Académique Documents
Professionnel Documents
Culture Documents
ECONOMICS
PUBLIC ECONOMICS
3. PUBLIC ECONOMICS
Marks : 04
The term 'Budget' is derived from the French word Bougetee. It means small bag or
ECONOMICS
Page 60
SYJC | COMMERCE
ECONOMICS
PUBLIC ECONOMICS
2. Period - Budget is normally prepared for a period of one year. In India, the budget is
prepared for a financial year beginning from 1stApr & ending on 31stMarch of next year.
3. Presentation - In India, Finance minister presents the budget in parliament. Such
presentation is required to get the approval of parliament to collect funds & undertake
expenditures.
4. Objectives The budget is undertaken to achieve certain pre-determined socioeconomic objectives. These objectives include employment generation, regional
development, reduction in inequalities etc.
Revision - Government may revise budget estimates taking in to consideration the social
& general situation in the country.
of one year. This estimate helps government to achieve pre-determined objectives. These
objectives are asunder,
1. Social development - Through
budget,
Government
allocates
funds
for
social
development activities such as health, education and family welfare. As a result, there is a
social development.
2. Economic development -
Government
allocates
funds
for
infrastructure
development such as power, transport, Communication etc. ; that would result in economic
development.
3. Reduction of In-equalities -
Therefore Government allocates funds for social security, food subsidy etc.
4. Regional Development -
Page 61
ECONOMICS
ECONOMICS
Q.3
PUBLIC ECONOMICS
is of Two types.
Revenue Receipts
Capital Receipts
1. Revenue Receipts -
individual on whom they are imposed. Direct taxes include income tax, corporation
tax, wealth tax, etc. Burden of paying direct tax cannot be shifted to other person.
ii. Indirect Taxes :
commodities and services. Burden of paying indirect tax can be shifted to other
person. It includes Sales Tax, Service Tax and Excise Duty etc.
b) Non - Tax Revenue -
from other sources. It is known as 'Non-tax revenue'. It includes stamp duty, registration
charges, fines and penalties, Interest and dividend etc.
i. Interest and Dividend on Investments : Government receives interest on loans
given to State governments, Private / Public enterprises etc. Dividends are received
by governments from its investments in other companies. This is major source of
Non-tax revenue to government.
ECONOMICS
Page 62
SYJC | COMMERCE
ECONOMICS
PUBLIC ECONOMICS
Capital Receipts :
reduction of assets or creation of liabilities are called as 'Capital receipts'. They are
obtained by government by borrowing loans, selling assets etc. It includes...
1. Loans taken from Reserve bank of India.
2. Loans taken from foreign countries.
3. Amount received by selling shares and debentures.
4. Amount received from dis-investrnent.
5. Recovery of loans given to state government etc.
II. Budget Expenditure :
Budget expenditure refers to the estimated expenditure of the government during a given
fiscal year. Budget expenditure includes.
1. PIan expenditure :
which is out of the scope of government plans. For example, expenditure incurred on
rescue of people affected by various calamities.
3. Development expenditure :
Which
Page 63
ECONOMICS
ECONOMICS
4. Non-Development Expenditure :
PUBLIC ECONOMICS
.............................................................................................................................
Page 64
SYJC | COMMERCE
........................................................................
ECONOMICS
PUBLIC ECONOMICS
COMPONENTS OF BUDGET
BUDGET
Budget Receipts /
Budget Revenue
Revenue
Receipts
Tax
Revenue
Direct Tax
Capital
Receipts
Budget Expenditure
Revenue
Expenditure
Capital
Expenditure
Non-Tax
Revenue
Indirect
Tax
Q.4
The Budget which gives details of Revenue Receipts and Revenue expenditure is
individual on whom they are imposed. Direct taxes include income tax, corporation
tax, wealth tax, etc. Burden of paying direct tax cannot be shifted to other person.
SYJC : COMMERCE
Page 65
ECONOMICS
ECONOMICS
PUBLIC ECONOMICS
commodities and services. Burden of paying indirect tax can be shifted to other
person. It includes Sales Tax, Service Tax and Excise Duty etc.
b) Non - Tax Revenue -
from other sources. It is known as 'Non-tax revenue'. It includes stamp duty, registration
charges, fines and penalties, Interest and dividend etc.
i. Interest and Dividend on Investments : Government receives interest on loans
given to State governments, Private / Public enterprises etc. Dividends are received
by governments from its investments in other companies. This is major source of
Non-tax revenue to government.
ii. Fees and License Fees :
ECONOMICS
Page 66
SYJC | COMMERCE
ECONOMICS
PUBLIC ECONOMICS
Q.4
The Budget which gives details of Capital Receipts and Capital expenditure is called
assets or creation of liabilities are called as 'Capital receipts'. They are obtained by
government by borrowing loans, selling assets etc. It includes...
