Economic Environment and

Policy
Session-8
Union Budget 2008-09

Presented by
Dr. Tarun Das
Professor, IILM

Budgeting-Basic Concepts 1
 Contents

1. Budget Preparation and

Presentation
2. Various Funds
3. Budget Documents
4. Basic Concepts
5. Different Concepts of deficits

Budgeting-Basic Concepts 2
 1.1 Budget Preparation
1. Ministry of Finance (MOF) starts Budget Preparation
in October
2. Ministries send initial Budget Estimates.
3. Industry, Trade associations and chambers of
commerce send Budget Memorandum in December
4. Finance Minister holds pre-budget meetings with
various interest groups in January
5. Tax proposals given final shape in February
6. Budget placed in Parliament by the Finance Minister
at 11 AM on the last working day of February

Budgeting-Basic Concepts 3
 1.2 Passing of Budget
1. General Budget is debated in both
houses of Parliament in March
2. Vote on Account by end of March
3. Demands for Grants are examined by
various Standing Committees of
Parliament in April
4. Demands for grants are debated and
passed in April-May
5. Finance Bill passed in May
6. After President’s signature, it becomes
Finance Act in June

Budgeting-Basic Concepts 4
 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 with prior
approval of the Parliament.
(b) Public Fund and Public Accounts- provident/
pension/insurance funds, reserves, small saving.
Govt is the custodian and not the owner of these
funds. Govt acts like 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.)

Budgeting-Basic Concepts 5
 3.1 Budget Documents
1. Key to Budget Documents
2. Budget at a Glance
3. Annual Financial Statement
4. Revenue Budget in two volumes
5. Capital Budget
6. Charged on and voted expenditure
7. Demands for Grants for each
Department
8. Vote on Account
9. Appropriation Bills
10. Finance Bill/ Finance Act
11. Economic Survey
Budgeting-Basic Concepts 6
 4.1 Basic Concepts
1. Budget is the account of govt
revenues and govt expenditure, and
govt receipts and govt payments.
2. Both Receipts and Expenditure have
two accounts- Revenue and Capital.
3. Revenue Account is the current
account and is closed within a year.
But, capital account is not normally
closed within a year and continues for
a number of years until all obligations
are met.
4. Revenue account does not lead to
asset creation or value addition, but
capital account does.
Budgeting-Basic Concepts 7
 4.2 Revenue and Capital
Receipts
• Revenue receipts consist of those receipts
which do not have any obligations for
repayments such as taxes and duties,
interest earnings, rents, dividends, profits,
grants etc.
• Capital receipts consist of loans from
domestic and foreign sources and have
attendant obligations of amortization and
interest payments.
• Govt has no obligations to anybody for
revenue receipts. But, govt has obligations
for capital receipts.

Budgeting-Basic Concepts 8
 4.3 Revenue and Capital Expenditure
Like receipts, expenditure has also two
accounts- revenue and capital.
 Revenue expenditures relate to current
expenditure such as wages and salaries,
maintenance, subsidies, grants, interest
payments. These expenditures do not lead to
asset creation or value addition.
 On the other hand, capital expenditures
(such as expenditures on office equipment,
plant, machinery, land, property, shares etc.)
lead to asset creation.

Budgeting-Basic Concepts 9
 4.4 Plan and Non-Plan Expenditure
6. Plan and non-plan expenditure- If any project
or program is approved by the Planning
Commission as a part of the National Five Year
Plan or Annual Plan, expenditure for that
project or program is called Plan Expenditure
and all other expenditures are classified as
Non-Plan Expenditures.
7. Developmental and non-developmental-
Internationally, expenditures are classified as
Developmental and Non-Developmental
Expenditures. Any expenditure which leads to
higher production and economic development
is called developmental expenditure, all others
are classified as Non-Developmental
expenditures.

Budgeting-Basic Concepts 10
 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

Budgeting-Basic Concepts 11
 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,
developmental expenditure
Budgeting-Basic Concepts 12
 4.7. Classification of Receipts
1. Revenue and capital receipts
2.Revenue receipts- Taxes and Non-taxes
 Taxes- Direct (personal income, corporate
income, 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
funds
4. Non-debt creating receipts include
revenue receipts, recovery of loans and
disinvestment of govt equity.
Budgeting-Basic Concepts 13
 5.1 Different Concepts of
Deficits
 Revenue deficit= Revenue expenditure
less revenue receipts
 Capital deficit= Capital expenditure less
capital receipts
 Budget deficit= Total expenditure less total
receipts= Revenue deficit +Capital deficit
 Gross Fiscal Deficit= Total expenditure less
Non-Debt receipts= Total Expenditure less
(Revenue receipts+recovery of loans+
disinvestment of govt equity)
 Gross Primary deficit= Gross Fiscal Deficit
less interest payments

Budgeting-Basic Concepts 14
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 45
(b) Disinvestment 102
(c) Borrowings & other 1333
liability
3.Total receipts (1+2) 7509
4.Revenue expenditure
Budgeting-Basic Concepts
6581 15
5.3 Union Budget 2008-09 at a glance

Items Rs. Billion

5.Capital expenditure 928

6. Total expenditure (4+5) 7509
7. Revenue deficit (4-1) 552
8.Capital deficit (5-2) -552
9. Budget deficit= (7+8)=(6- 0
3)
10. Gross fiscal deficit 1333
=(6-1-2a-2b)=2c
11. Primary deficit= (10-4a) -575

Budgeting-Basic Concepts 16
 5.4 Medium Term Fiscal Indicators
(as % of GDP at current market
prices)

Items 2007- 2008- 2009- 2010-

08 RE 09 BE 10 Tar 11 Tar

1. Rev. Deficit 1.4 1.0 0.0 0.0

2. Fiscal 3.1 2.5 3.0 3.0

Deficit

3. Tax 12.5 13.0 13.5 14.0

revenue
4. Year-end 63.8 59.6 55.7 52.3
stock of public
debt Budgeting-Basic Concepts 17
THANK YOU
Have a Good Day

Budgeting-Basic Concepts 18