Government Budgeting (Explained) | Types of Government Budget | UPSC Prelims & Mains 2022-2023

hello and welcome to by jews exam prep ies welcome to knowledge series and in today's video let's have a discussion on one of the very important concepts for upc examination that is the concept of government budgeting now before i enter into the details of government budgeting here are certain very important pointers first and foremost the term budget is not mentioned in the constitution i repeat the term budget is not mentioned in the constitution of india rather than budget the term that is actually mentioned in the constitution is annual financial statement aefs annual financial statement second very important point until very recently government of india used to present two budgets one was railway budget and the second one was union budget but government of india citing many reasons has discontinued a separate railway budget i repeat has discontinued a separate rally budget rather than having a separate railway budget now this has been merged subsumed under the concept of union budget itself third very important point because the term budget is not mentioned in the constitution of india there are no compulsions with respect to when the budget has to be presented at what time it has to be presented by the government until very recently government was actually presenting the budget on the last working day of february now this has been pre-pawned to 1st of february every year for example next assume in the next year calendar by the way first february is a working day if it is a working day that is first day in the february which is a working day the government shall present the budget in the parliament some of you basically say sir what a first is a holiday first is a sunday etc then whichever is the first working day of february government shall present the budget on that particular day next a fourth very important point irrespective whether the finance minister is from lokasaba or raj sabha doesn't matter it will be the finance minister who shall present the budget on the floor of loka sabha done so these are four very very important points some of you might be thinking so why does the government even need to present a budget i don't think government should have all the powers to spend money to collect money not necessary understand this very carefully there is a fund in the polity or into the constitution which has been mentioned in the constitution of india consolidated fund of india cfi consolidated fund of india now if the government of india wants to spend money right let's say they want to launch a new welfare scheme they will require money for it from where does the government get this particular money from they will have to withdraw the funds from cfi and the constitution basically says that government of india even if they want to withdraw a single rupee from the consolidated fund of india they will have to seek the prior approval of the parliament i'll repeat the statement here if the government wants to withdraw even a single rupee from the consolidated fund of india they will have to take the prior approval of the parliament and that is the precise reason whenever you talk about budget government will be submitting lot of documents during a budget session for example government represents a government will present documents by the name of appropriation bill they will also present a document financiable they will present a frbm document etc again there are more than 10 types of documents i am focusing on the most important ones appropriation bill basically deals with the amount of expenditure that the government will incur by withdrawing the funds from consolidated fund of india i will repeat it again the appropriation bill basically consists of the funds of that will be spent by government of india in terms of expenditures but these particular expenditures have to be withdrawn from consolidate fund of india hence they will introduce a bill and get the bill passed then they will be allowed to withdraw the funds having said so before you think sir right there is a correction here let me make the correction or let me tell you a certain exception here whenever you talk about expenditure incurred by the government there are certain types of expenditures which the government will incur indirectly not directly but indirectly let's say government of india will spend more than two lakh crore rupees in the form of food subsidy through food corporation of india in this regards government may not withdraw all the two lakh crore rupees from the consolidated fund of india government just a hypothetical number here will withdraw one lakh rupees from consulted fund of india and remaining 1 lakh rupees government will simply ask the food corporation of india to borrow from the market to raise the money from the market to borrow from the market so whenever such type of borrowings are done not directly by the government but by the government owned entities or agencies on behalf of the government the government doesn't have to take the approval of the parliament but these particular types of borrowing so these kind of activities there's a separator name for this this is referred to as off-budget borrowing or off-budget expenditures so these are certain very very important points now some of you simply say that sir you did not tell anything about finance bill you did not say anything about frbm document finance bill understand this whenever the budget is presented please have a look at it government will not simply tell you how much expenditure they are going to incur government in the budget will also tell you how much money they are going to collect in the form of receipts or incomes receipts or incomes do not use the term revenue here it is slightly misleading you'll understand in a minute why so government on one side will incur expenditures government on the other hand will also collect certain incomes or receipts example government might simply impose taxes such as corporate taxes gst income taxes customs says surcharges etc and collect this particular money which is nothing but the part of receipts or incomes is it the only reset absolutely no there are many more we will have a look at it later but apart from this there is one more term that i have written here frbm fiscal responsibility budget management