1. Loans taken from Reserve bank of India.
2. Loans taken from foreign countries.
3. Amount received by selling shares and debentures.
4. Amount received from disinvestment.
5. Recovery of loans given to state government etc.
(B) Capital Expenditure :
Expenditure which reduces liabilities or creates assets is called as capital
Expenditure. expenditure. This expenditure is developmental in nature. It includes
purchase of assets, repayment of loans, investment in shares and debentures by
government etc.
It includes ............
a) Expenditure on Land and Building.
b) Expenditure on Machinery & Investment.
c) Investment in shares.
d) Loans given to state government.
e) Loans to corporations
(Here, Capital Receipts and Capital Expenditure is explained from Q.3)
Page 67
ECONOMICS
1.
ECONOMICS
PUBLIC ECONOMICS
Deficit Budget :
ECONOMICS
Page 68
SYJC | COMMERCE
ECONOMICS
PUBLIC ECONOMICS
Balanced Budget :
A balanced budget takes place when the estimated revenue
is equal to estimated expenditures. There is neither surplus nor deficit. It implies that
the government is returning the entire money to its people. This kind of budget was
advocated by classical economist like Adam Smith. According to this government
revenue should not fall short of expenditure. A balance budget was considered is an
effective check on governments extravagant expenditure. In this government must
exercise financial discipline. It should keep its expenditure within available income.
Till 1930, Balanced budget was considered as good. But the great depression
of 1930's proved, that balanced budget was not a guarantee of stability and full
employment.
Page 69
ECONOMICS
ECONOMICS
PUBLIC ECONOMICS
public sector undertakings etc. to manage financial requirements. Such loan given is an
asset to central government. The borrower pays regular interest (EMI) to central
governments for repayment of loan taken. So the interest of debt is revenue income for
central government.
Sometimes, State government makes repayment of loan to central government. Such
repayment is capital assets to central government.
4. Plan Expenditure :
Page 70
SYJC | COMMERCE
ECONOMICS
PUBLIC ECONOMICS
Page 71
ECONOMICS
ECONOMICS
PUBLIC ECONOMICS
7. Revenue Expenditures :
- The expenditure which does not create any asset or reduces any liability is called as
'Revenue Expenditures'. It is incurred to run day to day activities, of government
departments.
It is incurred for providing various services to citizens. This expenditure is recurring
in nature.
It includes.......
1. Expenditure on consumption of goods & services.
2. Defense & Administration expenditure.
3. Expenditure on education, health & social services.
4. Payment of interest on loans taken.
5. Expenditure on external affairs.
Such expenditures maintain the country in current working position.
8. Capital Receipts :
loans & advances is called as 'Capital Receipt'. It is non-recurring in nature. While receiving
this income either there is reduction in assets or creation of liability. It includes.......
1. Loans taken from Reserve Bank of India.
2. Loans taken from foreign countries.
3. Amount received by selling shares & debentures.
4. Dis-investment by government.
5. Recovery of loans given to state government.
9. Revenue Budget :
expenditures. Revenue receipts are those receipts which do not create any liability or
reduces any asset of the government. It includes Tax Revenue and Non-Tax revenue. It
includes direct Tax, Indirect taxes, Fines and penalties, stamp duty etc.
Revenue expenditure is those expenditures which does not create any assets or
reduces any liabilities. It includes administration expenditure, payment of interest on loans
taken, amount spent on public utility services etc.
The difference between revenue receipts & revenue expenditures is called as
Revenue Surplus or Revenue Deficit.
10. Capital Budget :
Capital
budget
consists
of
capital
receipts
and
capital
expenditures. Capital receipts are those receipts which increase liability or reduce assets of
ECONOMICS
Page 72
SYJC | COMMERCE
ECONOMICS
PUBLIC ECONOMICS
government. Capital receipts include loans taken from Reserve Bank of India, foreign
government, issue of shares & debentures, dis-investment etc.
