Audio Format

Government budget

By the constitution of India government has to represent a estimated expenditure and receipts of every financial year which is start on 1st April to the 31th March. This annually presented statement called Annual financial Statement or in generally we called it government budget.

Types of budgets

In all over in the world, we mainly see three kinds of government budget.

1. Surplus budget
2. Balance budget and
3. Deficit budget

but what are the difference between among those budgets.

Since budget is a estimate of the receipt and expenditures of government. If government expenditure exceed its income then its called a deficit budget.If government expenditure and income is almost equal its called a balanced budget and if government expenditure is less than its revenue or income it's called a surplus budget.

Now in India our government mostly present a deficit budget that mean our government estimate to spend more than its earn. But how can they do this. From where they the get that extra money.

Government has different ways to fill this money gap like :

• Taking loan from international institutions like World Bank, Asian development Bank, BRICS Bank etc.
• Government can sell their bonds in international bond market to raise money in dollar.
• Government can take loan from other countries just like Sri Lanka get line of credit from India of China give loan to different countries.
• Incase of a financial crisis government can take loan at very low interest from IMF.
• And lastly government can sell it's assets like airport, seaport to foreign countries of companies for 99 years or a certain time period.

Mind it line of credit and loan are similar but not same. In case of loan, government get money at a high interest rate and has free to use that money to do whatever they want. But in case of a line of credit countries get money at very low interest rate ( if interest rate is low then it's called a soft loan) but has some restrictions to where they can use that money. For an example if United States of America give one billion dollars of line of credit in defence to UK that means now UK can borrow defense equipments from America up to 1 billion dollars as loan. They can't use that one billion dollar in other purposes or in other countries because they don't get that amount in cash they will only get products.

But in case of a financial crisis countries can get bill out packages from IMF, the international monetary fund. But in order to get loan or Bill out package from IMF countries government has to accept some criterias to get that loan amount. So taking loan from IMF means giving countries finance policy control to IMF.

Actually after the World war 2 only United States of America was in a good financial condition and it's also had the biggest gold reserve in the world. And at the time many countries facing critical financial crisis. At that time USA and its western allies create World Bank and IMF by the . So World Bank give loans to countries to invest or built project in countries but IMF give a country soft loan only if the country has facing financial crisis because taking loan from IMF is giving your financial policy to IMF. And since USA is one of the major shareholder and founding member of IMF . USA some how controls that if IMF give loan to some country in what condition that country get that loan. So now USA can force them to do globalisation or allow foreign direct investment or established democratic rule in the country etc. And countries get that loan amount in dollar. So as more and more countries start taking loan from IMF and World Bank the dollar start getting more stronger and finally it become the major global currency.

Now let's focus on the major portions of government budget.

Structural Overview :

Government Budget

1. Revenue Budget
• Revenue Receipt
1. Tax Revenue ( like Income Tax)
2. Non Tax Revenue( Like Interest of loan )
• Revenue Expenditure
1. Plan Expenditure ( like salary )
2. Non Plan Expenditure ( like Defences services )
2. Capital Budget
• Capital Receipt
1. Debt Creating ( like Taking Loans )
2. Non Debt Creating ( like selling property)
• Capital Expenditure
1. Plan Expenditure ( like Building roads )
2. Non Plan Expenditure ( like Government schemes)

				Direct Tax
			Tax Revenue
		Revenue Receipt		Indirect Tax
	Revenue Budget		Non Tax Revenue
			Plan Revenue Expenditure
		Revenue Expenditure
Government Budget			Non Plan Revenue Expenditure
			Debt Creating
		Capital Receipt
	Capital Budget		Non Debt Creating
			Plan Capital Expenditure
		Capital Expenditure
			Non Plan Capital Expenditure

Government budget are divided into two parts.

One is revenue budget and second one is capital budget. As you can seen in the diagram revenue budget and capital budget both are divided into two parts Receipts and Expenditure.

Remember one thing that revenue means government get or government spend small amount of money for a long time. Like : pensions, Government have to give their employee pension and salaries after certain period it's in revenue expenditure. But GST, Income Tax, sales tax all of this taxes income are compared to small but government get that small amount for a very very long time, it's called revenue receipts.