under frbm document government will simply provide data to the parliament that is so all of us as to how the government of india plans to control deficits how does government of india plan to control the debt etc right so that is the importance of jafarbm document now how the budget documents are prepared right let's say on the first working day february you see that the finance minister will be standing on the floor of the parliament and the finance minister will keep on reading a document right earlier they used to have physical copies of the budget documents now for the last couple of years even that has been discontinued it is a green budget they'll simply read it out from a tablet like this but either they are holding the physical hard copy or the tablet doesn't matter how did they arrive at this particular decision or let's say expenditure pattern as such basically the process that is followed is like this first and foremost you'll have to remember this you'll have to remember this and in fact out of all these particular steps we are going to discuss now this is the most important step that is who is responsible for the preparation of the union budget and i'm using the term union budget here please remember this why unions simply represent to central government can the states also have their own budgets of course yes state governments also have their individual budget so rather than saying simply budget some of you might get confused right understand this even if you get confused don't worry if i use the term budget i am talking about union budget central government budget not the state government budgets so whenever the budget preparation is done which is the authority which is involved it is the ministry of finance it should not be difficult for you you will basically look at and say sir what is this you are simply testing us now yes of course i know it is a minister of finance otherwise who do you think will prepare budget minister of human resources and development of course no minister of external affairs of course no minister of defense no it has to be minister finance absolutely correct no doubts but within the minister of finance which is the department because every ministry is divided into departments like this within the minister of finance itself there are six departments which is the department it will be department of economic affairs dea department of economic affairs now is it the end is the whole department of economic affairs responsible or let's say is involved in the preparation of the budget absolutely no within the department of economic affairs there is a budget division there is a budget division this particular budget division is responsible for preparation of the budget some of you will get confused yes sir what kind of division are you providing very difficult don't worry okay can you imagine the indian map right there is an india map indian map is divided into states and each of the states are divided into districts apply the same logic to this whole government is there government is divided into different ministries ministries are further divided into different divisions or let's say departments and these these particular departments are basically divided into divisions like this so if the question is which division is responsible for the preparation of the budget you should say budget division is the question is which department is responsible for professional budget department of economic office and the third one is very straightforward they will not ask you even if they ask you that's a lollipop question please don't make a mistake there also done so first step the budget division will prepare a document that is budget circular and they will send this particular circular to all the ministries all the divisions etc why this particular process is followed how will the finance minister come to know that you require let's say one lakh crore rupees let's start a circus here imagine you are the finance minister i am the health minister i can imagine right now how will you come to know how much money i need to spend let's say for a particular scheme how much money would i require for development of infrastructure etc you will come to know if you ask me that is exactly what the government of india is doing here or finance ministry is doing they will send a circular budget circular to all the departments or all the ministries now individual ministries will provide their demands to the minister of finance all of these demands will be evaluated or estimated then the finance minister along with these particular let's say the heads of the divisions or the departments will come together prepare a document and this particular document will be given the signed by the finance minister once the finance minister basically puts a sign on this particular document it becomes a budget and we say that budget documents are ready some of you might be thinking sir how do i come to know all of this yes in the in the flow chart very nicely the chart is given but how do i come to know where the budget documents are ready i'm a layman i'm an arab army how do i come to know very simple keep on watching keep on reading the newspaper next year just before the budget is announced or let's say before the budget is presented in the parliament generally 10 or 15 days before that there is a ceremony which is conducted by the minister of finance called as halwa ceremony halwa ceremony basically indicates that the budget documents are prepared only thing that is left out is presentation of the budget in the parliament done now once the budgets are prepared what is the process we will require the prayer recommendation of the president of india once the president of india gives the recommendation or agrees to the recommendation the documents budget documents will be laid on the floor of lok sabha by the finance minister after the presentation of these particular documents for the next couple of days i'm using the term next couple of days because please understand this the time period is not fixed generally the government is the decider over how many days the discussion has to happen for how many days the standing committees will be given the time for how many days the voting will take place etc the decisions are taken by the government so for the next couple of days two or three days there is a general