Indian Budget

INDIAN
UNION BUDGET
FOR THE YEARS
2007-2012

CONTENTS

1. Acknowledgement
2. Introduction about Budget
3. Budget Processing
4. Presentation and Analysis of Data
5. Conclusion

ACKNOWLEDGEMENT

I would like to thank The Almighty God for showering his blessings upon me.
It is only due to his mercy that I was in good heath and was able to complete this project. Secondly I would like to thank my Business Economics teachers, Ms. Kavya and Ms. Anjana for giving this project to me. This project has been a great tool in introducing me into the broad world of Economics. Doing this project has been a wonderful experience for me.

Without family, thanksgiving is incomplete. I also convey my gratitude to my parents and siblings who have been very encouraging and supportive throughout the doing of this project. Doing project takes time away from family, still they are always there for me.

Thank you.

INTRODUCTION

WHAT IS A BUDGET?

A budget (from old French bougette, purse) is a financial plan and a list of all planned expenses and revenues. It is a plan for saving, borrowing and spending.
The dictionary meaning,
A budget is a systematic plan for the expenditure of a usually fixed resource during a given period.

In the small picture,

A budget is a spending plan that you decide upon. It is based on how much you make in income and what your expenses are.

In the big picture,
A budget is a financial document used to project future income and expenses.
To put it simply, a budget plans future saving and spending as well as planned income and expenses. Budgeting may be carried out by individuals or by companies to estimate whether or not they can continue to operate with its projected income and expenses.
A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods. In other terms, a budget is an organizational plan stated in monetary terms.

In summary, the purpose of budgeting is to:
1. Provide a forecast of revenues and expenditures, that is, construct a model of how our business might perform financially if certain strategies, events and plans are carried out.
2. Enable the actual financial operation of the business to be measured against the forecast.
3. Establish the cost constraint for a project, program, or operation.

WHAT ARE THE TYPES OF BUDGETS?

1. Sales Budget: an estimate of future sales, often broken down into both units and currency. It is used to create company sales goals.
2. Production Budget: an estimate of the number of units that must be manufactured to meet the sales goals. The production budget also estimates the various costs involved with manufacturing those units, including labor and material. Created by product oriented companies.
3. Capital Budget: used to determine whether an organization's long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing.
4. Cash flow/cash budget: a prediction of future cash receipts and expenditures for a particular time period. It usually covers a period in the short term future. The cash flow budget helps the business determine when income will be sufficient to cover expenses and when the company will need to seek outside financing.
5. Marketing budget: an estimate of the funds needed for promotion, advertising, and public relations in order to market the product or service.
6. Project Budget: a prediction of the costs associated with a particular company project. These costs include labour, materials, and other related expenses. The project budget is often broken down into specific tasks, with task budgets assigned to each. A cost estimate is used to establish a project budget.
7. Revenue budget: consists of revenue receipts of government and the expenditure met from these revenues. Tax revenues are made up of taxes and other duties that the government levies.
8. Expenditure budget: includes spending data items

9. Control of liquidity: this involves cash flow and is very important in controlling cash and meeting current financial obligations.

10. Balance sheet budget: it is a composite budget and reflects anticipated assets, liabilities and owner's equity or net worth at the end of a given period in the future. It provides forecast of the anticipated financial status of the company at a future date.
11. Flexible budget: flexible or variable budget reflects and combats the changes in expenditure as a result of changes in volume of production and revenues. Flexible budget establishes a relationship of changes in variable cost as affected by changes in revenues due to changes in sales.
12. Forecast budget: a forecast budget is where estimated figures are prepared which can then be adjusted when actual figures come in.
13. Performance budget: Performance Budget is where estimates are made on upcoming revenues and expenses. This is done by assessing each item on the income statement and giving it a percentage of expected change from the previous year. WHAT IS THE INDIAN UNION BUDGET?
The Budget is the most extensive account of the Government`s finances, in which revenues from all sources and expenses of all activities undertaken are aggregated. It comprises the revenue budget and the capital budget. It also contains estimates for the next fiscal year called budgeted estimates. Union Budget, which is a yearly affair, is a comprehensive display of the Government’s finances. It is the most significant economic and financial event in India. The Finance Minister puts down a report that contains Government of India’s revenue and expenditure for one fiscal year. The fiscal year runs from April 01 to March 31.

