The Union budget is a lengthy statement showing the anticipated revenue receipts and payments of the government. It is divided into four components. The components of government budget ensure easier navigation through the statement.
A detailed analysis of the government budget and its components enables individuals to understand government policies and programs better.
Components of Budget
There are four main components of government budget. However, broadly, they are categorised into two main categories. This broad classification of the components of government budget can differ with a change in parameters as well.
- Based on the frequency of transactions, the two broad classifications are:
- Revenue budget
- Capital budget
- Based on the nature of the transaction, the two broad classifications can be
- Budget receipts
- Budget expenditures
In both these broad classifications, the four primary components of budget remain the same. They are
- Revenue Receipts
- Revenue expenditure
- Capital receipts
- Capital expenditure
Since the two parts of the union budget are the capital budget and revenue budget, this blog categorises the components based on that.
Revenue Budget
The recurring transactions of the government are discussed in the revenue budget. The two components of budget are discussed below.
- Revenue Receipts
The recurring income generated by the government during a financial year is called revenue receipts. The most prominent forms of revenue-generating sources are listed below.
- Taxes
A significant percentage of the government’s revenue is generated through taxes. There are two forms of taxes.
- Direct tax
- Indirect tax
The table shows a comparative study of the two forms of taxes.
| Parameter | Direct tax | Indirect tax |
| Meaning | A tax imposed on the income or wealth of an individual is called a direct tax. | The tax imposed on goods and services availed by individuals is called indirect tax. |
| Incidence and impact | The tax is paid by the same person on whom it is levied. | Tax is imposed on sellers but ultimately paid by customers. |
| Correlation with income | As per the Indian tax slabs, the burden of tax increases with income. | The burden of tax is irrespective of income. |
| Example | Income tax | GST |
- Other Forms of Non-tax Income
Some popular sources of income for the Indian government are listed below.
- Interest received on loans extended to state governments and other authorities.
- Profits earned from public sector undertakings like BHEL.
- Fees charged for discharge of certain recurring duties like court fees.
- Fine and penalties charged from citizens or personnel for not abiding by the laws.
- Revenue Expenditure
Expenses incurred by the government for day-to-day governance are called revenue expenditures. This component also includes recurring expenses of the government. Following are some major revenue expenditures.
- Salaries and pensions paid to government employees
- Subsidies paid to businesses that are recurring.
- Rations and allowances paid to low-income individuals
Capital Budget
The components of government budget that deal with non-recurring transactions are called capital budget. The two components of budget are discussed below.
- Capital Receipts
The revenue generated by the component that is not recurring is called capital receipts. The primary sources of capital receipts are listed below.
- Funds borrowed by the government through the issue of bonds or treasury bills, loans from banks etc.
- Repayment of loans received. While interest received becomes revenue receipt, repayment of the loan is categorised as capital receipt.
- Disinvestment refers to the process of liquidating the capital assets of the government.
- Capital Expenditure
Non-recurring expenses incurred by the government are called capital expenditures. These expenditures target economic growth and social reform. Some major capital expenditures incurred are listed below.
- Investments in Public Sector Undertakings
- Socio-economic developmental schemes
- Infrastructure development projects
Factors Determining Components of Government Budget
The table below shows the two major factors that determine the categorisation of a transaction. A translation has to satisfy either of the parameters to be listed as a particular component.
| Parameter | Revenue receipt | Capital receipt | Revenue expense | Capital expense |
| Creation of liability | It does not create a liability. | It can create a liability for the government | It does not create a liability. | It can cause a decrease in liability. |
| Change in assets | It neither increases nor decreases assets | It can lead to a reduction of assets owned by the government | It neither increases nor decreases assets | It leads to the creation of an asset. |
Conclusion
The government budget and components are essential to the economic development of the country. An understanding of the government budget components can help individuals understand the trajectory of the economy. Insights into the components of government budget, can enable individual investors to make informed financial decisions that can diversify their portfolios and optimise returns.
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