PM SHRI KENDRIYA VIDYALAYA NO.

2, BALANGIR

BHUBANESWAR REGION, ODISHA

PROJECT FILE

TOPIC –
"BUDJET DEFICIT"

SUBMITTED BY :
PRATYUSH AGRAWAL

CLASS:
12 (COMMERCE)
th

GUIDED BY :
MR.GARJAN GAGARIA
PGT(ECONOMICS)
 PROJECT FILE

1. Title of the Project : Budget Deficit

2. Name of the Student : ARMAAN SUBUDHI

3. Class : XII(Commerce)

4. Roll Number :

5. Name of the Teacher : Mr. Garjan Gagaria

6.Name of the School :KV No.2, Balangir

7.Session : 2024-25
 ACKNOWLEDGEMENT

First and foremost I like to thank my Vidyalaya for giving me a

platform where even before the completion of syllabus,
interaction and exposure is made possible through the project
work. I am grateful to Sri Garjan Gagaria sir ,Guide,
PGT(Economics), for his valuable suggestions and guidance
during the completion of this project. I am highly obliged to him
for being the source of inspiration throughout the project work. I
also express my gratitude and sincere thanks to all those people
who supported me directly or indirectly in gathering information
to the project.

ARMAAN SUBUDHI
Class: XII-(Commerce)
 CERTIFICATE
This is to certify that Armaan Subudhi has completed his project
work entitled “Budget Deficit” under my supervision and
guidance. To the best of my knowledge, it is an original work and
is worthy of consideration in partial fulfilment of the requirement
of the CBSE for the award of AISSE.

Place: KV NO.2, BALANGIR,

Date:

Signature of the Guide:

Name: G.GAGARIA
( PGT ECONOMICS )

Signature of Principal Signature of External

 CONTENTS

i. Introduction

ii. Objectives of the Study

iii.Contents of the Study

 Meaning and Objectives of Government Budget.
 Components of the Budget
 Different types of Deficits and Implications
 Merits and demerits of Budget Deficits

iv. Fiscal Deficits in India

 Year-wise Data(Different Types Fiscal Deficits)
 Analysis of Data(Tabular Presentation and Diagrammatic
Presentation)
v. Measures to Reduce Fiscal Deficits

vi. Measures to Reduce Revenue Deficits

vii. Measures to Reduce Primary Deficits

viii. . Summary and Conclusions

ix. References
 INTRODUCTION

The budget in its elementary form had been part of almost all monarchies
of the history. There have been written documents regarding the existence
of the state treasury, accountants and auditors who were employed by the
monarchs to protect the royal treasury. The modern democracies have the
legislatures playing an important role in the managing of public finances.
The taxes that are collected and the revenues that are generated by the
government through several means are to be used for the development and
welfare of the society. The emergence of the Welfare State made it
important that the government money is being judiciously used to better
the living conditions of society in general and the marginalized sections in
particular

The process of budgets fulfils important functions in the economy of the

nation. They act as a means to carry out several objectives of the public
organization.
 OBJECTIVES

The study based on the following objectives:

* To know the meaning and objectives of the

Government Budget.

* To know the sources of budget Receipts

* To know the types Government expenditure

* To know types of Government Budget

* To know different types of deficits

* To know the impact of fiscal deficits.

* To know the status of fiscal deficits in India.

* To know the measures to reduce fiscal deficits.

 CONTENTS OF THE STUDY

MEANING OF BUDGET:
Government Budget is an annual statement, showing item wise
estimates of receipts and expenditures during a financial year. The
receipts and expenditures , shown in the budgets are not the actual figures,
but the estimated values for the coming fiscal year i.e. from 1st April to
31st March.

