IAS Gyan

Daily News Analysis

Budget

29th January, 2022 Economy

Figure 3: No Copyright Infringement Intended

 

Context:

  • With the economy still hurting from the pandemic, the upcoming Budget is likely to address concerns around growth, inflation and spending. 

About Budget:

  • In Article 112 of the Indian Constitution, the Union Budget is referred to as the Annual Financial Statement.
  • The Indian Constitution makes no mention of the word "Union Budget."
  • It is the annual budget of the Republic of India, which is submitted to Parliament each year in February by India's Finance Minister.
  • It is the government's strategy for spending, levying taxes, and other transactions that affect the economy and residents' lives.

 

Components of Budget:

  • Expenditure, revenue, and deficit indicators are the three main components.
  • There are different classifications and indications of expenditure, receipts, and deficits depending on how they are defined.
  • Total expenditure can be separated into capital and revenue expenditures based on their impact on assets and liabilities.

Capital Expenditure:

  • Capital expenditures are made with the goal of increasing long-term assets or lowering recurring liabilities.
  • Consider the costs associated with the construction of new schools or hospitals.
  • All of them are capital expenditures since they result in the creation of new assets.

Revenue Expenditure

  • Any expenditure that does not add to assets or reduce liabilities is classified as a revenue expenditure.
  • Expenditure on wages and salaries, subsidies, and interest payments are often classed as revenue expenditures.

Other classifications:

  • Additional classifications include: Spending is divided into two categories based on how it affects different sectors: I general services and (ii) specific services. (ii) economic services, (iii) social services, and (iv) contributions and grants-in-aid
  • The total amount spent on economic and social services is referred to as development spending.
  • Transportation, communication, rural development, agriculture, and linked industries are all examples of economic services.
  • Social services refer to spending on the social sector, such as education or health care. Development spending can be further categorised based on its impact on asset generation or liabilities reduction.

Receipts

  • Receipts: The government's receipts are divided into three categories: revenue, non-debt capital receipts, and debt-creating capital receipts.
  • Receipts from taxes and non-tax sources are included in revenue receipts, which are not coupled with an increase in obligations.
  • Non-debt receipts are those that do not result in the creation of new liabilities. Loan repayments and revenues from disinvestments would be considered non-debt receipts because the cash generated from these sources does not raise liabilities or future payment obligations.
  • Capital receipts that create debt include additional obligations and future payment commitments on the part of the government.

Fiscal deficit:

  • The gap between total expenditure and the sum of revenue and non-debt receipts is known as the fiscal deficit. It shows how much money the government spends in net terms.
  • Because positive fiscal deficits reflect expenditures in excess of revenue and non-debt receipts, they must be paid by debt-creating capital receipts.
  • The difference between the fiscal deficit and interest payments is known as the primary deficit.
  • Deducting capital expenditure from fiscal deficits yields a revenue shortfall.