Economics Project on Government Budget – CBSE 12

INTRODUCTION

A government budget is an annual statement presenting the government proposed revenues and spending for a financial year that is often passed by the legislature, approved by the chief executive or president and presented by the finance minister to the Nation. The budget is also known as the Annual financial statement of the country. This document estimates the anticipated government expenditures for the ensuing financial year.
For EXAMPLE – Property tax

DEFINITION

Budget is the financial plan of the government for a definite period. A budget is a document containing a preliminary approved plan of public resources and expenditure. The government budget is an annual statement showing item wise estimates of receipts and expenditures during a fiscal year.

IMPACT OF COVID-19 ON GOVERNMENT BUDGET

The government is likely to meet the budget targets for 2020-21 due to the covid-19 crises but contraction in economic growth may not be as severe as being pointed out by the outside world, economic affairs secretary Tarun Bajaj said. He said the government on a regular basis is monitoring 14-15 parameters which can give early signs of where the economy is heading. This includes E-way bills, power consumption, GST collection etc. and every parameter is showing promising results, he said.

GRAPHICAL REPRESENTATION

BUDGET AT A GLANCE

KEY POINTS

  • The budget is prepared by the government at all levels, i.e., the central government prepares its respective annual budget.
  • Estimates expenditures and receipts are planned as per the objectives of the government.
  • The budget is presented in the parliament on such a day as the President may direct. By continuous it is presented before it can be implemented.
  • It is required to be approved by the parliament.

OBJECTIVES

  • Reallocation of resources
  • Economic stability
  • Reducing inequalities in income and wealth
  • Economic growth
  • Management of public enterprises

OBJECTIVES OF GOVERNMENT BUDGET

  • RELOCATION OF RESOURCES
    Through the budgetary policy, the government aims to reallocate resources in accordance with the economic and social priorities of the country.
    Tax concessions or subsidies
    Directly producing goods and services
  • REDUCING INEQUALITIES IN INCOME AND WEALTH
    Economic inequality is an internet part of every economic system. The government aims to reduce such inequalities of income and wealth, through its budgetary policy. The government aims to influence the distribution of income by imposing taxes on the rich and spending more on the welfare of the poor.
  • ECONOMIC STABILITY
    The government budget is used to prevent business fluctuation of inflation and deflation to achieve the objective of economic stability. Policies of the surplus budget during inflation and deficit budget during deflation helps to maintain the stability of prices in the economy. There is a large number of public sectors industrial which are established and managed for the social welfare of the public. The budget is prepared with the objective of making various provisions for managing such enterprises.
  • ECONOMIC GROWTH
    The growth rate of a country depends on the rate of savings and investments. For this purpose, the budgetary policy aims to mobilise sufficient resources for investment in the public sector. Therefore the government makes various provisions in the budget.

COMPONENTS OF BUDGET

REVENUE BUDGET

  • Revenue receipts
  • Revenue expenditure

CAPITAL BUDGET

  • Capital receipts
  • Capital expenditure

REVENUE BUDGET

Components of budget refer to the structure of the budget. Two main components of the budget are

REVENUE RECEIPTS
It refers to those receipts which neither create any liability nor cause any reduction in the assets by the government. They are regular and recurring in nature and the government receives them in its normal course of activities Revenue receipts satisfies these conditions

  • The receipts must not create a liability for the government.
  • The receipt must not cause a decrease in the assets of the government.

SOURCE OF REVENUE
There are two types of revenue receipts of the government.

  • Tax Revenue- it refers to sum total of receipts from taxes and duties imposed by the government.
    For example, Direct tax & Indirect tax is a compulsory payment, no one can refuse to pay it. Tax receipts are spent by the government for the common benefit of people in the country.
  • Direct taxes are those which are imposed on property and the income of individuals and companies are paid directly by them to the government. They are imposed on individuals and companies.
  • Indirect taxes refer to those taxes which affect the income and property of individuals and companies through their consumption expenditure.

HOW TO CLASSIFY A TAX AS DIRECT OR INDIRECT?

  • A tax is a direct tax if its burden cannot be shifted. For example- income tax is a direct tax as its impact and incidence are on the same person.
  • A tax is an indirect tax, if the actual burden of the tax lies on different persons, i.e. its burden can be shifted to the other.

ITEMS CATEGifts and GrantsGORISED AS DIRECT OR INDIRECT TAX?

  • It is a direct tax as its impact and incidence lie on the same person. It is a direct lie on the same person.
  • Value-added tax is an indirect tax as it is imposed on the seller but beard by the customer.
  • Services tax is an indirect tax as its impact and incidence lie on different people.

NON-TAX REVENUE
It refers to receipts of the government from all sources there than those of tax receipts.

INTERNET
Government receives interest on loans given by it to state government union territories
FEES
Fees refer to charges imposed by the government to cover the cost of recurring services provided by it conduct fees registration fees impact fees etc
LICENSES FEES
It is a payment charged by the government to grant permission of keeping a gun or commercial vehicle.
FINES AND PENALTIES
They refer to those payments that are imposed on lawbreakers, fines for jumping lights, etc.
ESCHEATS
It refers to claims of government on the property of a person who dies without leaving a will
GIFTS AND GRANTS
Government receives gifts and grants from the foreign government.
FORFEITURES
These are in the form of penalties that are imposed by the court for non-compliance with others contracts, etc

REVENUE EXPENDITURE

Revenue expenditure refers to the expenditure which neither creates any liability nor causes a reduction, in any liability of the government.
It is recurring in nature
It is incurred on the normal functioning of the government.
The expenditure must not create an asset of the government payment of salaries or pension is revenue expenditure as it does not create any asset. Metro is not a revenue expenditure as it leads to the creation of an asset of the government.

