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The term budget is derived from the French word "Budgette" which means a "leather bag" or a "wallet".

Government has several policies to implement in the overall task of performing its functions to meet the objectives of social & economic growth. For implementing these policies, it has to spend huge amount of funds on defence, administration, and development, welfare projects & various other relief operations. It is therefore necessary to find out all possible sources of getting funds so that sufficient revenue can be generated to meet the mounting expenditure. Planning process of assessing revenue & expenditure is termed as Budget. It is a statement of the financial plan of the government. It shows the income & expenditure of the government during a financial year, which runs generally from 1stApril to 31st March. Budget is most important information document of the government. One part of the government's budget is similar to company's annual report. This part presents the overall picture of the financial performance of the government. The second part of the budget presents government's financial plans for the period upto its next budget.

Financial performance of the government over the past one year. To know about the financial programmes & policies of the government for the next one year. To know how their standard of living will be affected by the financial policies of the government in the next one year. reflects the direction of Government policies and priorities.

The budget is a document that states expenditure and income of the Government for the current financial year and which reflects the direction of Government policies and priorities.

According to Tayler, "Budget is a financial plan of government for a definite period". According to Rene Stourm, "A budget is a document containing a preliminary approved plan of public revenues and expenditure".

This financial statement includes the revenue receipts of the government i.e. revenue collected by way of taxes & other receipts. It also contains the items of expenditure met from such revenue.

Revenue recipts

Direct tax

Indirect tax

Income tax

Sales tax

Exercise duty

Property tax

Corporation tax

Estate duty


Intrest recived


Profit income


Gifts grants

Profit of psu

Special assecement duty

These are the incomes which are received by the government from all sources in its ordinary course of governance. These receipts do not create a liability or lead to a reduction in assets. Revenue receipts are further classified as tax revenue and non-tax revenue.

Income tax property tax corporation tax estate duty

Custom duties sales tax services tax excise duties indirect taxes

An important instrument of the financial management used as aid in planning, programming and control

A budget may be defined as a financial and quantitative statement, prepared and approved prior to defined period of time, of the policy to be pursued during that period for the purpose of achieving the given objective.

Details of performance of fiscal policies of Govt. of the year of implementation of budget should be given. It should answer What is to be done? How much Progress is made? Is any target kept?

Budget proposals should present the analysis of the present economic scenario and the Govt. Budget presents estimates of revenue from different sources and expenditures under different heads. These are known as budgetary estimates Revised estimates of revenue and expenditure are included in the budget which are presented in a particular financial year.

1.Economic Stablity 2.Economic Growth

3.Economic Equality

Economic growth

This is not economic stagnation.This means economic expansion without inflationary pressure with mild rise in price level.Mild inflation keeps the economy expanding. At the time of depression the Govt tries to augment the effective demand by increasing public investment,govt expenditure and giving subsidy and tax relief to increase the volume of private consumption and investment.

By increase in size of budget Govt is able to make net increase in total effective demand.Concept of debt financing comes to play to free the country from cluches of depression. In Inflation Govt reduces the effective demand (as prices are rising).it cuts its own expenditure and increases taxes to cut down private expenditure. Developed countries uses budget to achive the economic stability.

Economic stablility increases in national income and employment helps the economy to grow.Investors are interested in two things a.Rates of return on invested capital b.Security and stability of Investment.1.If market mechanism fails Govt takes sufficient steps to increase saving and investment. 2.both public and private given equal opportunity to develop.

3.actions taken to reduce regional disparities. Tax Holiday,Subsidy are given 4.Govt has two options to get the required savings and investment for economic growth borrowings b.printing of new money

Redistribution of income is necessary and must be achived.Budgetary provisions are made to achive this.Purchasing powers to be given to the haves to have nots. This leads to a situation where incentives and sources of saving for production disappear.without This goal health and capacity of workers suffer a lot. These provisions are made to achive equality in Budget

1.more imphasis on direct and progressive taxes 2.Tax on conspicuous consumption. 4.Control the intrest rate to control public debt. 5.Eradiction of poverty ,by providing incentives to labour oriented industry the goal of justice is to be achived.

Different Types of Government Budget Diagram

Balanced budget
Deficit budget Surplus budget

A. Balanced Budget Balanced budget is a situation, in which estimated revenue of the government during the year is equal to its anticipated expenditure. Government's estimated Revenue = Government's proposed Expenditure. For individuals and families, it is always advisable to have a balanced budget.