Capital expenditures are those expenditures which increases government assets or
reduces liability of government it includes loans repaid, purchase of land, building,
machinery, investment in shares & Debentures etc.
The difference between capital receipts & capital expenditures is called as 'Capital
Surplus or Capital deficit.
11. Tax Revenue :
wealth, properties of persons. There are 2 types of tax i.e. Direct Tax & Indirect Tax.
It is also imposed on capital gains & spending on goods & services.
It is a compulsory payment made by an individual or a firm to government.
It includes direct taxes such as income tax & indirect taxes such as Sales tax, Service Tax etc.
It is a major source of revenue to government. New taxes such as Gift Tax, Estate duty,
Service Tax etc. help government to increase its revenue.
13. Direct Tax :
When the impact of tax & payment liability falls on the same person
then it is called as 'Direct Tax'. Burden of paying direct tax cannot be shifted. Income Tax,
Wealth Tax etc. are the examples of direct tax. They are more pinching.
14. Indirect Tax :
persons then it is called to as 'Indirect tax'. Burden of paying indirect tax can be shifted.
Sales Tax, Service Tax, Import duty etc. are the examples of indirect tax. They are less
pinching.
SYJC : COMMERCE
Page 73
ECONOMICS
ECONOMICS
PUBLIC ECONOMICS
Fiscal deficit occurs when borrowing & other liabilities are added
Page 74
SYJC | COMMERCE
ECONOMICS
PUBLIC ECONOMICS
Page 75
ECONOMICS
ECONOMICS
PUBLIC ECONOMICS
4. Budget gives information about estimated revenue & expenditures for the next financial
year. It is prepared by finance minister of the country.
Conclusion : Budget is prepared for a period of one year.
6. Surplus budget is useful to overcome the inflation.
Reasons :
1. Surplus budget helps to fight inflation and to bring price stability. During inflation,
private expenditure has to be controlled.
2. Under, surplus budget government enjoys more revenue through heavy taxation. As
a result it will reduce disposable income & purchasing power of people.
3. During inflation, government can go for public borrowing. It will automatically
control private expenditure.
4. Under surplus budget, government expenditure declines, which in turn reduces the
flow of money in the economy.
Conclusion : So, During inflation surplus budget is needed to control money supply.
7. Deficit budget helps the government to overcome the problem of deflation.
Reasons :
1. Deficit budget takes place when estimated expenditure is more than estimated revenue.
2. Deflation is a market situation in which prices are continuously falling. It brings less
amount of profit to entrepreneurs. It affects the process of industrialization.
3. To overcome deflation government has to spend more amounts on capital items in the
country.
4. The excess amount spent by government on capital items will increase the level of
employment in the economy. Due to this demand and supply will increase.
5. It increases the flow of money in the economy & helps for economic development.
Conclusion :
ECONOMICS
Page 76
SYJC | COMMERCE
ECONOMICS
PUBLIC ECONOMICS
2. In Balanced budget there is neither surplus nor deficit. Balanced budget is advocated
by classical economist.
3. Balanced budget implies that government is returning entire money to its people. It
ensures financial stability, unproductive expenditures are controlled.
Estimated Government Revenue = Estimated Government Expenditure
Conclusion :
public expenditures.
10. Budget is prepared to achieve pre-determined objectives.
Reasons :
1. Budget is a systematic estimate of government revenue & government expenditure
relating to one year to achieve pre-determined objectives.
2. Though budget government allocates funds for social development activities such as
health, education & family welfare.
3. Budget aims at reduction of inequalities of income.
4. Government aims at generating employment opportunities.
5. Government also allocates funds for Infrastructure development such as power,
transport etc. Through budget government tries to uplift the weaker section of the
society.
Hence, government budget is prepared to achieve some predetermined objectives.
SYJC : COMMERCE
Page 77
ECONOMICS
ECONOMICS
PUBLIC ECONOMICS
DISTINGUISH BETWEEN
1. Revenue Budget V/s Capital Budget
Point of Difference
Meaning
Revenue Budget
Revenue budget includes,
1) Revenue Receipts
2) Revenue Expenditure.
Capital Budget
Capital budget includes,
1) Capital Receipts
2) Capital Expenditure
Impact
ECONOMICS
Direct Tax
Indirect Tax
When the impact of tax & When the impact of tax &
payment liability of tax falls on payment liability of tax falls on
the same person then it is called different persons then it is called
as Direct Tax.
as indirect Tax.