OBJECTIVES OF THE GOVERNMENT BUDGET:

The various objectives of the Government Budget are:

i) Reallocation of resources: Redirecting resources from less essential

to more essential areas to promote economic efficiency

ii) To Reduce Inequalities in Income and Wealth: Implementing

policies to reduce economic disparities and promote social justice.

iii) To maintain Economic Stability: Regulating economic fluctuations

to ensure stability and predictability.

iv) To Reduce Regional Imbalances: Allocating resources to promote

balanced regional development and reduce disparities.

v) To increase economic Growth: Implementing policies to stimulate

economic growth, investment, and job creation.

vi) Management of Public Sector Enterprises: Ensuring efficient

management of state-owned enterprises to promote economic growth and
social welfare.
COMPONENTS OF BUDGET:

On the basis of the Receipts and Expenditure, two components of Budget

are:

i. Budget Receipts

ii. Budget Expenditure

* Budget Receipts: Budget receipts refer to the estimated

money receipts of the government from all sources during a given fiscal
year.

Budget Receipts further classified into

➤ Revenue receipts
➤ Capital receipts

Revenue Receipts: A receipt is a revenue receipt, if it satisfies

the following two essential conditions:

i. The receipt must not create a liability for the government. For
example, taxes levied by the government are revenue receipts as they
do not create any liability.

ii. The receipt must not cause decrease in the assets For example, a
receipt from sale of shares of a public enterprise is not a revenue
receipt as it leads to a reduction in assets of the government.
Two Sources of Revenue Receipts:

i) Tax Revenue
ii) Non-Tax Revenue

Tax Revenue: Tax revenue refers to sum total of receipts from taxes and
other duties imposed by the government. Tax is a compulsory payment
made by people and companies to the government without reference to
any direct benefit in return.

Tax revenue is the main source of regular receipts of the government.

Government collects various kinds of taxes from public to meet its day-
to-day expenditures and there is a strict action against anyone who fails
to pay the taxes.

Tax Revenue can be further classified as:

1. Direct Taxes
2. Indirect Taxes

Direct Taxes: Direct taxes refer to taxes that are imposed on income
and property of individuals and companies and are paid directly by them
to the government.

i) They are imposed on individuals and companies.

ii) The ‘liability to pay’ the tax (i.e. impact) and ‘actual burden’ of the
tax (i.e. incidence) lie on the same person, i.e. its burden cannot be
shifted to others.
 iii) They directly affect the income level and purchasing power of
people and help to change the level of aggregate demand in the
economy.
iv) Examples: Income tax, Corporate tax, Gift Tax etc.

Indirect Taxes: Indirect taxes refer to those taxes which affect the
income and property of individuals and companies through their
consumption expenditure. They are imposed on goods and services.

i) The ‘liability to pay’ the tax (i.e. impact) and ‘actual burden’ of the
tax (i.e. incidence) lie on different persons, i.e. its burden can be shifted
to others.
ii) Examples: Sales tax, Service tax, VAT, Entertainment tax, Excise duty,
Custom duty, etc.

Non-Tax Revenue: Non-Tax revenue refers to receipts of the

government from all sources other than those of tax receipts.

The main sources of non-tax revenue are:

i) Interest: Government receives interest on loans given by it to state

governments, union territories, private enterprises and general public.
Interest receipts from these loans are an important source of non-tax
revenue.

ii) Profits and Dividends: Government earns profit through public

sector undertakings like Indian railways, LIC, BHEL, etc. It earns profit
from the sale proceeds of the products of such public enterprises.
Government also gets dividend from its investments in other companies.
 iii) Fees: Fees refer to charges imposed by the government to cover the
cost of recurring services provided by it. Such services are generally in
public interest and fees are paid by those, who receive such services. It is
also a compulsory contribution like tax. Court fees, registration fees,
import fees, etc. are some examples of fees.

iv) Fines and Penalties: They refer to those payments which are
imposed on law breakers. For example, fine for jumping red light or
penalty for non-payment of tax. Fines are different from taxes as the
former is levied to maintain law and order, whereas, the latter is imposed
to generate revenue.

v) Gifts and Grants: Government receives gifts and grants from

foreign governments and international organizations. Sometimes,
individuals and companies also voluntarily gift money to the government.
Such gifts are not a fixed source of revenue and are generally received
during national crisis such as war, flood, etc.

