Definition of Budget
The budget is an estimate of the government's revenue and expenditure for a given financial year.
Meaning of Budget
The Finance Ministry prepares a budget for every financial year which is presented by the Finance Minister on the last working day of February in the Parliament. It is an annual financial statement describing in details the estimated receipts and proposed expenditures and disbursements of the govt. under various head for a given financial year.
Balanced budget- when revenues and expenditure are equal during a given year. (Point E)
Budget surplus- when revenues exceeds govt. expenditure for a given year.
Budget deficit- when govt expenditure exceeds revenues for a given year.
Types of Budget
1 Balanced & Unbalanced budget-
Balanced budget takes place when the estimated receipts are equal to the estimated expenditure. Whereas in the Unbalanced budget, revenues are expenditure are not equal. When revenues are greater than expenditure, its called surplus budget and when expenditure exceeds revenues, there is a deficit budget.
2 Zero Based Budget (ZBB) and Traditional Budget-
In traditional budget, there is an attempt to justify only the increase in expenditure over the previous year. Budgetary expenditure and what has already been spent is automatically sanctioned. No reference is made to the previous level of expenditure. Only the changes over the past years are to be justified. Here, incremental approach is used. Only the current budget are to be approved and not every item of the budget.
By contrast, in ZBB all expenditure must be justified for the budget year. Every item of the budget must be approved rather than only changes. It starts from a zero base and every item of expenditure is analysed in terms of costs and benefits. Budgets are then prepared for the coming year, regardless of whether the budget is higher or lower than the previous year. It means the past is cut off. It is futuristic and may or may not be equal or more from the last year's budget. It is more cost effective and time consuming when compared.
3 Performance & Programme Budget-
Performance budget takes into account the end result or the performance of the budgeted programme. It links the funding of the programme to its outcome. It emphasizes management efficiency. It is result oriented. and more flexibility for innovation and performance.
Programme budget divides the major functions of the government into specific programmes or activities. The funds are allocated according to the achievements or benefits expected out of the programme. It emphasizes on the benefits that the society gains from govt. programmes.
4 Multiple & Unified Budget-
Under multiple budget, the functions of the govt are divided into separate units or parts, and separate budgets are prepared for each unit. Eg: budget for education, budget for health, budget for agriculture
Unified budget includes receipts and expenditure for all programmes of the Govt. It is more comprehensive measure. For eg- In US, it was felt the need for a unified budget which would be useful for knowing the total effect on the economy.
5 Functional & Cash budget-
Functional budget indicates the income and expenditure of a particular department of the govt. It is an accrual based budget. eg: In US, 20 categories are known as budget functions.
On the other hand, cash budget is a detailed estimate that shows all expected sources and the uses of cash. It includes opening cash balance, closing cash balance, cash collections and cash disbursements.
6 Legislative & executive budget-
Legislative budget is prepared by legislature( elected representatives) or with the help of committees. It is a decision making org. that has the power to enact and amend laws.
Executive budget is prepared by the executive wing of the govt. It is responsible for the implementation of budget proposals of the govt. Likely to be better as they have more correct estimate of revenue receipts and expdt.
7 Revenue & Capital Budget-
Revenue budget indicates the revenue receipts( tax and non tax) and revenue expenditure( interest payment, subsidies). They are recurring in nature.
Capital budget consists of capital receipts( disinvestment proceeds,market borrowings, recovery of loans) and capital expenditure( infrastructure) .
UNION BUDGET OF INDIA
Acc to constitution of India, there is a 3- tier system of govt, Central, state and local( municipal corp, parishad, zilla) govt.
Consists of:
Actual for the preceding yr 2012-13
Budget estimate for current yr 2013-14
Revised estimate for current yr 2013-14
Budget estimate for coming yr 2014-15
Format:
Revenue receipts
Capital receipts ______
Total receipts
Revenue expdt
Capital expdt ______
Total expdt _________
Revenue deficit
Effective revenue deficit
Fiscal deficit
Primary deficit
TYPES OF DEFICITS IN THE BUDGET
The excess of expenditure over revenue of the govt. is termed as deficit. In a developing country like India, the budget should show a deficit. The govt. may borrow to fill the gap between revenue and expdt.
1 Revenue deficit(3.9% of GDP)
It is the excess of revenue expdt over revenue receipts.
met through capital receipts
In India, revenue deficit i.e financed by borrowings.
2 Budget deficit
It is the excess of total budgeted expenditure( revenue+ capital) over the total budgeted revenue(revenue + capital)
govt resort to deficit financing( govt borrows from RBI and gives own securities as collateral to RBI)
not used
3 Fiscal deficit(5.2% of GDP)
It is the difference between total receipts and total expdt of the govt.
(Revenue expdt + capital expdt) - (revenue expdt + capital expt except borrowings)
It is equal to the total borrowings of the govt.
most common
indicator of country's financial performance
Net- deduct amt of loan
4 Primary deficit(1.9% of GDP)
Gross = Gross Fiscal deficit - int payment
Net= Net Fiscal deficit - int payment
real position of govt
5 Monetised deficit
increase in net RBI credit to the govt.- increase in reserve money - increase in money supply
6 Effective revenue deficit
introduced in 2011-12
Revenue deficits - grants for creation of capital assets
The budget is an estimate of the government's revenue and expenditure for a given financial year.
