PUBLIC FINANCE IN INDIA

indian finance

India is a quasi-federal run Country. India has a Central government, state governments and other local bodies. India is democratic as the respective governments are elected by the people for the people. Public finance is also known by the name fiscal management. Public finance has two components. It involves the expenditure and revenue of the government. Expenditure relates to government spending. Revenue refers to the profit or the receipts received by the government.

Budget.

A budget is the basic financial layout of any Country. It contains statements of the physical proceedings of the Government. A budget contains records of the proposed expenditure and anticipated revenue. A budget has the role of redistributive activities and stabilizing activities.  A budget reallocates resources efficiently and manages public enterprises.

Components of The budget.

As mentioned earlier, the budget consists of the receipts and all the expenditure of the Government.

  1. Revenue receipts: Revenue receipts are divided into tax revenue and non-tax revenue receipts. Revenue receipts consist of the taxes and duties that are levied by the Central Government. There are two types of taxes. Direct taxes and indirect taxes. Direct taxes are paid directly by the consumers on land and income. Other examples of direct taxes include Income tax, Interest tax, wealth tax and corporation tax. Indirect taxes affect the land and income of the consumers based on their consumption expenditures. Customs duties, excise duties, sales tax, all come under the indirect tax. Nin tax revenue consists of interest receipts, dividends and profit and union excise duties.
  2. Capital receipts: The loans raised by the government by the public is referred to as market loans. Loans can also be raised by the government from the RBI or any other parties through the sale of treasury bills. In short, capital receipts refer to the money raised by loans.

Overall receipts can be found by adding revenue receipts and capital receipts. The government proposes various expenditure plans on revenue account and capital account.

Public finance

Balanced, Surplus and Deficit budget.

Surplus budget: When the government receipts exceed the government expenditure, then it is called a surplus budget. A surplus budget has a contractionary effect on the economy. Here, the economic activity falls, leading to a fall in investment, income and employment. This ultimately results in the fall of consumption and savings. Thus, deficit budget = Total receipts – total expenditure.

Balanced budget: A balanced budget is when the government receipts equal the government expenditure.

Deficit budget: A deficit budget occurs when the government expenditure exceeds the government spending. This leads to an expansionary effect on the economy. The economic activities rise resulting in the increase in income, employment and investment. There is a rise in the consumer consumption and savings. Deficit budget = Revenue expenditure – revenue receipts.