Posted by Anjali Kaur on Oct 28, 2020

The Government Budget

The government budget is an annual statement showing item wise estimates of receipts and expenditure of the government during a financial year.  Let’s understand the concept of the government budget in detail.

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Objectives of the Government budget

  1. To increase GDP in terms of the flow of goods and services in the economy.
  2. To promote the development of the backward region of the country with a view to minimizing regional disparities.
  3. Reallocation of resources with a view to maximizing social welfare.
  4. Abundant provisions of public goods particularly in terms of law and order, defense. So that the people of the country can live in a peaceful environment.
  5. Redistribution of income and wealth with a view to reducing the gap between rich and poor.
  6. Investment in public enterprises with a view to generating more employment opportunities.

Components of the Budget

Budget includes revenue and capital budgets, which is further divided into respective receipts and expenditure. Let’s understand these:

1. Revenue Budget

It deals with the revenue aspects of the government. Revenue budget explains how revenue is generated or collected by the government and how it is allocated among various expenditure heads. It is of 2 types:

a. Revenue Receipts

Revenue receipts are those which do not cause any reduction in the assets of the government.

These receipts do not create any liability for the government.

For example, tax receipts of the government.

b. Revenue Expenditure

It is that expenditure of the government:

Which do not cause any increase in the government asset.

Which do not cause any reduction in government liabilities.

For example, the old-age pension.

2. Capital Budget

Capital budget is the statement of the estimated capital receipts and estimated capital expenditure during a fiscal year. It is of 2 types:

a. Capital Receipts

These are those receipts:

Which creates corresponding liabilities for the government. For example, loans by the government.

Which causes a reduction in the assets of the government. For example, disinvestment.

b. Capital Expenditure

These are those expenditure:

Which causes an increase in government assets. For example, expenditure on the construction of the roads.

Which causes a reduction in government liabilities. For example, payment of loans by the government.

The trick to memorizing all the above government budget components by learning the following table:

Thank You for reading.

You can read the related post on macroeconomics:

Working of the Investment

Investment Multiplier

Types of Employment Equilibrium

Concept of Short-Term Equilibrium

Aggregate Supply

Aggregate Demand

Introduction To Money

Central bank and its function

Process of credit creation

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