Same capital means government get or government spend a large amount of money in a small time. Like building roads and highways. Here government spend a lot of money in just a small period of time, it's capital expenditure. If government take a loan then government get a huge amount of money at once it's capital Receipts.

In Details :

A) Revenue receipt is further the divided into two parts that revenue from tax revenue and non-tax revenue. Tax revenueis further divided into two parts direct tax and indirect tax. where direct tax are corporate tax, income tax etcs but indirect tax are gift tax, custom duty, service tax, goods and service tax etc. Non tax revenues contain income from interest of loan, dividend of some companies, profit from investments in stock market or foreign institutions and companies, it's also include remittance (when a Indian worker work in foreign countries & give some of his salary to his indian family in india) from other countries.

B) Revenue expenditure revenue expenditure is further divided by two parts call plan revenue expenditure and non plan revenue expenditure.Where plan revenue expenditure related to the centre Government short term plans or assistant to State Government and union territories, where non plan revenue expenditure include interest payments of loans, defence services, subsidies, salaries and pensions of Government employees etcs.

C) Capital receipts capital receipts are income as loan or from selling government properties & assets. Where taking loan is kind of creating a burden and liabilities on a country and the government also, but selling assets like PSU( public sector undertaking) is reduce the total financial asset of government or a country. What's way taking loans are called debt creating receipts and selling assets are called non debt creating capital receipt.

D) Capital expenditure capital expenditure related to creation of physical and financial assets for government, reducing the liabilities like loan and interest payment also include annexation of land, building machineries & equipments, investment in the shares, loans and assistant by government to the state or union territory, PSU and other parties. Capital expenditure also divided into two parts plan capital expenditure and non plan capital expenditure. Where plan capital expenditure are related to Central Government long term plan and Central assistant to state and union territory to creating road & improving logistic in all over the country. Non plan expenditure is cover various general social and economic service provided by government, government schemes & welfare fund etc.

Now some questions about government budget:

1. Why government prepare the budget? Or what is the purpose of government budget?

Ans: government budget is not just a simple paper. It's s contain a lot of information about government, the financial condition of a country and the growth plan of a country. It's also contain the financials structure for a year, like how much income tax and corporate tax company and individual have to pay. How much government will spend to build roads and highways on this year & how much of the income government will spend to repay loans & interest on loan. what kind of new government scheme will start the year. So basically budget contain all the information about government or a country financial condition and the financial road map.

2. Why government budget in deficit?

Ans: As I early say deficit budget occurs when government start spending more than it earn. And to fill that gap government either take loan from international entities or sell some assets or properties. As you know that government can spend in two ways one is revenue expenditure and second is capital expenditure.If Government makes a deficit budget and take loan from international entities. Is not a problem as long as they spend that money as capital expenditure to building financial assets for the country then it's boost or help to grow the country's economy, but if they spend loan money as revenue expenditure then it might be a warning signal because although government taking loan but not make any way to recover that money in future. That may cause a financial crises in the country.

3. If government budget already give a overall expenditure of a government project then why some project never start or not complete in time?

Ans: In India we are living in democratic government system and hare the government money means tax income from there citizens. Therefore, government can't directly access to your money for that they have to pass a bill in parliament.

So, lat that government tell in the budget that they want to make a highway in a state. So they will first calculate that how much money needed to make the highway in a given time. After that they will tell different companies to fill tender if they want to get the project. In tender, company give there cost calculation to make the project. Among several tenders they will select only one tender and that company get the project. Then the current government will show that tender cost in parliament & has discussion and debate on it then it has to pass by the lok sabha -> ragya sabha -> president of India. Only then government will get the money. Also opposition leader can question it then the calculation of cost will have to be done again. So this whole process can take a lot of time. And at this time of process, the cost of building the highway increases. But the company has to make it with the previous cost otherwise government has to pass a new bill in parliament which take again a long time. Also there are some local Mafia, MLA & MP they also take some money. Therefore, now in that very low amount of money either company has to use cheap material or they live the project. If the use chief material that causes most of the highways to be collapse within some years and if they leave the project. The project is start continue postponing and not complete for a very long time.