The Union budget is preceded by an Economic Survey which outlines the broad direction of the budget and the economic performance of the country.
The Union Budget for a given year gives details of expenditures planned by the government and expected revenues from the government's tax machinery to finance them.

PRESENTATION OF BUDGET IN INDIA:
The Finance Minister presents the annual Union Budget in the Parliament on the last working day of February. The budget has to be passed by the Lok Sabha before it can come into effect on April 01.
The first Union budget of independent India was presented by R. K. Shanmukham Chetty on November 26, 1947. Since then, 28 Union Finance Ministers have been presenting the budget every year. Initially, much attention was given to the agricultural sector but as later on, the focus shifted to the other sectors including the industrial, financial and other sectors.
The Union budgets for the fiscal years 1959-60 to 1963-64, inclusive of the interim budget for 1962-63, were presented by Morarji Desai. On February 29 in 1964 and 1968, he became the only finance minister to present the Union budget on his birthday.
Vyas presented budgets that included five annual budgets, an interim budget during his first stint and one interim budget and three final budgets in his second tenure when he was both the Finance Minister and Deputy Prime Minister of India.
After desai's resignation, Indira Gandhi, the then Prime Minister of India, took over the Ministry of Finance to become the only woman to hold the post of the finance minister.
Pranab Mukherjee, the first Rajya Sabha member to hold the Finance portfolio, presented the annual budgets for 1982-83, 1983–84 and 1984-85.
Rajiv Gandhi presented the budget for 1987-89 after V P Singh quit his government, and in the process became only the third Prime Minister to present a budget after his mother and grandfather.
N. D. Tiwary presented the budget for 1988-89, S B Chavan for 1989-90, while Madhu Dandawate presented the Union budget for 1990-91.
Dr. Manmohan Singh became the Finance Minister but presented the interim budget for 1991-92 as elections were forced.
Due to political developments, early elections were held in May 1991 following which the Indian National Congress returned to political power and Manmohan Singh, the Finance Minister, presented the budget for 1991-92.
Dr. Manmohan Singh, was instrumental in liberalising the Indian economy. He started the new phase of economic liberalization. The control of the Government over public sector units was reduced through disinvestment. The liberalization process which he had started still continues.
Manmohan Singh, in his next annual budgets from 1992–93, opened the economy, encouraged foreign investments and reduced peak import duty from 300 plus percent to 50 percent.
After elections in 1996, a non-Congress ministry assumed office. Hence the final budget for 1996-97 was presented by P. Chidambaram, who then belonged to Tamil Maanila Congress.
Following a constitutional crisis when the I. K. Gujral Ministry was on its way out, a special session of Parliament was convened just to pass Chidambaram's 1997-98 budget. This budget was passed without a debate.
After the general elections in March 1998 that led to the Bharatiya Janata Party forming the Central Government, Yashwant Sinha, the then Finance Minister in this government, presented the interim and final budgets for 1998-99.
After general elections in 1999, Sinha again became the finance minister and presented four annual budgets from 1999-2000 to 2002-2003. Due to elections in May 2004, an interim budget was presented by Jaswant Singh.
The Union Budget of India for 2012–2013 was presented by Pranab Mukherjee, the Finance Minister of India on 16 March 2012, this was the 7th budget of his career. These budgetary proposals would be applicable from 1 April 2012 to 31 March 2013.
The maximum number of 10 budgets have been presented by Morarji Desai. Pranab Mukherjee, P Chidambaram, Yashwant Sinha, Y B Chavan and C D Deshmukh have presented seven budgets each, while Manmohan Singh and T T Krishnamachari, have presented six budgets each.