discussion over the budget the concept of general discussion is whenever the ministries will submit their demands i repeat whenever the ministries will submit their demands to the ministry of finance and these are allocated funds are allocated there is a technical term called as demands of grant dog demands of grants now these particular demands of grants are arranged and please understand this these particular demands of grants are not discussed in the general discussion in the general discussion which will happen for couple of days the representatives of different political parties opposition parties will be given a chance to give their or give their viewpoints regarding the budget documents or let's say the presentation of the budget and as usual the members of opposition parties will keep on saying that this budget doesn't have anything for let's say recovery of the economy it doesn't provide anything to address the issue of black money in india it doesn't have any reforms to address poverty etc etc etc so that is the scope of general discussion in the budget once done and now the demand of grants will be allocated to different standing committees there are 24 standing committees total number of members in each of the standing committee is 31 out of that 21 will come from lok sabha 10 will come from rajya sabha after this when the standing committees will have a look at the demand of grants they will submit a report to the parliament now each of the demand of grant will be taken up and there is a detailed discussion on this particular demand of a grant basically they will say that whether the expenditure that has been demanded to be withdrawn from the console defend of india either this is correct if not have a detailed discussion have a voting try to reduce this particular number etc that is basically the process of discussion on individual demand of a grant and voting upon these particular demand of grants once the voting is done the government will basically consolidate all of these particular demand of grant now this is called as an appropriation bill it will be passed by the lok sabha sent to rajya sabha then passed from rajya sabha sent to president of india who shall give the assad now the government of india is free to withdraw the funds from the consolidated fund of india and after this is done the finance bill will be taken up for detailed discussion as well as voting upon this particular finance bill this is generally how the budget documents are prepared and passed and now the government has money to spend and achieve the objectives or let's say the target that they have actually set up but more importantly under the concept of economics this is where the pure economics will start coming in the concept of division in the budget the budget is divided into two accounts i'll repeat it the budget is divided into two accounts one side is called as a revenue account and the second one is called as a capital account revenue account and capital account revenue and capital account again are divided into two parts each revenue account has revenue expenditure r stands for revenue by the way and apart from this it also has revenue receipts same apply the same logic to capital capital expenditure and the capital receipts why do we divide the accounts into four types like this or why the whole budget is divided into four types how do i differentiate in fact if you check the examination paper or civil services mains paper 2021 by the way the question that was asked in upc mains was exactly this write a note on the revenue expenditure revenue receipts capital expenditure capital receipts i'm just paraphrasing the statement whatever the question was it meant this how do i divide what is the basic idea here whenever you talk about revenue either revenue expenditure or revenue reset it basically refers to the expenditure that is incurred by the government or the income that is earned by the government in day to day course of operations the day-to-day operations which are conducted by the government the day-to-day activities that are conducted by the government in the course of these particular activities whatever expenditure is incurred by the government whatever income is collected by the government these are referred as the revenue expenditure and the revenue receipts right respectively in the context of revenue expenditure you have expenditure let's say in the form of values expenditure in the form of pensions interest payments subsidies etc in the context of revenue receipts you have receipts or the income in the form of tax receipts non-tax receipts right so these are generally the divisions under the concept of revenue height now if you want to understand a bit more the basic idea is in the context of revenue head there is no association with assets remember this these neither create or reduce assets right i'll repeat it revenue expenditure revenue receipts these are no way associated with assets these are neither associated with creation or reduction in the asset nor are they going to create or reduce the liability of the government that is the definition of revenue side in the budget what about the capital side of the budget simple capitals are the budget they are associated with assets they are associated with liabilities it has to be associated with one of these assets and liabilities for example under capital expenditure government will spend on infrastructure agreed government will spend on infrastructure it's a type of capital expenditure creation of assets government will give loans to state governments and union territories again associated with assets and liabilities on the context of receipts government will issue bonds borrow from the market our government will borrow from international agencies such as world bank imf all of these will be kept under the concept of capital research in addition to this the dis investments resides the dis investment receipts are again kept under the concept of capital research itself why because the disinvestment receipts are associated with sale of assets government will sell air india collect money government will sell part of the ownership in the lic collect money so assets are being sold assets will come down so government will collect money that is the basic idea of the capital receipt itself so this is a division under the budget accounts now having