NCERT Book Class 12 Economics (Macroeconomics) Chapter 5 Government Budget and The Economy

Chapter 5
Chapter 5
Governmentt Budget
Governmen
and the Economy
We introduced the government in chapter one as denoting
the state. We stated that apart from the private sector,
there is the government which plays a very important role.
An economy in which there is both the private sector and
the Government is known as a mixed economy. There are
many ways in which the government influences economic
life. In this chapter, we will limit ourselves to the functions
which are carried on through the government budget.
This chapter proceeds as follows. In section 5.1 we
present the components of the government budget to bring
out the sources of government revenue and avenues of
government spending. In section 5.2 we discuss the topic of
balanced, surplus or deficit budget to account for the
difference between expenditures and revenue collection. It
specifically deals with the meaning of different kinds of
budget deficits, their implications and the measures to
contain them. Box. 5.1 deals with fiscal policy and a simple
description of the multiplier. The role the government plays
has implications for its deficits which further affect its debt-
what the government owes. The chapter concludes with an
analysis of the debt issue.

5.1 GOVERNMENT BUDGET — MEANING AND ITS COMPONENTS
There is a constitutional requirement in India (Article 112) to
present before the Parliament a statement of estimated receipts
and expenditures of the government in respect of every financial
year which runs from 1 April to 31 March. This ‘Annual Financial
Statement’ constitutes the main budget document of the
government.
Although the budget document relates to the receipts
and expenditure of the government for a particular financial
year, the impact of it will be there in subsequent years.
There is a need therefore to have two accounts- those that
relate to the current financial year only are included in the
revenue account (also called revenue budget) and those that
concern the assets and liabilities of the government into
the capital account (also called capital budget). In order to
understand the accounts, it is important to first understand
the objectives of the government budget.