BUDGET PROCESSING

Budgeting refers to the setting of the expenditure with respect to the government’s core function which is responsible for the overall functionality of the country. Budgeting is the setting and allocation of the capital which is then used in the proper way to achieve the set or designated targets of the government. Budgeting needs to be very much focused and clearly prepared that cover all of the financial constraints in that sense that any of the investment that would be planned in the future will cover the financial targets of the government, its viability should be in due course of the country’s overall strategic financial plan, the routine and daily occurring expenses will have their proportionate allocation that if any investment will be in its way that will not hurt any of the scheduled existing expenses of the government. Budgeting needs to be done in a proper and meaningful way that it covers all the financial targets of the country, these targets needs to be achieved so as to be called the successful budgeting.

A budget process refers to the process by which governments create and approve a budget, which is as follows:
• The Financial Service Department prepares worksheets to assist the department head in preparation of department budget estimates
• The Administrator calls a meeting of managers and they present and discuss plans for the following year’s projected level of activity.
• The managers can work with the Financial Services, or work alone to prepare an estimate for the departments coming year.
• The completed budgets are presented by the managers to their Executive Officers for review and approval.
• Justification of the budget request may be required in writing. In most cases, the manager talks with their administrative officers about budget requirements.

Starting the process
The Budget division of the economic affairs department issues a circular to all ministries, states and UTs, autonomous bodies and the defence forces for preparing revised estimates for the current financial year and the budget estimates for the next financial year.

The budget team
The finance ministry has the overall responsibility for framing the budget. Each department of the ministry has specific responsibilities:
Department of Expenditure: Expenditure
Department of Economic Affairs: Non-tax revenue, deficit
Department of Revenue: Tax Revenue

With inputs from,
The Planning Commission: Sets overall targets for ministries
The Comptroller & Auditor General: Keeps a tab on accounts
Administrative Ministries: State their requirements and plan priorities
Other stakeholders: Extensive consultations are held with other stakeholders - industry, political parties, economists and civil society groups
Once the pre-budget meetings are over, a final call on the tax proposals is taken by the Finance Minister, in consultation with the PM.
The accounts of Government are kept in three parts:
1. CONSOLIDATED FUND OF INDIA:
All revenues received by the Government by way of taxes like Income Tax, Central Excise, Customs and other receipts flowing to the Government in connection with the conduct of Government business i.e. Non-Tax Revenues are credited into the Consolidated Fund constituted under Article 266 (1) of the Constitution of India. Similarly, all loans raised by the Government by issue of Public notifications, treasury bills (internal debt) and loans obtained from foreign governments and international institutions (external debt) are credited into this fund. All expenditure of the government is incurred from this fund and no amount can be withdrawn from the Fund without authorization from the Parliament.
2. CONTINGENCY FUND OF INDIA:
The Contingency Fund of India records the transactions connected with Contingency Fund set by the Government of India under Article 267 of the Constitution of India. The corpus of this fund is Rs. 50 crores. Advances from the fund are made for the purposes of meeting unforeseen expenditure which are resumed to the Fund to the full extent as soon as Parliament authorizes additional expenditure. Thus, this fund acts more or less like an imprest account of Government of India.
3. PUBLIC ACCOUNT:
In the Public Account constituted under Article 266 (2) of the Constitution, the transactions relate to debt other than those included in the Consolidated Fund of India. The transactions under Debt, Deposits and Advances in this part are those in respect of which Government incurs a liability to repay the money received or has a claim to recover the amounts paid. The transactions relating to `Remittance’ and `Suspense’ embraces all adjusting heads.
Passing the budget

Presentation
The Finance Minister presents the Budget in Lok Sabha on the last working day of Feb.
The Budget speech has two parts. Part A deals with general economic survey & policy statements while Part B contains taxation proposals.
The Annual Financial Statement is laid on the table of the Rajya Sabha after the FM's speech.
Discussion
A few days after the Budget is presented, the LS discusses the Budget as whole and not the details for 2 to 3 days.
The FM makes a reply at the end of discussion.
A Vote on Account for expenditure for the next two months of ensuing year is obtained after which the house is adjourned. During this period, demands for grants are considered by relevant standing committees.
Voting
The standing committee reports are presented to the House, which discusses & votes on demands for grants.
The Speaker puts all the outstanding demands to the vote of the House. This device is called 'guillotine'.
After the general discussion & voting on demands for grants, the govt introduces the Appropriation Bill. This Bill is to give authority to the govt to incur expenditure from & out of the Consolidated Fund of India.

