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What is a government budget?
What is a government budget?
A government budget is a document presented for approval and legislation by a government that contains estimates of the proposed expenditure for a given period and the proposed means of financing them.
Which of the following is NOT an objective of the government budget?
Which of the following is NOT an objective of the government budget?
The budgetary process is only an administrative process.
The budgetary process is only an administrative process.
False
The finance minister makes a detailed budget speech in the _____ house.
The finance minister makes a detailed budget speech in the _____ house.
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What are capital receipts?
What are capital receipts?
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What is a deficit budget?
What is a deficit budget?
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The Fiscal Responsibility and Budget Management (FRBM) act was passed to increase fiscal deficit.
The Fiscal Responsibility and Budget Management (FRBM) act was passed to increase fiscal deficit.
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What does the Department of Expenditure oversee?
What does the Department of Expenditure oversee?
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Match the following sources of revenue with their categories:
Match the following sources of revenue with their categories:
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What is meant by 'public debt'?
What is meant by 'public debt'?
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The difference between the budget deficit of a government and its debt service payments is
The difference between the budget deficit of a government and its debt service payments is
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The revenue deficit for country A is
The revenue deficit for country A is
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Fiscal deficit of country A is
Fiscal deficit of country A is
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Primary deficit of Country A is
Primary deficit of Country A is
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In NITI Aayog, NITI stands for
In NITI Aayog, NITI stands for
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The Appropriation Bill is intended to
The Appropriation Bill is intended to
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Public debt management aims at
Public debt management aims at
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The railway budget is
The railway budget is
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Outcome budgeting
Outcome budgeting
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Corporate tax
Corporate tax
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Government borrowings from foreign governments and institutions
Government borrowings from foreign governments and institutions
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The capital receipts are
The capital receipts are
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Revenue deficit is
Revenue deficit is
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The non–debt capital receipts of this country is
The non–debt capital receipts of this country is
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A budget is said to be unbalanced when
A budget is said to be unbalanced when
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Fiscal deficit refers to
Fiscal deficit refers to
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Budget of the government generally impacts
Budget of the government generally impacts
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Which of the following is a statement submitted along with the budget as a requirement of FRBM Act
Which of the following is a statement submitted along with the budget as a requirement of FRBM Act
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Government borrowing is treated as capital receipt because
Government borrowing is treated as capital receipt because
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‘Retail Direct’ scheme is
‘Retail Direct’ scheme is
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Non-debt capital receipts
Non-debt capital receipts
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Which of the following is a capital receipt?
Which of the following is a capital receipt?
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Grants given by the central government to state governments is
Grants given by the central government to state governments is
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Short-term credit from the Reserve Bank to state governments to bridge temporary mismatches in cash flows is known as
Short-term credit from the Reserve Bank to state governments to bridge temporary mismatches in cash flows is known as
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Study Notes
Government Budget Overview
- A government budget details revenue sources and expenditure plans.
- It serves economic priorities, ensuring resource allocation for social welfare and stability.
- Key objectives include income redistribution, reducing economic fluctuations, and promoting GDP growth.
The Budget Making Process
- The budget process involves the executive and legislative branches forming a cohesive financial proposal.
- Prepared by the Ministry of Finance, it requires parliament's approval before the fiscal year (April 1 - March 31).
- Article 112 of the constitution mandates presenting an "Annual Financial Statement" to parliament.
Budget Preparation Steps
- Preparation begins in August-September, culminating in a budget presentation on February 1.
- Budgets are compiled from estimates provided by various ministries based on stakeholder consultations.
- The budget speech outlines macroeconomic conditions, expenditures, taxation proposals, and government priorities.
Types of Budget Documents
- Annual Financial Statement (AFS)
- Demands for Grants (DG)
- Finance Bill: implements taxation proposals, must be passed within 75 days of introduction.
Lok Sabha Budget Discussion
- Initial general discussion occurs in Lok Sabha followed by ministry-wise voting on demands for grants.
