from foreign governments and multilateral bodies as gift to the government which need not be repaid. It also includes contribution in the form of material and equipment.

4. Nontax Receipts of Union Territories

Revenues that have been raised in the form of fees, fines etc. within the union territories and from sale of timber and forest produce in Andaman and Nicobar Islands are put under this category.

B. Capital Receipts

These receipts are essentially a two way transactions. It means once disbursed money will come in the form regular income or at the time disposal if any asset was created out of the disbursed money. These receipts can be raised either from already invested amount in the form of loan given/asset created by disposing it or on the assurance that it will be paid back in future if government has not invested already and has no claim over the source of this receipt. In short, they are:

a. Receipts due to disposal of permanent assets

b. Recovery of Loans given to others

c. Fresh loans raised by the government.

Capital receipts can be classified into tvwo categories as shown below.

1. Debt capital receipts

Among the above listed capital receipts fresh loans raised (borrowings) by the government along with other liabilities fall under this category. In short

I. Borrowing

II. Other liabilities

I. Borrowings

Borrowings or public debts are money raised on the security of consolidated fund of india and repayable out of it. The borrowings are of two types as under:

A. Internal borrowings

B. External borrowings

Expenditures

 

A. Revenue Expenditure

Expenditure incurred to meet day to day and regular needs expenditure of government and that will not yield any revenue in future are termed as revenue expenditure. It is a one-way payment. It means if government spends money, it cannot recover it. These are.

1. Interest Payments

Interest paid on borrowing and other liabilities and discounts on treasury bills do constitute this category.

2. Defence, Police

Expenditure towards law and order come under this head. Though defence equipment's are capital in nature considered as revenue expenditure. But all the defence equipment's are not in revenue expenditure nature.

3. Subsidies

Subsidies on public distribution, fertilizers etc. are included in this category.

4. Grants to States & Union Territories

Grants given by Centre to state and union territories come under this head. Though these grants are spent under capital expenditure by receiving governments come under this head as stipulated by Article 34(c) of the Audit Code.

5. Pensions and Salaries

Pensions and salaries of central government departments, and those paid out of consolidated as charged expenditure come under this category. Charged expenditure means the expenditures that Can be spent without vote (approval) of legislature.

6. Economic Services

Noncapital Expenditure towards Agriculture, Industry, Power, Transport, Communication etc. are included in this item.

7. Other General Services

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