PUBLIC EXPENDITURE

MEANING OF PUBLIC EXPENDITURE:
Public Expenditure refers to Government Expenditure. It is incurred by Central and State Governments. The Public Expenditure is incurred on various activities for the welfare of the people and also for the economic development, especially in developing countries. In other words 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.

NEED/IMPORTANCE/ SIGNIFICANCE OF PUBLIC EXPENDITURE:
In modern economic activities public expenditure has to play an important role. Public Expenditure can promote economic development as follows:
1. To promote rapid economic development.
2. To promote trade and commerce.
3. To promote rural development
4. To promote balanced regional growth
5. To develop agricultural and industrial sectors
6. To build socio-economic overheads eg. roadways, railways, power etc.
7. To exploit and develop mineral resources like coal and oil.
8. To provide collective wants and maximise social welfare.
9. To promote full - employment and maintain price stability.
10. To ensure an equitable distribution of income.

OBJECTIVES OF PUBLIC EXPENDITURE:
1) Administration of law and order and justice.
2) Maintenance of police force.
3) Maintenance of army and provision for defence goods.
4) Maintenance of diplomats in foreign countries.
5) Public Administration.
6) Servicing of public debt.
7) Development of industries.
8) Development of transport and communication.
9) Provision for public health.
10) Creation of social goods.
In a modern welfare state, the importance of public expenditure have increased. The total Central Government’s expenditure (Revenue and Capital) rose from Rs. 98,272 crores in 1990-91 to Rs. 10,18,526 crores in 2009-10.

CLASSIFICATION / TYPES OF PUBLIC EXPENDITURE:

1) Capital and Revenue Expenditure:
Capital Expenditure of the government refers to that expenditure which results in creation of fixed assets. They are in the form of investment. They add to the net productive assets of the economy.
Revenue expenditures are current or consumption expenditures incurred on civil administration, defence forces, public health and , education, maintenance of government machinery etc.

2) Development and Non - Developmental Expenditure / Productive And Non - Productive Expenditure :-
Expenditure on infrastructure development, public enterprises or development of agriculture increase productive capacity in the economy and bring income to the government. Thus they are classified as productive expenditure. All expenditures that promote economic growth development are termed as development expenditure.
Unproductive (non - development) expenditure refers to those expenditures which do not yield any income. Expenditure such as interest payments, expenditure on law and order, public administration, do not create any productive asset which brings income to government such expenses are classified as unproductive expenditures.

3) Transfer and Non - Transfer Expenditure:
Transfer expenditure refers to those kind of expenditures against there is no corresponding transfer of real resources i.e., goods or services. Such expenditure includes public expenditure on: National Old pension Scheme, Interest payments, subsidies, unemployment allowances, welfare benefits to weaker sections etc.
The non - transfer expenditure relates to that expenditure which results in creation of income or output The non - transfer expenditure includes development as well as non - development expenditure that results in creation of output directly or indirectly. Economic infrastructure (Power, Transport, etc.), Social infrastructure (Education, Health welfare), Internal law and order and defence, public administration etc.

4) Plan and Non - Plan Expenditure:
Plan expenditure is incurred on development activities outlined in ongoing 5 year plan. In 2009-10, plan expenditure of Central Government was 5.3% of GDP. Plan expenditure is incurred on Transport, rural development, agriculture, energy, services, etc.
The non - plan expenditure is incurred on those activities, which are not included in five-year plan. It includes development and non - development expenditure. It includes: Defence, subsidies, interest payments, maintenance etc.

CAUSES OF INCREASE IN PUBLIC EXPENDITURE IN INDIA:

During the planning period, the expenditure of Central and State Government’s have increased. The Central Government’s expenditure has increased over 10 times.