Most of the classical economists advocated balanced budget, which was based on the policy of 'Live within means'. According to them, government's revenue should not fall short of expenditure. They also favoured balanced budget because they believed that government should not interfere in economic activities and should just concentrate on the maintenance of internal and external security and provision of basic economic and social overheads. To achieve this, government has to have enough fiscal discipline so that its expenditures are equal to revenue.

The budget in which income & expenditure are not equal to each other is known as Unbalanced Budget. Unbalanced budget is of two types : Surplus Budget Deficit Budget

The budget is a surplus budget when the estimated revenues of the year are greater than anticipated expenditures. Government expected revenue > Government proposed Expenditure. Surplus budget shows the financial soundness of the government. When there is too much inflation, the government can adopt the policy of surplus budget as it will reduce aggregate demand.

Increase in revenue by levying taxes on people reduces their disposable incomes, which otherwise could have been spend on consumption or saved and devoted to capital formation. Since government spending will be less than its income, aggregate demand will decrease and help to reduce the price level. However, in modern times, when governments have so many social economic & political responsibilities it is virtually impossible to have a surplus budget.

Deficit budget is one where the estimated government expenditure is more than expected revenue. Govt. estimated Revenue < Govt'sproposed Expenditure. According to Prof. Hugh Dalton, "If over a period of time expenditure exceeds revenue, the budget is said to be unbalanced".

Such deficit amount is generally covered through public borrowings or withdrawing resources from the accumulated reserve surplus. In a way a deficit budget is a liability of the government as it creates a burden of debt or it reduces the stock of reserves of the government. In developing countries like India, where huge resources are needed for the purpose of economic growth & development it is not possible to raise such resources through taxation, deficit budgeting is the only option.

In Underdeveloped countries deficit budget is used for financing planned development & in advanced countries it is used as stability tool to control business & economic fluctuations. To prepare deficit budget 1.Increase in Govt expenditure. 2.Reducing taxes 3.Implementation of both

Revenue deficit

Budgetary deficit

Fiscal deficit

Primary deficit

Revenue deficit=Revenue Income-Revenue expenditure When revenue expenditure surpresses revenue income it is called the revenue deficit. Here both planned and non planned expenditure are met by revenue income.

Budgetary Deficit=Total revenue Total expenditure For computation of total expenditure ,both revenue and capital expenditure are taken into account. To remove this deficit the central govt utilizes the net sale income from treasury billsd sold to central bank.This policy of central Govt is known as deficit fiancing.

Fiscal Deficit=`Budgetary deficit+Market borrowing and other revenue. Total expenditure includes both otherwords ,fiscal policy Is a mixture of budgetary deficit and total market borrowing by Govt.

Primary Deficit=Fiscal Deficit-Intrest paid Limitations of Deficit Budgeting--Gradual reducation in taxes makes a short term adjustment.There is rapid increase in Govt expenditure with increase expenditure on projects.

At the Point E, budget is balanced. To the left of point E the government budget is in deficit and to the right of point E, the budget is in surplus. When the government incurs a budget deficit it is financed by borrowing. The government borrows from the public by issuing government bonds. This gives rise to government debt or public debt.

Thus, we see that the budget mirrors projected receipts and expenditures.

3/7/2013 8:25:48 PM

Ghnahsym IILM Gurgaon


Exemption limit for the general category of individual taxpayers enhanced from Rs. 1,60,000 to Rs 1,80,000 giving uniform tax relief of Rs. 2,000.


GDP growth target 9% 0.25%. Fiscal deficit 4.6% of GDP (better than 4.8% set in roadmap L/Y); positive for bond markets. Target looks aggressive given absence of non-tax revenues (3G booty) this year & underestimation of subsidies. Target to reach 4.1% in 2012-13 and 3.5% in 2013-14 welcome. Effective Revenue Deficit 1.8% of GDP; persistent Revenue Deficit a concern. Net market borrowings Rs 3.43 lakh crore. Lower than estimates; positive for bond markets. Budget 2011 like the India England One-day result A TIE BETWEEN GROWTH & INFLATION BUT NOBODY WINS!!!

Mrs. Sushree Sangita Mahapatra

Dr H R Gajwani College Of Education