looked at all of this having looked at all of this another very important component within the budgeting of the government is the deficits in the budget what kind of deficits are there i've written four very important deficits here revenue deficit effective revenue deficit fiscal deficit and primary deficit if you look at the budget documents let's say next year budget documents these four deficits will be mentioned what is the revenue deficit under the budget what we have done is earlier we have divided the budget into two parts and we have given one division that is the revenue side or revenue account in the budget and the revenue is again divided into revenue receipts revenue expenditure revenue receipts and revenue expenditure so if the revenue expenditure is higher than the revenue receipts that is called as a revenue deficit i repeat if the revenue expenditure that is the expenditure under the revenue head if it is higher than the receipts or the incomes earned under the revenue head that is called as a revenue deficit does india have a revenue deficit of course yes we have been having a revenue deficit and that's a problem that's a problem why please understand this whenever you're talking about revenue head are we creating any assets here very simple are we creating any assets under the revenue absolutely no but when you talk about the capital head is there a creation of asset under this is there a creation of asset of course yes under the capital expenditure one way they are going to incur the capital expenditure is by investing in infrastructure so under the capital ahead there is creation of asset but if you have an deficit on the revenue side what does it mean your expenditure is very high and you are not creating any asset so that is the reason i say that this is a problem in fact when you talk about frbm documents fiscal responsibility and budget management management documents the documents had put a target of reducing the revenue deficit to zero percent we have not been able to achieve it we are still struggling to achieve a revenue deficit of zero percent next one is effective revenue deficit erd effective revenue deficit what is this effective revenue deficit if you look at the revenue side in the budget let me go back to the previous picture here if you look at the revenue side of the budget under revenue expenditure there is one expenditure called as grants for creation of capital asset grants for creation of capital asset gcca this in short is written as gcca what is this grants for creation of capital asset first and foremost grants means what one-sided flow for example if i come to come to you just hypothetical example don't say sir how can you do this hypothetically if i come to you and say please give me 100 rupees i will give it back to you it simply means i'm taking a loan from you i'm borrowing from you but if i come to in the second situation if i come to you and say give me a hundred right i will not give it back to you it's not a loan you will simply give the money forget about it so the second example that i gave is nothing but a grant the government will give money doesn't recollect whereas the first example that i gave was basically the borrowings done by either the government state governments etc borrowings essentially means what there is a component of repayment involved so whenever you are talking about grants no repayment done one-sided flows second this grant deals with what creation of asset now some of you basically point out that sir earlier you said anything related to asset should be kept on capital side but you've written this on the revenue side you're wrong i'm not wrong the reason that gcc is kept under the revenue side is very simple if the government spends the money directly on development development of an infrastructure asset they will classify this under the capital expenditure but in case of gcca the central government or union government is not spending the money directly rather the union government or the central government is giving this particular money for development of infrastructure to another agency let's say they will give the money to entity owned by the state government or let's say the state government itself so that authority to whom the money has been given they are the ones who are going to spend this particular money so because the union government is not directly spending the money they will not keep it under the capital side rather they will classify this under the revenue side having said so the criticism or the concern related to this is very simple either it is spent directly by the government or by the states or the any agencies doesn't matter it is associated with asset so if it is associated with asset it should not be kept under the revenue side it should be kept and kept under the rather capital side that is the reason the eid which has been introduced right many many years ago let's say couple of years ago in case of india at post 13 and 14 the concept says that whenever you're calculating revenue deficit you should not include gcca i repeat when you are calculating revenue deficit you should not include gcca as a part of revenue expenditure so what you have done in the effective revenue deficit we have subtracted we have basically withdrawn whatever money has been spent by the government in the form of gcca and this is a purified version of revenue deficit hence called as effective revenue deficit next the most important one fiscal deficit the most important one is fiscal deficit by the way fiscal deficit basically represents market borrowings of the government fiscal deficit represents market borrowings of the government right what do you mean by borrowings of the government very simple government has to spend more money compared to how much money they are earning i'll repeat it government has to spend more money compared to how much they are earning for example just a hypothetical example imagine your income is 1 lakh rupees per month one lakh rupees per month but your expenditure is 1.5 lakh rupees a month is it okay some of you will simply say sir this is not possible it is possible and many of the people actually experience it so your income is 1 lakh but your expenditure is 1.5 lakh how do you satisfy this extra expenditure you will simply borrow from the market does it make sense to you you will simply borrow