CAPITAL BUDGET

The main two components of the capital budget are

CAPITAL RECEIPTS

Those receipts which are either create liability or cause a reduction in the assets of the government. They are non-recurring and non-routine in nature. The receipts must create a liability for the government. Borrowings are capital receipts as they lead to an increase in the liability of the govt. however, tax received is not a capital receipt as it does not result in the creation of any liability. The receipts must cause a decrease in the assets, receipts from the scale of share of public enterprises is a capital receipt as it leads to a reduction in assets of the government.

Capital receipts are of three types

BORROWINGS
They are the funds raised by the government to meet expenses.

  • Government open market
  • Reserve bank on India
  • Foreign government

RECOVERY OF LOANS
Government grants various loans to the state government or union government.

OTHER RECEIPTS
These include disinvestment and small savings. Disinvestment refers to the act of selling a part of the whole of shares of selected public sector undertaking held by the government small savings refers to funds raised from the public in the form of post office deposits.

CAPITAL EXPENDITURE

It refers to the expenditure which either creates an asset or reduces any liability of the government.
It is non-recurring in nature
It adds to capital stock by the economy and increases its productivity through expenditure.
For example loan to states and union territories is expenditure on building roads, flyovers, etc. the expenditure must create an asset for the government. As construction of the metro is a capital expenditure as it leads to the creation of assets. However, any amount paid as salaries is not a capital in the assets.

BUDGETARY DEFICIT

Budgetary deficit is defined as the excess of total estimated expenditure our total estimated revenue when the government spends more time it collects than it incurs a budgetary deficit with reference to the budget of the Indian government.

  • Revenue Deficit
  • Fiscal Deficit
  • Primary Deficit

REVENUE DEFICIT

Revenue deficit is concerned with the revenue expenditure and revenue receipts of the government. It refers to an excess revenue expenditure of revenue receipts.

IMPLICATIONS

  • It indicates the inability of the government to meet its regular and recurring expenditure in the proposed budget.
  • It implies that the government is dissolving, i.e., the government is using up saving of other sectors of the economy to finance its expenditure.

FISCAL DEFICIT

The fiscal deficit presents a more comprehensive view of budgetary imbalances. It is widely used as a budgetary development in India. The extent of fiscal deficit is an indication hour for gout is spending.

IMPLICATIONS

The fiscal deficit indicates the total borrowings requirements of the government.

SOURCES
Borrowings
It can be met by borrowings from internal or external sources.

PLAN AND NON-PLAN EXPENDITURE

Planned expenditure refers to the expenditure that is incurred to the programmes detailed in the current five-year plan. Non-planned expenditure refers to the expenditure other than the expenditure related to the current five-year plan. Plan expenditure is spent on current development and investment outlays non-plan expenditure is spent on the liability of the government. Non-planned expenditure arises only when the plans provide such expenditure.

DEVELOPMENT AND NON-DEVELOPMENTAL

Developmental expenditure refers to the expenditure which is directly related to the economic and social development of the country. Expenditure on such services is not a part of the essential functioning of the government. non-developmental expenditure refers to the expenditure which is incurred on the essential goods and services of the government. It does not directly contribute to the economic development, but it directly helps in the development of the economy such expenditure is essential from the administration’s view.

MY OPINION ON THE TOPIC

After listening to a long 2 hours speech by the finance minister, I had some equally frustrating and fascinating thoughts moving beyond the usual debate of will this is good economics or bad politics? The two can co-exist. As a whole, the budget needs to move away from populist and prudent definitions. It needs to be examined on the merit of what it does to different classes of people. It had a huger impact and I had to take a bit of time to properly digest what I heard.

BIBLIOGRAPHY   

  • Teachers
  • Books
  • Friends/family
  • Internet
  • http://www.hhcpa.com/blogs/non-profit-accounting-services-a-look-into-the-importance-of-budges
  • http://www.theunreal.times.com/2015/02/27/budget-criticism101/-the-10-most-common-ways.

ACKNOWLEDGEMENT

There were many people who helped me through their successful competition of the project. First of all, I thank the Almighty God for his goodness and mercy in giving me the strength to complete this project. I hereby express my abundant and sincere gratitude to Dr Karabai Das, department of economics, Royal Global school, for her valuable guidance, constant encouragement and creative suggestions rendered during the course of this project. I thank our principal Mrs Anubha Goyal for providing me with all facilities and also for the constant inspiration and encouragement for the successful competition of this project. I offer my deepest gratitude to my family members whose prayers and blessings guided me for the successful completion of this project. I also owe my gratitude to my classmates whose support was inevitable for the completion of the project.

CERTIFICATE

This is to certify that xxx of grade Xl-B roll no. 17 of ROYAL GLOBAL SCHOOL has successfully completed the project on the Government budget under my supervision and has submitted the project in practical requirement. Under economics examination 2020-21. The concepts and ideas are original and the project is a bonafide piece of work carried out by her in my supervision.

Dr . xxx                                                                                                  sign of External

Dept . of Economics

ROYAL GLOBAL SCHOOL

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