General Awareness about Government Budget: Meaning and Components
A budget is an annual financial statement of a government. It gives out details of total receipts and total expenditure for a year. More generally, in India, budget of the Union Government (Known as the Union Budget) is presented on the last working day of the month of February.
Along with the budget for the next coming year the set of figures relating to government receipts and expenditure relating to the preceding two years are also presented.
Components of the Union Budget:
The various components of a budget can be divided in two parts, viz.,
- Revenue Account (Revenue Budget)
- Capital Account (Capital Budget)
A revenue budget contains the details of revenue expenditure and revenue receipts of the government. These are in the nature of current expenditure and current income of the government.
A capital budget is a statement of capital receipts and capital expenditure of the government.
The sum total of the revenue budget and the capital budget constitutes the overall budget of the government.
Thus, the sum of revenue receipts and capital receipts constitutes the total receipts of the government. The sum of revenue expenditure and capital expenditure constitutes the total expenditure of the government.
Classification of Receipts and Expenditure:
Normally, government receipts are classified in two groups, viz.,
- Revenue receipts
- Capital receipts
Government expenditure is normally classified in different categories. Some of these are
- Revenue expenditure and Capital expenditure
- Developmental expenditure and Non-developmental expenditure
- Plan expenditure and Non-plan expenditure
Revenue receipts are those sources of inflows of money which do not create any liability of repayment on government. For example, government collects revenue by way of taxes. Revenue so raised is not to be returned ever to the tax-payers. Similarly, government owns many production enterprises. The profits earned by these enterprises from part of the income of the government. These are not to be returned to PSUs.
Revenue expenditure of government is in the form of consumption expenditure. It does not directly create any capital asset for the economy.
For Example, LPG cylinders are made available to domestic consumers at a price which is less than the per unit cost of production of a cylinder. The difference is borne by the government, and is known as a subsidy. Expenditure on subsidies is a part of the government expenditure. It does not lead to creation of any assets.
The major items on which a government incurs revenue expenditure include:
- Subsidies
- Interest on government loans
- Public administration
- Defence
- Other services
Objectives of the Government Budget:
Budget is an important instrument at the disposal of a government. Budget is used to achieve many objectives in every economy. Among the various objectives, more important ones can be identified as
- Mobilisation of resources
- Acceleration of economic growth
- Minimisation of inequalities of income and wealth
- Creation of employment opportunities.
Economic Growth:
Implies a sustained increase in real gross domestic product of an economy, i.e., an increase in the volume of goods and services. A budget can be an effective instrument of economic growth in following ways:
- By providing tax rebate and other incentives, it can stimulate savings and investment in the economy.
- A large provision of public expenditure on infrastructure projects may stimulate production activity in different sectors of the economy.
- The government itself may set up production units, these will add to the production potential and the volume of output.
- Government expenditure generates demand for different types of goods and services. This may work as a stimulant for producers in the private sector.
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