- The Rajya Sabha engages in a general discussion and has no voting authority on demands for grants.
Sources of Government Revenue
- Revenue receipts include tax and non-tax revenue; capital receipts are categorized into debt and non-debt.
- Major tax sources: corporation tax, income tax, wealth tax, customs duties, indirect taxes (CBEC, GST).
- Non-tax revenues stem from interest receipts, dividends, and other miscellaneous sources.
Public Expenditure Management
- Efficient public expenditure management is vital for economic growth, especially in developing economies.
- Responsible allocation prevents larger deficits, higher taxation, and economic stagnation.
- The Ministry of Finance oversees public financial management, expense evaluations, and financial audits.
Public Debt Management
- Governments, particularly in developing markets, are often the largest borrowers to fund fiscal needs.
- Effective management of public debt is crucial for economic stability and future fiscal health.### Public Debt in India
- Public debt includes internal and external sources contracted in the Consolidated Fund of India, primarily from the domestic market.
- The government finances its fiscal deficit by mobilizing public savings through loans, incurring debt to be repaid with interest.
- Debt servicing is continuous; instead of cutting expenditures or raising taxes, the government refinances maturing debt by selling new bonds.
Importance of Public Debt Management
- Effective public debt management is essential for macroeconomic stability and economic growth.
- Sustainability of sovereign debt is a key indicator of a country's macroeconomic health, dependent on debt levels and government capacity to service it.
Public Debt Management Process
- Public debt management involves fiscal and monetary authorities determining the size, composition, maturity pattern, interest rates, and redemption of debt.
- The central government's debt management policy aims to meet financing needs at the lowest long-term borrowing costs while keeping total debt sustainable.
- The strategy emphasizes low borrowing costs, risk mitigation, and market development.
Institutions Involved in Debt Management
- Reserve Bank of India (RBI) manages domestic marketable debt, including treasury bills and dated securities.
- Ministry of Finance handles external debt, primarily sourced from multilateral agencies.
- Internal Debt Management Department (IDMD) of the RBI manages domestic debt of the central and state governments.
Current Debt Statistics
- As of March 31, 2023, India’s internal and other liabilities stood at approximately ₹147.78 lakh crores, while the external debt was around ₹4.83 lakh crores.
- Total public debt reached approximately ₹152.61 lakh crores and is projected to rise to ₹169.47 lakh crores by March 31, 2024.
Legislative Framework and Policies
- The Fiscal Responsibility and Budget Management (FRBM) Act of 2003 aims to reduce fiscal deficits sustainably.
- Public Debt Management Cell (PDMC) established in 2016 works under the Department of Economic Affairs for effective debt management.
- The Medium Term Debt Management Strategy (MTDS) 2021-24 focuses on efficient debt raising at the lowest costs without disruption.
Budget Concepts
- Balanced Budget: Revenue equals expenditure (Revenue = Expenditure).
- Surplus Budget: Earnings exceed expenditures (Revenue > Expenditure).
- Deficit Budget: Expenditures exceed earnings (Expenditure > Revenue) leading to increased government liabilities.
Receipts and Expenditures
- Capital Receipts: Reduce government assets or increase liabilities (e.g., loan recoveries).
- Revenue Receipts: Do not create liabilities or reduce assets (includes tax and non-tax revenues).
- Revenue Expenditure: Covers normal government functioning costs; does not create assets.
- Capital Expenditure: Investments leading to asset creation or liability reduction.
Deficit Types
- Budget Deficit: Total estimated expenditure exceeds total estimated revenue.
- Revenue Deficit: Excess of revenue expenditure over revenue receipts; indicates resource diversion.
- Fiscal Deficit: Total expenditure exceeds total receipts, excluding borrowings. Indicating total borrowing needs.
- Primary Deficit: Fiscal deficit minus interest payments, reflecting borrowing for non-interest purposes.
