Structure of the Government Budget
NCERT Class 12 • Introductory Macroeconomics • Chapter "Government Budget and the Economy"
Structure of the Government Budget
The government budget is an annual statement of the estimated receipts and expenditure of the government for a financial year. In India the financial year runs from 1 April to 31 March. The budget is not only an accounting statement; it is the main instrument through which the state pursues growth, stability and equity.
Objectives and the Two Accounts
- The objectives of a budget are allocation of resources, redistribution of income, economic stability, managing public enterprises and promoting growth.
- Allocation means directing resources to goods the market underprovides, such as defence, roads and public health.
- Redistribution is done by taxing higher incomes and spending on welfare for the poor.
- The budget has two parts: the revenue account and the capital account.
- Revenue receipts neither create a liability nor reduce an asset; they include tax revenue and non tax revenue such as interest, fees and fines.
- Capital receipts either create a liability or reduce an asset; they include borrowing, recovery of loans and disinvestment.
- Revenue expenditure does not create an asset, such as salaries, pensions, subsidies and interest payment.
- Capital expenditure creates an asset or reduces a liability, such as building roads or repaying loans.
Reading the Budget
- A budget is balanced when receipts equal expenditure, surplus when receipts exceed expenditure, and deficit when expenditure exceeds receipts.
- Most modern governments run a deficit budget, since development spending exceeds current revenue.
- The budget is presented to the legislature and becomes effective only after it is passed.
- Grants and subsidies given by the central government to states form a major part of expenditure.
- Subsidy is a payment that lowers the price a consumer pays or raises the price a producer receives.
- Large subsidies protect the poor but also strain the budget, so targeting them well matters.
- Disinvestment means selling part of the government's holding in a public enterprise.
| Item | Revenue Account | Capital Account |
|---|---|---|
| Receipt example | Income tax, GST, fees | Borrowing, disinvestment |
| Expenditure example | Salary, subsidy, interest | Road building, loan repayment |
| Effect on assets | No asset created | Asset created or liability reduced |
Capital receipt — a receipt that either creates a liability for the government or reduces its assets.
Hindi me samjhein
राजस्व प्राप्तियां न देनदारी बनाती हैं न संपत्ति घटाती हैं। पूंजीगत प्राप्तियां या तो देनदारी बनाती हैं, जैसे उधार, या संपत्ति घटाती हैं, जैसे विनिवेश।
Exam me kaise aata hai
- India's financial year runs from — 1 April to 31 March
- Borrowing by the government is a — capital receipt
- Payment of salaries is a — revenue expenditure
- Disinvestment proceeds are a — capital receipt
UPSC/State PSC ke liye
- The revenue and capital split matters because spending that creates an asset adds to future capacity, while revenue spending does not.
- Interest payment is revenue expenditure even though it arises from capital borrowing, which is why past deficits raise today's revenue spending.
Yahan confuse hote hain
✗ Borrowing is a revenue receipt | Borrowing is a capital receipt | ✓
✗ All government spending creates assets | Revenue expenditure creates no asset | ✓
✗ A deficit budget is always bad | Deficit financing can be justified for development spending | ✓
Ek nazar me
- Budget is the annual statement of receipts and expenditure.
- Objectives: allocation, redistribution, stability and growth.
- Revenue account creates no asset or liability; capital account does.
- Budget can be balanced, surplus or deficit.