CENTRAL GOVERNMENTS EXPENDITURE (Revenue & Capital)

Year Rs. Crore % of GDP
1990-91 98,272 17.3
2004-05 4,98,252 15.4
2009-10 10,18,526 15.5

Source: Economic Survey 2010-11

The following are the main causes of growth of public expenditure in India:
1) Growing Population:
A high growth of population naturally calls for increase in public expenses as all state functions are to be performed more extensively.

Year Rs. Crore
1951 36.1
2001 102.9
2011 121.0

Source: Economic Survey 2010-11

2) Defence Expenditure:
The defence expenditure of the Central Government has increased over the years. The defence expenditure minimises the possibility of external threats, which in turn creates a good environment for social and economic activities of the nation. In India Defence expenditure has increased from Rs. 10,874 crores in 1990-91 to Rs. 90,688 crore in 2009-10.

DEFENCE REVENUE EXPENDITURE (Central Govt.)

Year Rs. Crore
1990-91
2009-10 10, 874
90,668
Source: Economic Survey 2010-11

3) Interest Payments:
The government borrows funds from domestic market and foreign sources to meet expenditure on various government activities. As a result, the government has to incur huge interest payments. The interest payments of Central Government has increased from Rs. 21,498 crores in 1990-91 to Rs. 2,11,643 crores in 2009-10.
INTEREST PAYMENTS (Central Govt.)

Year Rs. Crore
1990-91
2009-10 21,498
2,11,643
Source: Economic Survey 2010-11

4) Subsidies:
Government of India has been providing subsidies on number of items such as food, fertilizers, fuels, education etc. Because of this, the government expenditure has increased over the years. In 1990-91 the Central Government’s subsidies was Rs. 9,581 crores which increased to Rs. 1,23,396 crores in 2009-10.
MAJOR SUBSIDIES (Central Govt.)

Year Rs. Crore
1990-91
2009-10 9,581
1,23,396
Source: Economic Survey 2010-11

5) Administration:
The Central Governments expenditure on administration has increased due to growth in population and economic development. Government incurs on law and order, tax administration, civil administration etc.

6) Rise in National Income:
The increase in national income resulted in more revenue to the government by way of tax revenue and other income, which in turn enabled the government to increase its expenditure. For Eg. From 1980-81 to 2007-08, the N.I. has increased at the rate of 5.7% p.a. Percapita Income has also risen.

7) Urbanisation:
Urbanisation has led to increasing expenditure on civil administration. Government expenditure on police, transport, schools and colleges, public health measures, water and electricity, parks, libraries etc. have increased due to growth of towns and cities.

8) Rural Development:
In developing countries, government has to undertake community development projects and other social measures to promote rural development. Such measures cause a rise in public expenditure.

9) Inflation:
Rise in prices have caused an increase in public expenditure. The cost of supplying public goods and services has increased. Rising prices have also necessiated the payment of higher salaries and dearness allowances.

10) Democratic Government:
A democratic government has to incur increasing expenditure on elections, legislatures, ministries, international conferences, embassies abroad etc. Public expenditure also increases when a country becomes a member of international organisations like UNO, WHO etc.

INTERPRETATION

For the purpose of analysis, I have opted for 6 sectors, namely-

1. Economic services
2. Social services
3. Defence
4. Grants to state and union territories
5. Interest payments, and
6. Subsidies.

As the years I have looked upon are from 2007-2012. the following are the details.

The maximum expenditure of the entire year has been in the field of interest payments. At the beginning of 2007 the payments has been around Rs 1.7 lakh crore which goes as high as Rs 2.7 lakh crore in the year 2012. The grants to the State and the Union territories and subsidies follow the list. The Government reserves a major portion of its expenditure for its defence services, for the acquisition of arms and ammunitions, as well as for the remuneration of the workers in this sector. The expenditure in the Economic Services include expenditure on Agriculture, Industry, Power, Transport, Communications, Science and Technology, etc which is of great significance for the development of the country. The expenditure in the social sector includes the broad categories of Education, Health and Broadcasting and other Public Welfare Schemes.

As for the non plan and plan expenditure, out of the total, 2/3rd of the expenditure comes in the non plan category. Under the non plan category, the commonly included items are- Interst payment and debt servicing, Defence, Subsidies, General elections, Subsidy to Railways, Grants, etc. Plan expenditures are estimated after discussions between each of the ministries concerned and the Planning Commission.

