Ramesh Singh Summary: Public Finance in India- 1 | Indian Economy for UPSC CSE PDF Download

Capital Budget

• Concerns about the management of capital receipts and expenditures by the government.
• Indicates how capital is handled and where it is allocated.

A. Capital Receipts

• Non-revenue receipts are directed towards investments and planned development.
• Can be diverted to meet other financial needs due to rising revenue expenditure.
• It includes:
  1. Loan Recovery: Money repaid to the government from past loans, both internal and external.
  2. Borrowings by the Government: Long-term loans acquired domestically and internationally.
  3. Other Receipts by the Government: Long-term accruals through schemes like PF, Postal Deposits, and government bonds.

B. Capital Expenditure

• Allocations of capital by the government, covering various areas such as:
  1. Loan Disbursals by the Government: Loans provided internally and externally.
  2. Loan Repayments by the Government: Repayment of loans, comprising the capital portion.
  3. Plan Expenditure of the Government: Financing planned development and supporting state plans.
     
  4. Capital Expenditures on Defence: Funding for defense maintenance, equipment purchase, and modernization.
  5. General Services: Capital expenditure on services like railways, postal department, water supply, education, and rural extension.
  6. Other Liabilities of the Government: Repayment liabilities arising from other receipts.

C. Capital Deficit

• Conceptually indicates a scarcity of capital required for government expenditure.
• Represents the challenge of managing funds necessary for both revenue and capital expenditures.

D. Fiscal Deficit (FD)

• Arises when total government expenditures exceed total receipts.
• Indicates that the government is spending more than its income, considering all forms of government receipts.
• Can be expressed quantitatively or as a percentage of GDP.
• Rising FDs have been a concern, prompting fiscal consolidation efforts.
  
  Primary Deficit:
• FD excluding interest liabilities for a year.
• Indicates FD without considering interest payments, offering insights into expenditure patterns.
• Helps in evaluating dependence on loans and potential expenditure cuts.
  Primary Surplus:
• Occurs when tax receipts exceed total expenditures excluding interest payments.
• Indicates fiscal health and the government's capacity for revenue and capital expenditures.
• Reflects the availability of fiscal space for government expenditure decisions.
  
  Monetised Deficit:
• The deficit provided by the Reserve Bank of India (RBI) to the government in a specific year.
• Reflects the government's reliance on short and long-term borrowings for expenditure needs.
• Despite changes in monetary policy, RBI continues to manage government securities.
  
  Deficit and Surplus Budget:
• Deficit Budget: Proposed when expenditures exceed receipts, indicating spending beyond means.
• Surplus Budget: Proposed when expenditures are less than receipts, symbolizing a lower concern towards development.
• Governments usually avoid presenting surplus budgets due to ongoing development needs.