Public Finance and Budget
I. Fill in the blanks:
1. The government manages public finance
through fiscal policy.
2. When the government’s revenue is more than it’s an expenditure, it is called
deficit finance.
3. The person who presents the Central Government Budget in the Loksabha is Finance
Minister.
4. GST came into effect from 2017 July 1st.
II.
Answer the following in one sentence each:
1. What is meant by Public Finance?
Ans: Public finance means the finances of the government, which gives a
complete picture of the government’s income, expenditure, and debt management.
2. What do you mean by Budget?
Ans: The statement of estimated income and expenditure of a year prepared by
the government is called ‘Budget’.
3. Give the meaning of ‘Deficit Budget’.
Ans: If the expenditure more than income, it is called a deficit Budget.
4. What are Direct Taxes?
Ans: Direct Taxes are Personal Income Tax, Corporate tax. Wealth Tax, Stamp
Duty etc.
5. Write the formula for calculation of
fiscal deficit.
Ans: The formula of fiscal deficit is (Revenue receipts + Non-debt Capital
Receipts) – Total Expenditure.
III.
Answer the following in five to six sentences each:
1. Explain the reasons for an increase in
public expenditure.
Ans: The expenditure incurred by public authorities like central, state, and
local governments to satisfy the collective social wants of the people is known
as public expenditure. In the 20th century, the role and scope of the
governments have expanded and public expenditure also increased. Public
expenditure has to create and maintain conditions conducive to economic
development. It should provide incentives to save, invest, and innovate. It
should also help in the acceleration of economic growth and ensure economic
stability.
2. What types of taxes are imposed by the
government?
Ans: The taxes imposed by the Central government are of two types:
(a)
Direct Taxes: When the tax is paid by an individual on
whom it is levied, it is called a direct tax. The burden of this tax is not
transferable to others. The important direct taxes are personal income tax. the
corporate tax, wealth tax, stamp duty, etc.
(b)
Indirect Taxes: If the burden of tax imposed by the
government is transferable to others, it is called Indirect Tax. Generally,
indirect taxes are imposed on goods and services. For example, the government
imposes a tax on the manufacturer of goods and services at the time of
producing such goods and services. The manufacturer transfers this burden to
the trader. The trader transfers this burden to the consumer. This means that
if the government imposes a tax on the producer, the tax is ultimately paid by
the consumer. The main forms of indirect taxes are central excise duty,
value-added tax (VAT), import-export taxes and service tax etc. However, with
effect from 1st July 2017, a single good and service tax (GST) has been introduced.
3. What is the percent expenditure on
interest payments in the 2017-18 budget?
Ans: In 2017-18 Budget, 20% expenditure on interest payments.
4. Explain the aspects of non-tax revenue
of the central government.
Ans: The main types of non-tax revenue are:
a) Profit earned by the Reserve Bank of
India;
b) Profit generated by the Indian Railways;
c) revenue generated by the Departments of
Post and Telecommunications.
d) Revenue generated by the public sector
industries;
e) Revenue generated by the coins and
mints;
f) Various types of fees and penalties;
etc.
5. What is a deficit? Mention the types of
deficits.
Ans: Deficit financing is defined as financing the budgetary deficit through
loans from RBI and creation of new money.
Four concepts of a deficit are used and are calculated as shown below:
Fiscal
Deficit: The excess of government’s expenditure
over its revenue receipts and non-debt capital receipts is the fiscal deficit.
It is calculated as:
Fiscal deficit = (Revenue receipts + Non¬debt Capital Receipts) – Total
Expenditure
Revenue
Deficit: It is an excess of total revenue
expenditure of the government over its total revenue receipts. It is calculated
as:
Revenue Deficit = Revenue receipt – Revenue Expenditure
Primary
deficit: It is defined as the fiscal deficit of
current year minus interest payments on previous borrowings. It is calculated
as:
Budget Deficit = Total Revenue – Total Expenditure.
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