PUBLIC REVENUE
Public revenue is exactly income generated from sources of government in order to meet requirements of expenses of public. Some important sources or concepts that are included in public revenue consist of taxes, fees, sale of public goods and services, fines, donations, etc. SOURCES OF PUBLIC REVENUE: Tax Revenue:
The chief source of public revenue is Tax. It is said that tax is a mandatory imposition of duty on public authority by government organizations to meet requirements of general public as a whole. Most part of revenue income is generated from tax by the central government.

Broad classification of taxes is: Direct and Indirect Taxes Direct taxes:
Direct taxes are levied on wealth and income of individuals or organizations. These taxes are personal income tax, corporate tax, and gift or wealth tax. The impact of direct taxes is on the same person.
Direct taxes are developing in nature and the tax rate increases along with the tax base.
Progressive direct taxes are involved in falling income discrimination especially in rising countries. Following major direct taxes are stated: 1. Personal Income Tax:
Personal income tax is duty imposed on an individual or group of individuals after specific permissible deductions.
2. Corporate Tax:
Corporate tax is a duty that has to be paid on the profits registered corporate firms.
Corporate tax is direct tax because the company is given legal entity.
3. Other Direct Taxes:
List of other direct taxes include, Wealth tax, Interest tax, gift tax, Expenditure tax, etc
The share of these taxes is unimportant.

Indirect taxes:
Indirect taxes are imposed on goods & commodities. These taxes include sales tax, excise duty, service tax, customs duty, VAT, etc. The impact of indirect taxes may be implied on different people. In direct taxes are not progressive but regressive in nature. Here, the burden to pay duties is indirectly or directly bearded by the consumer irrespective of their income level. Indirect taxes are of utmost importance for countries that are developing and face low income levels. Major Indirect Taxes:
a) Excise Duty:
These taxes are levied on manufactured goods and consumable goods in India. Excise duty is the chief and single largest source to generate revenue income.
b) Customs Duty:
This duty is imposed on exports of selective range and imports.
c) Service Tax:
This tax is imposed by specific category of firms, agencies or persons.

Non tax revenues:
Non Tax Revenue comprises all revenues apart from taxes accumulated to the Government. Non tax revenues are funds that are generated from internal sources
The sources of revenue are:
• Administrative revenues
• Commercial revenues
• Grants and gifts Important sources of Non tax revenues include
a) Special Assessment:
This tax is imposed to a certain category of members of a community who are generally benefited from governmental activities or public functions like constructions of road, railways, parks, etc.
b) Surplus of Public Enterprises
The surpluses generated of these enterprises are a significant source of non-tax revenue. These incomes are in the form of profits that are known as commercial revenues.
c) Fees:
A fee is a significant source of managerial non-tax revenue charged by Government authorities for depiction services to the members of the public.
d) Fine and Penalties
These are general sources of administrative non tax revenues. These may be applied on public for non compliance with certain rules and regulations.
e) Grants and Gifts
Grants are financial support. These are provided to public authority to perform certain social activities. These are generated by higher public authority to lower ones. Eg. World bank gives grants to State bank. There is no repayment compulsion. Changing trends in Tax and Non tax revenue in India
The Government elevates economics to meet its expenses from tax and non-tax revenue sources. As a matter of fact, Government expenditure goes beyond government revenue, consequential in Government discrepancy. a) Tax revenue
CENTRAL GOVERNMENT: It levy taxes on income excluding agricultural income customs duty, central excise duty and service tax.
STATE GOVERNMENT: It levies taxes on state excise duty, agricultural income, Stamp Duty, Value Added Tax (VAT), land revenue tax and professional tax.
LOCAL GOVERNMENT BODIES: They levy Octroi, property tax, and tax for utilities like water supply, Sanitation etc.