Capital Receipts:
Capital receipts are that receipt which either creates liability for the
government or causes reductions in the assets of the government. They are
non-recurring and non-routine in nature .

Examples of Capital Receipts are:

i) Borrowings – Borrowing are the funds raised by government to meet

excess expenditure . Government borrow funds from :
a. Open Market
b. RBI
c. Foreign Government
d. International Institutions
ii) Recovery of Loans – Recovery of loans is a capital receipt as it
reduces the assets of the government.
 iii) Other Receipts –
a. Disinvestment : They are termed as capital receipts as they
reduce the assets of the government .
b. Small Savings : They are treated as capital receipts as they
lead to an increase in liability.

* Budget Expenditure :
Budget expenditure refers to the estimated expenditure of the government
during a financial year. The Budget expenditure can be broadly
categorized as:

i. Revenue expenditure
ii. Capital expenditure

Revenue Expenditure:
An expenditure which does not creates assets or reduces
liability is called Revenue Expenditure. It is recurring in nature.

Examples: Salaries of government employees, interest payment on loan

taken by government, pension, subsidies, grants etc.

Capital Expenditure: It refers to the expenditure which leads to

creation of assets or reduction in liabilities. It is non recurring in nature.

Examples: Expenditure incurred on construction of building, roads,

bridges etc.
 Types of Budget

Balanced Budget:
Balanced budget is a situation in which estimated revenue of the
government during the year is equal to its anticipated expenditure.

Unbalanced budget:
Unbalanced budget is one where the government's estimated
receipts are not equal to the proposed expenditure for a given period.
Unbalanced budget may be a surplus or deficit budget. When public are
greater than the public expenditure, it is called surplus budget. On the
other hand when public expenditure is greater than public receipts, it is
called deficit budget. Both deficit and surplus budget are called
unbalanced budget.

~ DEFICIT BUDGET
 If estimated government receipts are less than the estimated
government expenditure, then the budget is termed as ‘Deficit Budget’.

Deficit budget :
Estimated Government Receipts < Estimated Government expenditure

MERITS AND DEMERITS OF DEFICIT BUDGET:

A deficit budget has its own merits especially for developing economy.
For example:

(i) It accelerates economic growth,

(ii) It enables to undertake welfare programmes of the people,
(iii) It is a cure for deflation as it checks downward movement of prices.

At the same time it has demerits also such as:

(i)It encourages unnecessary and wasteful expenditure by the
government,
(ii) It may lead to financial and political instability,
(iii) It shakes the confidence of foreign investors.

TYPES OF DEFICITS AND IMPLICATIONS:

Revenue Deficit: Revenue deficit refers to the excess of revenue

expenditure of the government over its revenue receipts.

Revenue deficit = Total revenue expenditure - Total revenue receipts

Importance:
Since it is largely related with the recurring expenditure, high revenue
deficit gives a warning to the government either to cut expenditure or to
increase revenue receipts. It also implies requirement burden in future.
Fiscal Deficit: Fiscal deficit is defined as excess of total expenditure
over total receipts excluding borrowings.

Fiscal Deficit =
Total budget expenditure - Total budget receipts net of
borrowings
Importance:
Fiscal deficit is a measure of total borrowings required by the
government. Greater fiscal deficit implies greater borrowings by the
government. This creates a large burden of interest payments in the future
that leads to increase in revenue expenditure, causing an increase in
revenue deficit. In the present, a large fiscal deficit may also lead to
inflationary pressures.
Implications of Fiscal Deficits are:

i. It leads to debt trap.

ii. It leads to inflationary situation in the economy.
iii. It is a burden for the future generation.
iv. It increases foreign dependency

Primary Deficit: Primary deficit is defined as fiscal deficit minus interest

payment. It is equal to fiscal deficit reduced by interest payment.
Primary deficit = Fiscal deficit - interest payment.