Meaning of Budget
The Finance Ministry prepares a budget for every financial year which is presented by the Finance Minister on the last working day of February in the Parliament. It is an annual financial statement describing in details the estimated receipts and proposed expenditures and disbursements of the govt. under various head for a given financial year.
Balanced budget- when revenues and expenditure are equal during a given year. (Point E)
Budget surplus- when revenues exceeds govt. expenditure for a given year.
Budget deficit- when govt expenditure exceeds revenues for a given year.
Types of Budget
1 Balanced & Unbalanced budget-
Balanced budget takes place when the estimated receipts are equal to the estimated expenditure. Whereas in the Unbalanced budget, revenues are expenditure are not equal. When revenues are greater than expenditure, its called surplus budget and when expenditure exceeds revenues, there is a deficit budget.
2 Zero Based Budget (ZBB) and Traditional Budget-
In traditional budget, there is an attempt to justify only the increase in expenditure over the previous year. Budgetary expenditure and what has already been spent is automatically sanctioned. No reference is made to the previous level of expenditure. Only the changes over the past years are to be justified. Here, incremental approach is used. Only the current budget are to be approved and not every item of the budget.
By contrast, in ZBB all expenditure must be justified for the budget year. Every item of the budget must be approved rather than only changes. It starts from a zero base and every item of expenditure is analysed in terms of costs and benefits. Budgets are then prepared for the coming year, regardless of whether the budget is higher or lower than the previous year. It means the past is cut off. It is futuristic and may or may not be equal or more from the last year's budget. It is more cost effective and time consuming when compared.
3 Performance & Programme Budget-
Performance budget takes into account the end result or the performance of the budgeted programme. It links the funding of the programme to its outcome. It emphasizes management efficiency. It is result oriented. and more flexibility for innovation and performance.
Programme budget divides the major functions of the government into specific programmes or activities. The funds are allocated according to the achievements or benefits expected out of the programme. It emphasizes on the benefits that the society gains from govt. programmes.
4 Multiple & Unified Budget-
Under multiple budget, the functions of the govt are divided into separate units or parts, and separate budgets are prepared for each unit. Eg: budget for education, budget for health, budget for agriculture
Unified budget includes receipts and expenditure for all programmes of the Govt. It is more comprehensive measure. For eg- In US, it was felt the need for a unified budget which would be useful for knowing the total effect on the economy.
5 Functional & Cash budget-
Functional budget indicates the income and expenditure of a particular department of the govt. It is an accrual based budget. eg: In US, 20 categories are known as budget functions.
On the other hand, cash budget is a detailed estimate that shows all expected sources and the uses of cash. It includes opening cash balance, closing cash balance, cash collections and cash disbursements.
6 Legislative & executive budget-
Legislative budget is prepared by legislature( elected representatives) or with the help of committees. It is a decision making org. that has the power to enact and amend laws.
Executive budget is prepared by the executive wing of the govt. It is responsible for the implementation of budget proposals of the govt. Likely to be better as they have more correct estimate of revenue receipts and expdt.
7 Revenue & Capital Budget-
Revenue budget indicates the revenue receipts( tax and non tax) and revenue expenditure( interest payment, subsidies). They are recurring in nature.
Capital budget consists of capital receipts( disinvestment proceeds,market borrowings, recovery of loans) and capital expenditure( infrastructure) .
UNION BUDGET OF INDIA
Acc to constitution of India, there is a 3- tier system of govt, Central, state and local( municipal corp, parishad, zilla) govt.
Consists of:
Actual for the preceding yr 2012-13
Budget estimate for current yr 2013-14
Revised estimate for current yr 2013-14
Budget estimate for coming yr 2014-15
Format:
Revenue receipts
Capital receipts ______
Total receipts
Revenue expdt
Capital expdt ______
Total expdt _________
Revenue deficit
Effective revenue deficit
Fiscal deficit
Primary deficit
TYPES OF DEFICITS IN THE BUDGET
The excess of expenditure over revenue of the govt. is termed as deficit. In a developing country like India, the budget should show a deficit. The govt. may borrow to fill the gap between revenue and expdt.
1 Revenue deficit(3.9% of GDP)
It is the excess of revenue expdt over revenue receipts.
met through capital receipts
In India, revenue deficit i.e financed by borrowings.
2 Budget deficit
It is the excess of total budgeted expenditure( revenue+ capital) over the total budgeted revenue(revenue + capital)
govt resort to deficit financing( govt borrows from RBI and gives own securities as collateral to RBI)
not used
3 Fiscal deficit(5.2% of GDP)
It is the difference between total receipts and total expdt of the govt.
(Revenue expdt + capital expdt) - (revenue expdt + capital expt except borrowings)
It is equal to the total borrowings of the govt.
most common
indicator of country's financial performance
Net- deduct amt of loan
4 Primary deficit(1.9% of GDP)
Gross = Gross Fiscal deficit - int payment
Net= Net Fiscal deficit - int payment
real position of govt
5 Monetised deficit
increase in net RBI credit to the govt.- increase in reserve money - increase in money supply
6 Effective revenue deficit
introduced in 2011-12
Revenue deficits - grants for creation of capital assets
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