Page 78
SYJC | COMMERCE
ECONOMICS
PUBLIC ECONOMICS
Burden of Payment
When Arise
This tax is paid while earning This tax is paid at the time of
income.
Spending income.
Examples
Usefulness
Flow of Money
Effect
Deficit Budget
Balanced Budget
When the government revenue is
When the government revenue is
less
than
government
equal to government expenditure,
expenditure, it is called a Deficit
it is called a Balanced Budget
budget.
It is not possible to introduce a
It is suitable when during the
Balanced budget under present
Depression.
circumstances.
Deficit budget leads to flow of The flow revenue of the
money from the government to government is equal to meet the
the economy.
expenditure of the government.
Balanced Budget would not affect
Deficit budget would lead to
the aggregate demand in the
increase in aggregate demand.
economy. The balanced budget
The policy of deficit budget
policy is called "Sound Finance"
would lead to increase in
where the government performs
employment, investment etc.
only minimum functions.
Balanced Budget
When estimated revenue is equal
to estimated expenditures then
such budget is called as 'Balanced
Budget'.
Surplus Budget
When estimated revenue is more
than estimated expenditures then
budget is said to be 'Surplus
Budget'.
Effect
Existence
SYJC : COMMERCE
Page 79
ECONOMICS
5. Surplus Budget
Point of Difference
Meaning
ECONOMICS
V/s
PUBLIC ECONOMICS
Deficit Budget
Surplus Budget
When estimated revenue is more
than estimated expenditures then
budget is said to be 'Surplus
Budget'.
Deficit Budget
When the government revenue is
less
than
government
expenditure, it is called a Deficit
budget.
Supported by
Flow of money
Growth
rapid
economic
Revenue Receipts
Capital Receipts
Meaning
Nature
It is Recurring in Nature.
It is Non-recurring in Nature.
Examples
Meaning
ECONOMICS
Revenue Expenditure
The expenditure incurred for
administration and maintenance
of the country in working
condition is called as Revenue
Expenditure.
Page 80
Capital Expenditure
The expenditure incurred for
development, to purchase the
assets, for repayment of loans etc.
are called as Capital Expenditure.
SYJC | COMMERCE
ECONOMICS
PUBLIC ECONOMICS
Nature
It is Recurring in Nature.
Productiveness
Revenue expenditure
productive.
Examples
It is Non-recurring in Nature.
is
non-
,
, : , , , , .
.
8. Public Revenue
V/s
Public Expenditure
OR
Government Revenue
V/s
Government Expenditure
OR
V/s
Budget Expenditure
OR
Point of Difference
Public Revenue
Public Expenditure
V/s
Point of Difference
Sales Tax
Income Tax
Sales Tax
Meaning
Type of Tax
It is a direct tax.
Shifting
Effect
SYJC : COMMERCE
It is a indirect tax.
Page 81
ECONOMICS
ECONOMICS
PUBLIC ECONOMICS
OBJECTIVE-TYPE QUESTIONS
Fill in the blanks with proper alternatives from brackets.
(1) ...................... Taxes are directly paid by the people to the government.
(Indirect / Direct / Excise)
(2) Two main components of budget are .................... budget and the capital budget.
(Deficit / Revenue / Balanced)
(3) A budget is ....................... financial statement of the estimated receipts and
expenditures of the government.
these)
(6) When revenue is less than expenditure, there is said to be ..................... budget.
(Balanced / Surplus / Deficit)
(7) ...................... deficit is the fiscal deficit less interest payment.
(Primary / revenue / budgetary)
(8) In India, financial year runs from ......................
(1st April To 31st March of next year / 1st June To 31st May / None of these)
(9) The difference between total receipts and total expenditure of the government is
known as .......................
- TRUE
Page 82
- FALSE
SYJC | COMMERCE
ECONOMICS
PUBLIC ECONOMICS
- TRUE
- TRUE
- FALSE
- TRUE
- TRUE
- TRUE
- FALSE
- TRUE
- TRUE
- TRUE
- FALSE
- FALSE
- TRUE
- TRUE
- TRUE
18. Economic growth takes place in the country when there are more revenue receipts &
more capital expenditure.
- TRUE
- TRUE
- FALSE
21. When estimated revenue is more than estimated expenditures then budget is called as
Surplus Budget.
- TRUE
SYJC : COMMERCE
Page 83
ECONOMICS