Importance:
Primary deficit
signifies borrowing
requirements of the
government. A low or zero primary deficit means that while government's
interest requirement on earlier loans have compelled the government to
borrow but it is aware of the need to tighter its belt.
 FISCAL DEFICITS IN INDIA
TABULAR AND DIAGRAMATIC PRESENTATION:
TABLE NO. -1
FISCAL DEFICITS AND REVENUE DEFICITS(% OF GDP) OF INDIA

Sl. No. Years Fiscal Deficits Revenue Primary Deficits

Deficits
1 2003-04 4.5 3.6 0.0
2 2004-05 4.0 2.5 -0.1
3 2005-06 4.0 2.5 0.4
4 2006-07 3.3 1.9 -0.2
5 2007-08 2.5 1.1 -0.9
6 2008-09 6.0 4.5 2.6
7 2009-10 6.5 5.1 3.1
8 2010-11 4.8 3.5 1.7
9 2011-12 5.7 4.3 -
10 2012-13 5.1 3.9 -
It is evident from the table that Fiscal Deficits during last ten years
are very high except in the years 2006-07 and 2007-08. As Fiscal
Deficits is same as Borrowings of the Government, it has serious
repercussions on the economy. High Fiscal Deficits is one of the
important cause of inflationary situation in the economy. On the other
hand Revenue Deficits are also very high in different years which
indicates inability of the government to meet its running expenditure.

MEASURES TO REDUCE FISCAL DEFICITS

In the Indian context, the following measures can be adopted to
reduce fiscal deficit and thereby to reduce inflationary pressures in the
economy.

i. To reduce Government Expenditure

ii.To raise Government Revenue.
 In the context of the Indian economy, the following measures
can be adopted to reduce the public expenditure for reducing
fiscal deficit and there by check inflation.

 Expenditure on major subsidies should be reduced. Austerity

measures should be adopted to curtail unnecessary government
expenditure in government departments.

 Apart from reducing government expenditure , government

revenue should be reduced. The policy of moderate taxes with
simplified taxation structure should be followed. This will help to
increase public revenue rather than reduce it. Not only the current
black money has to be mopped but also tax evasion that occurs
every year has to be prevented by strict enforcement of the tax
laws.
 MEASURES TO REDUCE REVENUE
DEFICITS

 Reduce Expenditure : Government should take serious

steps to reduce its expenditure and avoid unproductive
or unnecessary
expenditure .

 Increase Revenue : Government should increase its

receipts from various sources of tax and non – tav
revenue .

MEASURES TO REDUCE PRIMARY

DEFICITs

 Reduce Subsidies : Reduce or eliminate subsidies on

non-essential goods and services to decrease
expenditure.

 Increase Tax Revenue: Implement tax reforms to

increase tax revenue, such as broadening the tax base,
increasing tax rates, or improving tax compliance.

 Rationalize Expenditure: Review and rationalize

government expenditure to eliminate waste,
inefficiency, and unnecessary expenses.

 Improve Public Financial Management : Strengthen

public financial management by improving budgeting,
accounting, and auditing practices.
 SUMMARY AND CONCLUSIONS
Government budget, forecast by a government of its expenditures and
revenues for a specific period of time i.e for a financial year. It is an
important information document of the government. It represents
overall picture of performance of the government. The main components
of budget are Budget receipts and Budget expenditures. Budget may be
balanced or unbalanced. In a balanced estimated receipt and estimated
expenditures are equal . In un balanced budget estimated receipts and
estimated expenditures are not equal. Unbalanced budget may be deficit
or surplus. In deficit Budget estimated expenditure exceeds estimated
receipts.

Different components of budget deficits are fiscal deficit, revenue deficit

and primary deficit. To adjust budget deficit government borrows from
different sources which id known as fiscal deficit. High fiscal deficit has a
negative impact on the economy. It leads tom debt trap and creates
inflationary situations in the economy. Reducing unproductive
expenditure and raising revenues are two important measures to reduce
fiscal deficits.
 REFERENCES

i. Introductory Macroeconomics, Textbook in Economics for Class XII

ii. Advanced macroeconomic Theory by Dr. H. L. Ahuja, S. Chand

Publication

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