Government Budget and Its Components

What is Government Budget?

In order to achieve the several pre-planned objectives of economic and social growth of the country, the government has to frame certain policies to perform properly and efficiently to achieve these objectives. But framing and applying these policies requires a huge amount to be incurred on the part of the government in the form of expenses on the development project and proper administration, projects meant for welfare, law, and order and several other operations meant for relief and growth. So therefore in order to bear all these huge expenses meant for economic development, proper and sufficient revenue should be earned on the part of government through different sources.

Here is where the importance of budget arrives. A budget helps the government in planning its expenses and revenue efficiently and properly. In simple terms, a budget may be defined as the blueprint of the government financial plan. It mainly contains the revenue and expenses of government relating to a particular financial year which generally starts from 1 April to 31 March. This is one of the most important documents which acts as the report card of the financial performance of the government.

It mainly shows the past one-year financial performance of government, what new policies and plan relating to finance the government are bringing in the coming year and how it is going to affect the living standard of the people.

Components of Government Budget

There are Two types of government budget:

  1. Revenue budget
  2. Capital budget

Revenue Budget

This mainly contains the incomes and revenue generated by the government through different sources i.e. tax collected and various other receipts. Various expenditure which is involved in collecting these revenues is also included in this budget. Hence this part of the budget has 2 parts that are revenue receipts and revenue expenditure.

  1. Revenue receipts– These include all revenue which is earned and received by the government from its different sources in its normal course. No increase in liability and asset reduction is done through these type of receipts.
    These receipts are further classified into tax revenue and non-tax revenue. Tax revenue basically consists of all receipts and income earned by the government through its various direct and indirect tax collected.
    Non-tax revenue includes the income earned in the form of fees charged by the government for various services provided like birth, death and property registration, several grant and aids received, fines and penalties charged, income from public sector enterprises, etc.
  2. Revenue expenditure– It basically includes the expenses incurred by the government in providing basic services to its citizens and the proper functioning of its departments. These expenditures do not result in the creation of assets. These mainly include the expenses involved in providing subsidies, loan interest payment that was taken in the previous year, the various amount on defense, industrial development, healthcare, agricultural and scientific research.

Capital Budget

Various incomes and expenditure of capital nature that are projected for the coming financial year are included in these part of the budget. It basically has 2 parts that are capital receipts and capital expenditure.

Capital receipts– This include funds which are obtained by the government through borrowing, loan recovery or asset disposing of. These receipts increase the liability and reduce the asset. Items of capital receipts are a loan taken by the government from the general public through the sale of its securities and bonds, amount taken from reserve bank and other financial institutions through treasury bills sale, aids received by the government from foreign countries & international organizations and loan recovery that were provided to state and union territory government.

Capital expenditure– It includes all those expenditures which are incurred for creating long term assets. It leads to creation in assets. Hence, expenditure on plant and machinery, projects related to irrigation, land development or investment in long term financial asset all come in the category of capital expenditure.

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