Trends in tax revenue:
Collection of tax rate has risen with reduction of tax rate, simple procedures and high growth rate GDP. The share of Gross tax revenue of the Central Government as 1% of GDP has which lies constant 9% to 10%.
This is a low rate compared to developing or developed nations
1990-1991: 57,576 = 10%
2002-2003: 216266 = 8.8%
2009-2010: 641979 = 10.4% Trends in direct and indirect taxes:
Before liberalization revenue taxes were more than 70% income
Since 1990-91 (post-liberalization), this trend got overturned due to economic development.
1990-1991 = Direct taxes = 19.1; indirect taxes = 80.9
2004-2005 = 43.3; 56.1
2009-2010 = 57.7; 42.0

INTERPRETATION

For the purpose of analysis of public revenue, I have considered gross tax revenue and non tax revenue. The figures for the years 2007-2012 are as follows-

(In Rs. Crore)
Years Gross Tax Revenue Non Tax Revenue
2007-2008 585410 93325
2008-2009 627949 96203
2009-2010 633095 112191
2010-2011 786888 116275
2011-2012 901664 124737
Source: indiabudget.nic.in

It is seen from the above table that the government of India gets its maximum revenue from taxation.

Under the tax revenues, I have considered two main taxes,
1. Corporate Tax
2. Income Tax

The corporate tax that the government earns during any year is almost twice as that of the Income tax. The corporate tax put together with the income constitutes about 50% the gross tax revenues.

The corporate tax has been gradually increasing in 2007, 2008, 2009 and 2010. but in 2010-2011, the taxes have increased by a great margin. From Rs. 1.68 lakh crores in 2007-2008 it went upto Rs. 2.55 lakh crores in 2009-2010 and finally Rs. 3.27 lakh crores in 2011-2012.

The income taxes has also been increasing at the same pace. With only Rs. 98 thousand crores in 2007-2008 it has gone upto Rs. 1.72 lakh crores in 2011-2012.

The government’s revenue also consists basically of capital receipts and revenue receipts.
PUBLIC DEBT

Public debt refers to government debt. It refers to Government borrowings from individuals, financial institutions, organisations and foreign countries. If revenue collected through taxes and other sources is not adequate to cover expenditure, the government may resort to borrowings. Thus public debt is one of the instruments to cover deficits in budget.
Over the years, the public debt of Central Government and that of State Government’s has increased during the planning period. In short, public debt refers to “obligations of governments, particularly those evidenced by securities, to pay sums to the holders at some future date”. Borrowed funds are utilised for development and non-development activities.

The following table shows the outstanding public debt of Central Government:

CENTRAL GOVERNMENT DEBIT (Crore) Debt 1990-91 2009-10
Internal.
External 1,54,004
31,525 23,37,682
1,39,581
Total 1,85,529 24,77,263

Source: Economic Survey 2010-11

The Central Governments debt has increased by 13.4 times between 1990-91 and 2009-10. In 2009-10, the outstanding debt of Central Government was 40.4% of GDP. Internal debt was 35.8% and External debt was 2.1%.

CLASSIFICATION / TYPES OF PUBLIC DEBT:

1) Internal and External Debt:
Government borrowings within the country are known as internal debt. The various internal sources from which the government borrows include individuals, banks, business firms and others. The various instruments of internal debt include market loans, bonds, treasury bills, ways and means advances etc. Over the years the internal debt of Central Government has increased from Rs. 1,54,004 crore in 1990-91 to Rs. 23,37,682 crore in 2009-10.
Borrowings by the government from abroad is known as external debt. The external debt comprises of- Multilateral borrowings, Bilateral borrowings, Loans from World Bank, Asian Development Bank, etc. Over the years the external debt of Central Government has increased from Rs.31,525 crore in 1990-91 to Rs. 1,39,581 crore in 2009-10.

2) Short Term, Medium Term and Long Term Debt:
Loans for a period of less than one year are known as short term debt. For eg., The treasury bills are issued by RBI on behalf of the government to raise funds for a period of 91 days and 182 days. To cover the temporary deficits in budget short term loans are taken.
The period of medium term debt is normally for a period above one year and upto 5 years. One of the main forms of medium term debt is by way of market loans. These are preferred to meet expenditure on health, education, relief work etc.
Loans for a period exceeding 5 years are called long term debt. One of the main forms of long term loans is by way of issue of bonds. Long term debt is required for the purpose of retirement of debts and also for the purpose of development projects.

