Article 112 of Constitution of India stipulates that a statement of estimated receipts and payments of the government relating to every financial year has to be laid before the Parliament. Consequently the finance minister presents the budget for the ensuing year together with a review for the reporting year before the Parliament. The process of budgeting starts as early as August and would be complete by the end of January. The finance minister usually holds discussions with the representatives of trade and industry in order to assess the expectations of the industrial and business sector.
The budget has two parts, the revenue account and the capital account. These two heads are again divided into plan and non-plan. The revenue account shows the revenue receipts like taxes, duties and other revenues due to the government. Revenue expenditures include the expenses incurred by the government for running the administration. Broadly speaking all the expenditures, which do not create any asset, can be classified as revenue expenditure. Capital budget on the other hand includes only capital receipts like loans raised externally and internally and capital payments which includes the payments made for acquisition of assets, investments etc.
The expenditure can be plan expenditure or non-plan expenditure. Plan expenditure represents the amount set apart for meeting the expenses connected with various central plans as well as assistance given to states to implement state plans. Non- plan expenditure includes interest payments, expenses for running the administration, grants and assistance to state governments, grants for foreign governments etc. on the revenue side and loans to state governments, defence etc. on the capital front.
A deficit arises when the estimated expenses are more than the estimated receipts. The deficits are classified into revenue deficit, fiscal deficit and primary deficit. Revenue deficit is arrived at by deducting the revenue receipts from the revenue expenditure. On the other hand a surplus arises if the revenue receipts are more than the revenue expenditure. Fiscal deficit is calculated by deducting the revenue receipts, recoveries of loans and other receipts from the total expenditure. Primary deficit is obtained by deducting interest payments from the fiscal deficit.
A growing fiscal deficit indicates the insufficiency of the income to meet the expenditure. The governments therefore resort to various deficit-financing techniques. This can be either by printing of additional currencies or by increasing the market borrowings by the governments. The first step expands the money supply and leads to inflationary pressures on the economy. The second step leads to increase in interest rates. In both cases the capital market can have an impact. When there is a deficit budget the cost of operations of corporate entities can go up because of two reasons. The government will either increase the taxes and duties to meet the deficit or borrow from the market resulting into increase in borrowing cost. As a result the cost of operation of the companies increases and they have to either increase the price of their products to retain the profit. The reduced profit can bring down the prices of shares of the companies and the market can exhibit a bear tendency.
The budget has two parts, the revenue account and the capital account. These two heads are again divided into plan and non-plan. The revenue account shows the revenue receipts like taxes, duties and other revenues due to the government. Revenue expenditures include the expenses incurred by the government for running the administration. Broadly speaking all the expenditures, which do not create any asset, can be classified as revenue expenditure. Capital budget on the other hand includes only capital receipts like loans raised externally and internally and capital payments which includes the payments made for acquisition of assets, investments etc.
The expenditure can be plan expenditure or non-plan expenditure. Plan expenditure represents the amount set apart for meeting the expenses connected with various central plans as well as assistance given to states to implement state plans. Non- plan expenditure includes interest payments, expenses for running the administration, grants and assistance to state governments, grants for foreign governments etc. on the revenue side and loans to state governments, defence etc. on the capital front.
A deficit arises when the estimated expenses are more than the estimated receipts. The deficits are classified into revenue deficit, fiscal deficit and primary deficit. Revenue deficit is arrived at by deducting the revenue receipts from the revenue expenditure. On the other hand a surplus arises if the revenue receipts are more than the revenue expenditure. Fiscal deficit is calculated by deducting the revenue receipts, recoveries of loans and other receipts from the total expenditure. Primary deficit is obtained by deducting interest payments from the fiscal deficit.
A growing fiscal deficit indicates the insufficiency of the income to meet the expenditure. The governments therefore resort to various deficit-financing techniques. This can be either by printing of additional currencies or by increasing the market borrowings by the governments. The first step expands the money supply and leads to inflationary pressures on the economy. The second step leads to increase in interest rates. In both cases the capital market can have an impact. When there is a deficit budget the cost of operations of corporate entities can go up because of two reasons. The government will either increase the taxes and duties to meet the deficit or borrow from the market resulting into increase in borrowing cost. As a result the cost of operation of the companies increases and they have to either increase the price of their products to retain the profit. The reduced profit can bring down the prices of shares of the companies and the market can exhibit a bear tendency.
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