from the market one way sir i will reduce the expenditure very good if you can do that but you are talking about the government can the government reduce subsidy payments welfare payments pension payments etc very difficult that is a precise reason generally why we have a revenue deficit this side and because the expenditures are very very high compared to the incomes government doesn't have any option but to borrow from the market which is referred to fiscal deficit or which is nothing but fiscal deficit but how do i write it how do i put it in the formula form the total expenditure of the government minus the non-debt creating receipts ndc are non-debt creating resides meaning what have a look at this the receipts are of two types understand this the receipts are of two types one receipt is a capital receipt and the second one is revenue receipt in case of revenue asset go back to the basics does it create any liability absolutely no whereas in case of capital receipt there is one type of a receipt that is government borrowings government borrowings because capital receipts are multiple types there are multiple components within the capital resides one of them is a government borrowing so when you say borrowing you are in a debt is it okay when you say you're borrowing you are in debt you are supposed to repay the amount so whatever is the total income excluding this particular borrowing it is referred to as non-debt creating research i will repeat it again whatever is the total income or the receipts earned by the government except the borrowings are done by the government it is called as non-debt creating recess ndcr and difference between total expenditure and ndcr will give you the borrowings itself for example if government is collecting let's say right 100 crore rupees except borrowing there is no borrowing as of now government is collecting 100 crore through the income taxes corporate taxes excise duties gst etc but on the other hand government is supposed to spend 120 crore rupees expenditure is higher than non-debt creating receipts in that situation what does the government do government will simply borrow 20 crore rupees that is the concept of market borrowings in simple terms fiscal deficit and finally primary deficit and what is this idea of a primary deficit in the primary deficit we try to calculate how much part of the borrowings actually is in the form of let's say interest payments are shall be used for interest payments that is basically your borrowing money but how much is your liability in terms of repayment of interest or payment of interest sarah why do the why does the government pay interest here simple reason is that government has borrowed money in the last two years let's say hypothetically in fact every year government borrows government has borrowed money and government has to repay this particular principal amount but before they repay the principal amount annually they are supposed to pay interest amount they are supposed to give the interest because you have borrowed you have taken a loan from the market so the interest payment will be subtracted from the fiscal deficit that is the concept of primary deficit so these are the four types of deficits which are generally mentioned in the budget documents earlier in fact we had different types of burs deficit such as budget deficits we are not calculating that we had monetized deficit we are not using that of course there is a concept of indirect and direct monetization direct monetization with the passage of frbm has been discontinued from 2006. none so these are the various aspects related to government budgeting exercise let me take up certain questions from your side what is off-budget borrowing off-budget borrowing simply means whenever the government borrows sorry whenever government wants to spend money go back to the basics here they need to take the approval of the parliament agreed they want to spend money government wants to spend let's say 100 rupees they need the approval of the parliament but rather than taking the approval of the parliament then taking the money from the consolidated fund of india what government is doing here is government will tell one of its agencies for example let's say food corporation of india to borrow from the market 100 rupees let them borrow 100 rupees from the market and this particular 100 rupees will be utilized or spent by food corporation of india so when fc is borrowing from the market are they taking the approval permission of the parliament absolutely no this is basically the concept of extra budget resources or off-budget borrowing what are assets assets basically understand this assets are the ones which are created by us for example i will invest a certain amount of money and create an asset for example i might create an asset in the form of let's say road i might create an asset in the form of let's say bridge tunnel etc and whenever you create an asset you expect returns from these particular assets done do salaries pensions and subsidies do not come under liability of the government as it is liable to pay pension salary timely please understand these are liabilities but they will come under the revenue expenditure liabilities in the sense please understand this these are the liabilities of the government on day to day basis in the normal course of business right revenue means what in the normal day-to-day course of activity whatever is the normal activity of the government if they collect money during that it becomes a revenue receipt if they spend money during that it becomes a revenue expenditure okay so that's it from my side i hope this particular session was useful for you people if you like this particular initiatives please hit the like button and if you have not subscribed to by jews exam prep kindly do subscribe thank you have a great day you

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Keywords: government budgeting, meaning of government budget, government budgeting upsc, types of government budget, budget in economics, types of budget in economics, budget meaning in economics, types of budget upsc, economics, upsc, upsc 2023, ias 2023, byjus ias, byju's, ias, upsc cse, upsc prelims, upsc mains, upsc prelims 2022, upsc mains 2022, upsc prelims 2023, upsc mains 2023

Id: Dbkow485Oqw

Length: 34min 36sec (2076 seconds)

Published: Tue Jun 21 2022