Borrowings done by the government create Liability for it.
When the government receives money by selling shares then it reduces Government assets.
3.) Recovery of loans
When the government lends Money, it creates an asset for the government but when the loan is repaid, it leads to a decrease in assets.
4.) Small Savings
Small savings by General Public Create a Liability, as the Government is Bound to Repay.
Tax Revenue: Tax Revenue is the sum total of Receipts from taxes and other duties imposed by the government.
1. Direct Tax Revenue
2. Indirect Tax Revenue
1.) Direct Tax
The taxes in which the liability and incidence to pay the tax is on the same person.
*This tax is Progressive in Nature, ex.- Income tax.
2.) Indirect tax
The taxes in which the liability to pay the tax is on one person and the Burden to pay the tax falls on the other person.
*This tax is Proportional in Nature, ex.- Sales Tax.
A Tax is a Direct Tax if Burden cannot be shifted and an indirect tax if its burden can be shifted.
Non Tax Revenue - These may include other than tax:
Profits earned by government companies/enterprises is a form of non-tax revenue.
Dividends received by Government investment
3.) Interest Received
Interest Received by the government of India on Loans Given.
4.) Fees, Fines, and Penalties
These are charges imposed by the Government on lawbreakers.
5.) Special assessment
It refers to a collection of funds by the government over the properties whose value has increased due to government projects.
6.) Gifts and grants
The government receives gifts and grants from other foreign Governments.
TYPES OF BUDGET
The Difference between Government Receipts and Expenditure may be Positive (Surplus) or Negative (Deficit). Hence, there arise three types of Budgets:-
1.) Balanced Budget: Government Budget is said to be a Balanced Budget if estimated Government Receipts Are equal to the estimated Expenditure.
2.) Surplus Budget: If estimated Government Receipts are more than estimated Government Expenditure, then the Budget is termed as ‘Surplus Budget’.
3.) Deficit Budget: If estimated Government Receipts are less than the estimated Government Expenditure,Then the budget is termed as ‘Deficit Budget’.
BUDGET DEFICIT: Budget Deficit is defined as the excess of total estimated expenditure over total estimated revenue.
Deficit= Total Expenditure-Total Receipts
(Capital Expenditure + Revenue Expenditure)-(Capital Receipts + Revenue Receipts).
- REVENUE DEFICIT
It is defined as the excess of revenue expenditure over revenue receipts during a fiscal year.
Revenue deficit = Revenue Expenditure - Revenue ReceiptsRemedies for Revenue Deficit-:
1.) Progressive taxation
2.) Decrease in Expenditure and Wasteful Expenses.
2. FISCAL DEFICIT
It refers to the excess of total expenditure over Total Receipts (excluding borrowings) during the given fiscal year.
Fiscal Deficit = Total Expenditure - Total Receipts excluding borrowings
[ Borrowings = Fiscal Deficit ]Fiscal Deficit is an indicator of how far the Government is spending beyond its means.
Remedies for Fiscal Deficit:
1.) Internal and External Borrowings
2.) Deficit Financing - Printing of New Currency Notes.
Implications of Fiscal Deficit:
1.) Increase in Borrowings leads to a Debt Spiral, given the increase in Interest Payments.
2.) Increase in Inflation as Borrowed funds are used to fund Consumption expenditure.
3.) Foreign Dependence as Foreign borrowings would Iead to dependence on other countries.
4.) Hampers the future growth of an economy.
3. PRIMARY DEFICIT
Primary Deficit Refers to Difference between Fiscal Deficit of the Current year and Interest payment on the previous borrowings.
Primary Deficit = Fiscal Deficit (Borrowings) - Interest Payments*Primary Deficit shows the Borrowing requirements of the current Government
Implication of Primary Deficit:
- It indicates about the proportion of Borrowing, required to meet expenses other than Interest Payments. A low or zero primary Deficit indicates that interest commitments have forced the government to borrowings of:
1.) Revenue Deficit leads to Capital Receipts as Government may either sell the assets or Increase its borrowings.
2.) Warning signal to decrease Expenditure
3.) Increase in Borrowings leads to a Debt Spiral, given the increase in Interest Payments.
4.) Increase in Inflation as Borrowed funds are used to fund Consumption expenditure