Legislative and Budgeting Mechanisms
- Finance Bill: Introduced post-union budget detailing tax regulations.
- Outcome Budget: Links budget allocations to performance indicators, assessing government program effectiveness.
- Guillotine: Parliamentary mechanism for voting on outstanding grant demands after limited discussion time.
- Cut Motions: Used to propose reductions in requested grants, reflecting fiscal concerns or policy disagreements.
Special Funds
- Consolidated Fund of India: Holds all government revenues and expenditures, requiring parliamentary appropriation.
- Contingency Fund of India: Enables the executive to meet urgent expenditures without prior legislative approval.
- Public Account: Deals with fund flows where the government acts as a banker, including provident funds.### Corporate Tax
- Collected by the union government; classified as either capital or revenue receipt.
- State governments may also collect corporate tax; classified as revenue receipts.
- Options for collection by either the center or state governments, falling under revenue receipts.
- Primarily, corporate tax is a revenue receipt collected by the union government.
Government Borrowings
- Foreign borrowings from governments and institutions can be classified as:
- Capital receipts
- Revenue receipts
- Fiscal deficit contributors
- Varies based on the purpose of borrowing.
Revenue and Expenditure Overview
- Specific figures for hypothetical economy in lakh crores:
- Recovery of loans: 5.1
- Salaries of government servants: 41.1
- Capital Expenditure: 45.0
- Interest payments: 1.3
- Payments towards subsidies: 3.2
- Other receipts (including disinvestment): 11.6
- Tax revenue (net of states’ share): 26.3
- Non-tax revenue: 12.3
- Borrowings and other liabilities: 6.8
- States' share in tax revenue: 11.9
Capital Receipts and Revenue Deficit
- Calculation of capital receipts can yield various values; potential candidates include:
- 23.5
- 19.7
- 11.3
- Correct answer among these needs to be determined.
- Revenue deficit can similarly yield possible values:
- 23.6
- 13.0
- 7.0
- 2.6
Non-Debt Capital Receipts
- Speculated values for non-debt capital receipts might include:
- 45.1
- 16.7
- 15.8
- Correct answer among them needs clarification.
Budget Definitions
- An unbalanced budget occurs when:
- Government revenue exceeds expenditure (surplus).
- Government expenditure exceeds revenue (deficit).
- Both conditions can characterize an unbalanced budget.
Fiscal Deficit
- Defined as:
- Excess of government expenditure over revenue receipts.
- Excess of total expenditure over total receipts (excluding borrowings).
- Primary deficit minus interest payments.
Government Budget Impacts
- Influences resource allocation within the economy.
- Aims to redistribute income and enhance equity.
- Strives for economic stability by controlling price fluctuations.
Required Statements for Budget Submission
- Annual Financial Statement
- Macro-Economic Framework Statement
- Medium-Term Fiscal Policy Strategy Statement
- The last two must be submitted as per the FRBM Act.
Government Borrowing as Capital Receipt
- Treated as capital receipt because:
- Used mainly for creating government assets.
- Creates a liability for the government.
Retail Direct Scheme
- Initiated by the Reserve Bank of India.
- Facilitates individual investment in government securities.
- Does not involve direct sales of goods and services.
Non-Debt Capital Receipts Characteristics
- Do not add to government assets, hence not treated as capital receipts.
- Do not create a future repayment burden for the government.
Classification of Information
- Capital receipt examples:
- License fee received.
- Sale proceeds from disinvestment.
- Assistance for specific projects.
- Public sector enterprise dividends.
Central Government Grants to States
- Classified as revenue expenditure, assisting in current state expenditures without creating assets.
Short-Term Credit from Reserve Bank
- Known as Ways and Means Advances (WMA).
- Used to bridge temporary cash flow mismatches for state governments.
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Description
Learn about government budget, its need and objectives, budget concepts and terminologies, and the process of budget making, including sources of revenue and expenditure management.
