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Government Budget and Economy — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsGovernment Budget and Economy4 Marks
Question
What is government budget? Explain its major components.
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Answer

A Government Budget is a financial statement showing item-wise expected government receipts and government payments during a particular financial year. It also presents the government's report on the financial performance during the previous fiscal year. Components of the budget can be divided into two broad categories.
Budget Receipts: Budget receipts refer to the estimated money receipts of the government during a particular fiscal year from all sources namely, tax non-tax and capital sources. These receipts imply the total cash inflow of the government during a fiscal year. Budget receipts can be further classified as Revenue Receipts and Capital Receipts.
Revenue Receipts: These are those receipts of the government which neither creates any liability nor it creates any reduction in the assets of the government. These comprises of tax and non-tax receipts, duties and fines, interest and dividends receipts on government investments and assets. These are further classified into:
  • Tax Receipts.
  • Non-tax Receipts.
Capital Receipts: The second component of the budget receipts is the capital receipts. On contrast to the revenue receipts, capital receipts refer to those receipts of the government, which cause a reduction in the government assets and also create a liability for the government.
The capital receipts can further be classified into following three categories.
  • Recovery of Loans.
  • Borrowings and Other Liabilities.
  • Other Receipts.
Budget Expenditure- Budget expenditure refers to the estimated money expenditure by the government on various social, economic and political activities in the country during a particular financial year. The budget expenditure can also be classified on three bases.
On the basis of creation of assets and liabilities:
  1. Revenue Expenditure: This refers to the government expenditure which does not cause any reduction in government liabilities and also does not create assets for the government. For example- expenditure on salaries, pensions, subsidies, interest payments, etc.
  2. Capital Expenditure: This refers to that government expenditure, which causes reduction in the government liabilities as well as creates assets for the government. For example- expenditure on purchasing shares, bonds, etc.
On the basis of planned and non-planned activities:
  1. Plan Expenditure: This refers to that budget expenditure which is incurred by the government on the planned programmes of the five year plan. For example- expenditure on different economic sectors such as agriculture, health, etc.
  2. Non-Plan Expenditure: This refers to that budget expenditure which is not planned. This expenditure are expended on programmes which are not included in the five-year plans. For example, relief funds given to the rail accident victims, flood relief campaigns, etc.
On the basis of development and non-developmental activities:
  1. Development Expenditure: This refers to that budget expenditure which is incurred by the government on economic growth and development activities. For example, expenditure on education, development of infrastructures, etc.
  2. Non-Development Expenditure: This refers to that budget expenditure which is incurred on the non-development activities. This expenditure do not directly contribute to the national income but accelerates the process of economic growth and development. For example, expenditure on administration, law and order, transfer payments, etc.

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