EEP-8 Union Budget Prof.tarun Das

8/9/2019 EEP-8 Union Budget Prof.tarun Das

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Budgeting-Basic Concepts 1

Economic Environment and PolicySession-8

Union Budget 2008-09

Presented by

Dr. Tarun Das, Professor, IILM Formerly, Economic Adviser, Ministry of Finance


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C ontents

1. Budget Preparation and Presentation2. Various Funds

3. Budget Documents4. Basic Concepts5. Different Concepts of deficits


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1.1 Budget Preparation

1. Ministry of Finance (MOF) starts Budget Preparation in October2. Ministries send initial Budget Estimates.3. Industry, Trade associations and chambers

of commerce send Budget Memorandum inDecember4. Finance Minister holds pre-budget meetings

with various interest groups in January

5. Tax proposals given final shape in February6. Budget placed in Parliament by the FinanceMinister at 11 AM on the last working dayof February


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1. 2 Passing of Budget

1. General Budget is debated in both housesof Parliament in March2. Vote on Account by end of March3. Demands for Grants are examined by

various Standing Committees of Parliament in April4. Demands for grants are debated and

passed in April-May

5. Finance Bill passed in May6. After President s signature, it becomes

Finance Act in June


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2 .1 Different Funds and Accounts

(a) Consolidated Fund of India- All receipts of the govt automatically accrue to this Fund. All expenditures are incurred from it withprior approval of the Parliament.

(b) Public Fund and Public Accounts-provident/ pension/insurance funds,reserves, small saving. Govt is the custodianand not the owner of these funds. Govt actslike a banker.

(c) Contingency Fund with the president (d) Sectoral Funds (sugar development fund,

oil development fund), Cess (for education,road construction, national calamity etc.)


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3 .1 Budget Documents

1. Key to Budget Documents2. Budget at a Glance3. Annual Financial Statement 4. Revenue Budget in two volumes5. Capital Budget 6. Charged on and voted expenditure7. Demands for Grants for each Department 8. Vote on Account 9. Appropriation Bills10. Finance Bill/ Finance Act 11. Economic Survey


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4 .1 Basic C oncepts1. Budget is the account of govt revenues and

govt expenditure, and govt receipts andgovt payments.

2. Both Receipts and Expenditure have twoaccounts- Revenue and Capital.

3. Revenue Account is the current account and is closed within a year. But, capitalaccount is not normally closed within a yearand continues for a number of years until

all obligations are met.4. Revenue account does not lead to asset creation or value addition, but capitalaccount does.


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4 . 2 Revenue and C apital ReceiptsRevenue receipts consist of those receiptswhich do not have any obligations forrepayments such as taxes and duties,interest earnings, rents, dividends, profits,grants etc.

Capital receipts consist of loans fromdomestic and foreign sources and haveattendant obligations of amortization andinterest payments.Govt has no obligations to anybody forrevenue receipts. But, govt has obligationsfor capital receipts.


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4 . 3 Revenue and C apital Expenditure

Like receipts, expenditure has also twoaccounts- revenue and capital.Revenue expenditures relate to current expenditure such as wages and salaries,

maintenance, subsidies, grants, interest payments. These expenditures do not lead toasset creation or value addition.On the other hand, capital expenditures (such

as expenditures on office equipment, plant,machinery, land, property, shares etc.) lead toasset creation .


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4.4 Plan and Non-Plan Expenditure6. Plan and non-plan expenditure- If any project

or program is approved by the PlanningCommission as a part of the National Five YearPlan or Annual Plan, expenditure for that project or program is called Plan Expenditure and allother expenditures are classified as Non-PlanExpenditures.

7. Developmental and non-developmental-Internationally, expenditures are classified asDevelopmental and Non-Developmental

Expenditures. Any expenditure which leads tohigher production and economic development iscalled developmental expenditure, all others areclassified as Non-Developmental expenditures.


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4 .5 Examples of kinds of Expenditure

(a) Interest payments- Revenue, non-plan,non-developmental expenditure(b) Food subsidy- Revenue, non-plan, non-

developmental expenditure(c) Fertiliser subsidy- Revenue, non-plan,

developmental expenditure(d) Construction of national highways- Capital,

plan, developmental expenditure(e) Construction of border roads- Capital, plan,

non-developmental expenditure


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4 .6 Examples of kinds of Expenditure(f) Salaries of staff of a National University-

Revenue, plan, developmental expenditure(g) Salaries of staff of a National University

under construction- Capital, plan,

developmental Expenditure(h) Construction of government hospitals/

government schools- Capital, Plan,developmental expenditure

(i) Grants for private hospitals/ private schools Revenue, non-plan, developmentalexpenditure


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4 .7. C lassification of Receipts1.

Revenue and capital receipts2.Revenue receipts- Taxes and Non-taxesTaxes- Direct (personal income, corporateincome, dividends tax) and indirect (customs,excise, services tax)Non-taxes- Interest receipts, profits,dividends, fees, service charges, grants

3. Capital receipts include recovery of loans,disinvestment of government equity, market

and other borrowings, use of public funds4. Non-debt creating receipts include revenuereceipts, recovery of loans and disinvestment of govt equity.


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5.1 Different C oncepts of Deficits

Revenue deficit= Revenue expenditure lessrevenue receiptsCapital deficit= Capital expenditure lesscapital receipts

Budget deficit= Total expenditure less totalreceipts= Revenue deficit +Capital deficit Gross Fiscal Deficit= Total expenditure lessNon-Debt receipts= Total Expenditure less

(Revenue receipts+recovery of loans+disinvestment of govt equity)Gross Primary deficit= Gross Fiscal Deficit lessinterest payments


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5. 2 Union Budget 2008-09 at a glance

Items Rs. Billion

1. Revenue receipts (a+b) 6029(a) Tax revenues 5071(b) Non-tax revenues 958

2.Capital receipts, of which 1480(a) Recovery of loans(b) Disinvestment

45102

(c) Borrowings & other liability 1333

3.Total receipts (1+2) 7509

4.Revenue expenditure(a) Interest payments

65811908


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5. 3 Union Budget 2008-09 at a glance

Items Rs. Billion5.Capital expenditure 9286. Total expenditure (4+5) 75097. Revenue deficit (4-1) 5528.Capital deficit (5-2) -5529. Budget deficit= (7+8)=(6-3) 010. Gross fiscal deficit

=(6-1-2a-2b)=2c1333

11. Primary deficit= (10-4a) -575


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5. 4 Medium Term Fiscal Indicators(as % of GDP at current market prices)

Items 2007-08 RE

2008-09 BE

2009-10 Tar

2010-11 Tar

1. Rev. Deficit 1.4 1.0 0.0 0.0

2. Fiscal Deficit 3.1 2.5 3.0 3.0

3. Tax revenue 12.5 13.0 13.5 14.0

4. Year-endstock of publicdebt

63.8 59.6 55.7 52.3


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THANK YOU Have a Good Day