Govt Budget and the economy

 

Ques.1  Define govt. budget?

Ans Govt. budget is a statement showing Humanise estimates of receipts and expenditure of the govt. under various heads during a Fiscal year.

 

Ques.2) what are the different types of govt. budget?

Ans. (i) Sam plus budget :- Govt. budget is said to be surplus if estimated receipts are more than the estimated govt. expenditure.

(ii) Deficit govt. budget :- If estimated govt receipts are less than estimated govt. Exp, then the budget is said to be in deficit.

(iii) Balanced budget :- If estimated govt. receipts are equal to estimated govt. Expenditure, then budget is said to be in balance.

 

Ques.3) Explain the objectives of government budget?

Ans. Government budget is the reflection of certain goals that the government wants to achieve. Govt. takes decisions about tax and expenditure to achieve certain economic objectives like:-

• Allocation of resources = There are many economic activities which are not under taken by the private sector either due to lack of profits on due to huge investment exp. involved. There are many other activities like water supply sanitation etc. which are undertaken by the govt. In public interest. Govt. can start their activities own. In addition, govt can encourage the private sector through tax concession subsidies to undertake production in public interest. By doing So, govt. helps in influencing allocation of resources.
• Reducing inequalities in income = Govt can achieve this goal by taking two fiscal policy steps. Govt can impose higher rate of taxes on higher income group and the goods consumed by the rich. It will reduce the disposal income the rich. Secondly, govt. Can spent more amount on providing free services to the poor like education, medical treatment etc. In this way govt. budget is helpful in reducing income inequalities in the country.
• Economic stability = Economic stability means absence of large scale fluctuations in prices. Such fluctuations create uncertainty in the economy. Govt. can have control over these fluctuations through tax and expenditure. For Eg:- In inflation govt. can reduce its expenditure and during depression, govt. Can encourage spending by giving tax condensations and subsidies.
• Economic growth = Economic growth has been the main objective of every economy at all times. The growth rate of the country depends on rate of savings and investments. For this purpose budgetary policy aims to mobilise sufficient resources for investment in the public sector. Therefore, govt. makes various provisions in the budget to raise overall rates of savings and investments in an economy.

 

 

 

 

Ques.4 what are the main components of govt. budget?

Ans                                      Govt. Budget

 

 

 

Budget Expenditure

 

Budget Receipts

 

 

Revenue Exp                               Capital Exp

 

 

 

 

Revenue receipts             Capital receipts                                1.Planed and Non Plan Exp.

2. Development and non- development

 

 

 

Tax Revenue                Non – Tax Revenue

 

Direct tax

 

Indirect tax

 

 

Govt. Budget has two Component :-

I Budget receipts :-

By budget receipts, we mean the funds planned to be raised from various sources. These receipts are classified into two groups:-

• Revenue Receipts = Revenue Receipts refers to those receipts which neither create any liability nor leads to reduction in assets. Two sources of receives receipts are:-

*Tax Revenue :- A tax is a legally compulsory payment made to the govt. by the people. Tax revenue refers to the sum total of revenue of receipts from taxes and other duties imposed by the govt. It can be further classified as :-

*Direct Taxes 1. Impact Direct tax likened on individuals And companies. 2. Nature They are generally progressive in Nature. 3. Coverage They have limited reach as they do not reach all the sections of the economy.

Indirect Taxes Indirect tax are levied or goods and service.   They are generally proportion in nature.   They have a made coverage as they reach all the sections of the society.

(i)Direct Tax = when liability to pay the tax and burden of the tax fall on the same person. Eg =:- income tax, wealth tax, corporate tax etc.

(ii) Indirect Tax  = when liability to Pay the tax and burden of the tax fall on the different person. Eg:- sales tax, Excise duty, custom duty, VAT, Service tax etc.

 

*Non tax Revenue:- Non- Tax Revenue refers to the receipts of the govt from all sources other than tax receipts. Its main sources are:-

(i)interest = Govt. receives interact interest on the heaves given by it to the state govt’s union territories, private enterprises and general public.

(ii) Profits and dividends = Govt. earns profit through public sector undertakings like Indian railways, LIC etc. It earns profits from the sale proceeds of the products of such public enterprises and dividend is the income received from the shares of public enterprises by the govt.

(iii) Fees = Fees refers to changes imposed by the govt. to cover the cost of recurring services provided by it. Eg:- Registration fees, import fees, Port fees etc.

(iv.) Licence fee = Licence fee is the Payment changed by the govt. to grant permission for something. For Eg:- licence fee paid for the permission of keeping a gun.

(v.) fines and pensalties = fines and penalties refers to those payments which are imposed on law breakers. Eg:- fines for crossing red light, penalty for non-payment of tax etc.

(vi.) Escheats = Escheats refers to the claim of the govt on a property of the person who dies without leaving behind any legal here on a will.

(vii) Gifts and Grants = Govt. receives gifts and grants from foreign govt and international organisations.

(viii) Special assessments = It refers to the payment made by the owners of those properties whose value has appreciated due to development activities of the govt.

(ix) Forefitures = There are in the form of penalties which are imposed by the count for the non-fulfilment of contracts.

(b.)Capital Receipts:- Capital receipts are those receipts which either create a liability or leads to a reduction in the assets of the govt. It consists of:-

*Recovery of loan = govt Grants various loans to state govt and union territories. Recovery of such fears is the capital receipt  it reduces assets of the govt.

*Borrowings = Borrowings are the funds raised by the govt. to meet access expenditure. Govt. borrows funds from foreign govt., international institutions and RBI etc. Borrowings are capital receipts as those create a liability for a govt.

*Disinvestment = Disinvestment refers to the act of selling a part of on the whole of shares of public sector undertakings held by the govt. These are turned as capital receipts as they reduce assets of govt.

 

1. Budget Expenditure:-

Budget expenditure refers to the estimated Exp. of the govt. during a given fiscal year. Budget exp. can be classified as:-

(a.)Revenue Exp = Revenue Exp. refers to the exp. which neither create any asset nor leads to reduction in any liability of the govt. For Eg:- Payment of salaries on pension, interest, Exp. on administrative services, deface services, and grants to the state.

(b.) Capital Exp = It refers to the exp. which either creates assets on leads reduction in liability. For Eg:- Exp. on the construction of buildings, reads, flyovers, industries, purchase of reach, and repayment of borrowings etc.