ART INTEGRATED PROJECT

ECONOMICS
2024-25
TOPIC: GOVERNMENT BUDGET
AND THE ECONOMY
MADE BY: VAISHNAVI NIGAM
BOARD ROLL NO.:23717130
CLASS: XII COMMERCE
 o Government Budget is an annual statement, showing item wise
estimates of receipts and expenditures during a fiscal year.

o Budget is prepared by the Government at all levels i.e. Central

Government, State Government, and Local Government.

o Estimated expenditures and receipts are planned as per the

MEANING o
objectives of the government.

In India, Budget is presented in the parliament on such a day,

as the President may direct. By convention, Finance Minister
presents the annual budget of the government on the first day
of February each year.

o The Budget reveals the financial performance of the

government in the last year and financial policies for the
coming fiscal year.
 Reallocation Of
Resources:
• Through the budgetary policy, Government aims to reallocate
resources in accordance with the economic (profit maximisation)
and social (public welfare) priorities of the country. Government
can influence allocation of resources through:

OBJECTIVES o Tax concessions or subsidies: To encourage investment,

government can give tax concession, subsidies etc. to the
producers. For example, Government discourages the production

OF
of harmful consumption goods (like liquor, cigarettes etc.)
through heavy taxes and encourages the use of 'Khadi products'
by providing subsidies.

GOVERNMENT o Directly producing goods and services: There are many

non-profitable economic activities, which are not undertaken by
the private sector like, water supply, sanitation, law and order,

BUDGET national defence, etc. These are called 'Public Goods**'. Such
2. Reducing inequalities in
activities are necessarily undertaken by the government in
income and wealth:
public interest and to raise social welfare.
• Economic inequality is an inherent part of every
economic system. Government aims to reduce such
inequalities of income and wealth, through its budgetary
policy. Government aims to influence distribution of
income by imposing taxes on the rich and spending
more on the welfare of the poor. It will reduce income of
the rich and raise standard of living of the poor, thus
reducing inequalities in the distribution of income.
 3. Economic Stability:

• Economic Stability means absence of large-scale

fluctuation in prices. Such fluctuations create
uncertainties in the economy. Government can
exercise control over these fluctuations through

OBJECTIVES
taxes and expenditure.
• Inflationary tendencies emerge when aggregate
demand is higher than the aggregate supply.

OF Government can bring down aggregate demand

by reducing its own expenditure.
• During deflation, government can increase its
GOVERNMENT expenditure and give tax concessions and
subsidies.
BUDGET • In short, policies of surplus budget during
4.inflation and deficit
Management budget
of Public during deflation helps
Enterprises:
to maintain stability of prices in the economy.
• There are large numbers of public sector
industries(especially natural monopolies), which
are established and managed for social welfare of
the public. Budget is prepared with the objective
of making various provisions for managing such
enterprises and providing them financial help.
 5. Economic Growth:
• Economic Growth implies a sustainable increase in the real GDP of an
economy, i.e. an increase in volume of goods and services produced in an
economy. Budget can be an effective tool to ensure the economic growth in a
country.
• If the government provides tax rebates and other incentives for productive

OBJECTIVES
ventures and projects, it can stimulate savings and investments in an
economy.
• Spending on infrastructure of an economy enhances the production activity
in different sectors of an economy. Government Expenditure is a major

OF
factor that generates demand for different types of goods and services in an
economy which induces growth in private sector too.
• However, before planning such expenditure, rebates and subsidies,
Government should check the rate of inflation and tax rates. Also, there may

GOVERNMENT
be the risk of debt trap if loans are too high to finance the expenditure.
6. Reducing regional disparities:

BUDGET • The government budget aims to reduce regional disparities through its
taxation and expenditure policy for encouraging setting up of production
units in economically backward regions. For example, establishment of
Special Economic Zones (SEZs) in the backward regions for promoting their
economic development.

7. Employment Generation:
• Government Budget is used as an effective tool in the process of employment
generation in various ways. Investment in infrastructural projects like
construction of flyovers, bridges, expansion of roads, etc. creates jobs for
different sections of the workforce. In rural / urban areas, government aims to
provide jobs through various employment generation schemes like
MGNREGA, SJSRY, PMRY, etc.
 Revenue Budget:
• Revenue Budget is the statement of
estimated revenue receipts and
COMPONENTS estimated revenue expenditure during
a fiscal year. It deals with the revenue
OF aspect of the government budget. It
explains how revenue is generated or
GOVERNMENT collected by the government and how
it is allocated among various
BUDGET Capital
expenditureBudget:
heads.
• Capital Budget is the statement of
estimated capital receipts and
estimated capital expenditure during a
fiscal year. It deals with the capital
aspect of the government budget.
 REVENUE RECEIPTS:

• Revenue receipts refer to those

receipts which neither create any
liability nor cause any reduction in
the assets of the government.
• They are regular and recurring in
BUDGET nature and government receives
RECEIPTS them in its normal course of
activities.
CAPITAL RECEIPTS:

• Capital receipts are those receipts

which either create a liability or
cause a reduction in the assets of
the government.
• They are non-recurring and non-
routine in nature.
 REVENUE EXPENDITURE:
• Revenue Expenditure refers to the
expenditure which neither creates any
asset nor causes reduction in any liability
of the government.
• It is recurring in nature. It is incurred on

BUDGET
normal functioning of the government and
the provisions for various services.
CAPITAL EXPENDITURE:
EXPENDITURE
• Capital Expenditure refers to the
expenditure which either creates an
asset or causes a reduction in the
liabilities of the government.
• It is non-recurring in nature. It adds
to capital stock of the economy and
increases its productivity through
expenditure on long term
programmes.
 REVENUE DEFICIT:

• Revenue deficit is concerned with the

revenue expenditures and revenue receipts
of the government.
• It refers to excess of revenue expenditure
over revenue receipts during a given fiscal

BUDGET year.
• Revenue Deficit= Revenue Expenditure –
FISCAL DEFICIT:
Revenue Receipts
DEFICIT
• Fiscal deficit refers to the excess of total
expenditure over total receipts(excluding
borrowing) during a given fiscal year.
• It is widely used as a budgetary tool for
explaining and understanding the budgetary
developments in India.
• Fiscal Deficit=Total Expenditure-Total
Receipts (Excluding Borrowing)
 PRIMARY DEFICIT:

• Primary deficit refers to the

difference between fiscal
deficit of the current year
BUDGET and interest payments on
previous year’s borrowings.
DEFICIT • It indicates how much of the
government borrowings are
going to meet expenses
other than the interest
payments.
• Primary Deficit=Fiscal
Deficit-Interest Payments
Thank You