FINANCIAL AWARENESS - BUDGET BASICS

FINANCIAL AWARENESS - BUDGET BASICS 

 

BUDGET

World Budget -1^st introduced by Sir Robert Valpaul -1733

A list of Revenue and Expense from French word –Bougette Purse

In 07/04/1860 introduced BUDGET in India.

Father of BUDGET- JAMES WILSON

Financial Year- 1^st April -31th March

RECEIPT

Revenue Receipt (Non-Refundable Recurring – Neither increase Liability nor decrease Assets)

Capital Receipt (Refundable or Non-Recurring – Either increase Liability or decrease Assets)

RECEIPT –

·         Revenue receipt

·         Capital receipt

Revenue Receipt:

Tax Revenue – Direct Tax (Income Tax) Indirect Tax (Sales Tax)

Non Tax Revenue-

·         Challan

·         Penalty

·         Licence

·         Dividend

·         Interest

Donation

Capital Receipt

Borrowing –World Bank, IMF

Disinvestment – GoI  PSU

Recovery of Loan –

State Govt. - Central Govt.

Direct Tax- Right to pay transfer (×)

Indirect Tax – Right to pay transfer

OUT FLOW-

EXPENDITURE

Planned

Revenue Expenditure (Salaries, Interest Payment, Govt. pay to RBI)

Capital Expenditure (Bridge, Road)

Non Planned

Natural Calamities

Subsidies

Defence

L.K.Jha committee in 1867 Report changes the FY( 1 May -30 April ).

Railway Budget was separated from general budget in 1924 on recommendation of Acworth’s Committee.

 Morarji Desai – present Budget –maximum time

10 times (8 general, 2 interim) present on 1964-1968

on his Birth Anniversary -29 Feb.

The Union Budget of Independent India

1947- R.K. ShanMukhan Shetty

John Mthai - Ist after Republic India.

1950-51 Budget FM – John Methai announced the creation of Planning Commission.

Article 112 – of commission require the Government to present “Statement of Estimated Receipt and Expenditure” in parliament in respect to every FY.

Annual FY Report

·         Consolidated Fund

·         Contingency Fund (Natural Disaster)

·         Public Account Fund( Liability)

Before 1997, there is Budgetary Deficit

E-R Deficit is taken RBI

GoI don’t repay it (Setoff)

then after 1997

Fiscal Deficit

Expenditure –Receipt – So GoI has to pay interest.

Interim Budget

It is prepared in case of special situation, like Natural Calamity and War etc.

This is valid only for 6 months, Revenue is not specified only expenditure as specified for a FY.

DEFECIT:

1.    REVENUE DEFECIT (RD): RE-RR

2.    BUDGETRY DEFECIT (BD): TE –TR

3.    FISCAL DEFECIT (FD): BD + Borrowing + Other Liability

4.    PRIMARY DEFECIT (PD): FD –Interest Payment

BUDGET

·         OUTCOME BUDGET – Feedback from last FY

·         ZERO BUDGET          – New Budget

·         GENDER BUDGET    – Women Empowerment

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Budget can be divided into two parts

• Receipt
• Expenditure

Receipt

Revenue receipts – Receipts from the following sources:

(a) Direct and indirect taxes

(b) Interest

 (c) Dividends

 (d) Profits from investments

(e) Fees and other receipts from services rendered by the Govt.

Capital receipts – Receipts from the following sources:

 (a) Loans raised from the market

 (b) Borrowing from RBI

 (c) External assistance from the foreign government.

 (d) Recoveries of loans and advances.

Expenditure

Revenue expenditure –These are expenses incurred for the

(i)  Normal running of the Govt. departments

 (ii) Interest charges on debt and subsidies.

Capital expenditure – It is the expenditure incurred on

(i) Acquisition of assets and investments

(ii) Loans and advances to State governments.

Balanced Budget: If the estimated receipts (revenue and capital both) are equal to the estimated expenditure, then it is a Balanced Budget.

Balanced Budget= Estimated Govt. Receipts = Estimated Govt. Expenditure

Unbalanced Budget: When the expected revenue is not equal to the estimated expenditure, in this case, the budget is unbalanced. 

Surplus Budget:

When estimated income exceeds estimated expenditure i.e. when the government estimated receipts are more than the government expected expenditure in the budget, then it is called a surplus budget.

Deficit Budget:

When estimated expenditure exceeds estimated income i.e. when the government expected expenditure are more than the government estimated revenue in the budget, then it is called a deficit budget.

Types of Budget

1. Zero Budget – When the budget is prepared every year on the assumption that there was no budget in the past. Each item in the budget is allocated on the merits rather than with reference to the allocation made in the previous years.

2. Outcome Budget –

It is a system of performance budgeting by Ministries handling development programmes. It comprises scheme /project –wise outlays for all central ministries department and organizations. It was first made in 2005 -06.

3. Gender Budget– 

Its objective is to mainstream gender perspective in all sectoral policies and programmes, in order to create enabling environment for gender justice and empowerment of women. Gender Budget was first introduced in India 2005 -2006. 

Deficit

• Budget Deficit = Total Expense – Total Receipt 
• Revenue Deficit = Revenue Expense – Revenue Receipt 
• Fiscal Deficit = Total Expense – Revenue Receipt + Non–debt creating Capital Receipt (Borrowings)

 IMPORTANT FACTS:

• Mr. Morarji Desai presented the budget ten times, the most by any Finance Minister.
• India’s first budget was presented on February 18, 1860, by James Wilson, a Finance Member of the India Council.
• Initially, the Railway budget was part of the general budget. On the basis of recommendations Acworth Committee, the Rail Budget was separated in 1924.
• The first budget of Independent and united India was presented by John Mathai in 1949-50.