3) Productive and Unproductive Debt:
Public debt is said to be productive when it is raised for productive purposes and is used to add to the productive capacity of the economy. These loans are utilised on development activities such as infrastructure development like roadways, railways, airports, seaports, power generation, telecommunications etc.
An unproductive debt is one which does not yield any income. For Eg. debts utilised for transfer payments in form of subsidies, old age pension, special incentives to weaker sections etc. Unproductive public loans are a net burden on the community.

4) Compulsory and Voluntary Debt:
Normally, the government does not obtain funds through compulsory means. The government may obtain such loans from banks, financial institutions and large corporate firms at time of war or major disaster, only when it is not possible to obtain voluntary debt. In India, Compulsory Deposit Scheme is an example of compulsory debt.
Generally, public loans are voluntary in nature. The voluntary debt may be obtained in the form of Market loans, bonds etc. People invest in voluntary debts from the point of view of liquidity and profitability.

5) Redeemable and Irredeemable Debt:
Loans which government promises to pay off at some future date are called redeemable debts. Their maturity period is fixed. The government has to make arrangements to repay the principal and interest on due date. These loans are repaid out of revenue receipts of government or by raising further loans.
Loans for which no promise is made by the government regarding their exact date of repayment are called irredeemable debts. Such debt has no maturity period. The government may pay interest regularly. Normally, government does not resort to such borrowings.

6) Funded and Unfunded Debt:
Funded debt is normally obtained on long - term basis. The interest on funded debt must be paid regularly. But the government has the option to repay the principal. If market conditions are favourable government may repay it before maturity. Funded debt comprises of securities which are marketable on stock exchange.
Unfunded debts are of short term. They are also known as floating debt. Unfunded debts are incurred to meet temporary needs of the government. The rate of interest is low. There is no special fund created to repay this debt.

COMPOSITION AND GROWTH IN TRENDS OF PUBLIC DEBT IN INDIA:
During recent years public debt in India has been growing at alarming rate, with the budget deficit increasing significantly. Debt obligation of Central Government are divided into internal liabilities and external debts. The following are the various components of public debt:

Internal Debt:
Internal debt refers to loans raised from open market. Internal debt of Central Government has increased from Rs.1,54,004 crores in 1990-91 to Rs.23,37,682 crores in 2009-10.
INTERNAL DEBT LIABILITIES OF GOVERNMENT OF INDIA

Year Rs. Crore % of GDP'
1990-91
2009-10 1,54,004
23,37,682 28.8
35.7
Source: Economic Survey 2010-11

Internal debt includes the following:
1. Market loans:
Market loans have a maturity period of 12 months or more and they generally bear interest. These loans are raised in the open market by sale of securities or otherwise. Market loan stood at 17,34,505 crore in 2009-10.
2. Treasury bills:
This is a major source of short term funds for the government to bridge the gap between revenue and expenditure. They have a maturity of 91 days, 181 days and 364 days Treasury bills are issued to the Reserve Bank of India, State Governments, Commercial Banks and other parties.
3. Security against Small Savings:
Under the new Accounting System of National Small Savings Funds (NSSF), a substantial part of small savings have been converted into Central Government Treasury bill from year 1999 – 2000.
4. Special Securities Issued by RBI:
The Government obtains temporary loans for a period of maximum 12 months from RBI and issues special securities, which are non-negotiable, and non-interest bearing. Such securities provide short term funds to the Government.
5. Special Floating and Other Loans:
It refers to the contribution of government towards the capital of International Financial Institutions such as International Monetary Fund, International Bank for Reconstruction and Development, and International Development Association. These are non - negotiable and non - interest bearing securities and the Government of India is supposed to make repayment at the call of these institutions.
6. Bonds and Expired Loans:
It comprises balance of expired loans, gold bonds and compensation and other bonds such as National Rural Development Bonds, Central Investment Bonds. The bonds are issued at different maturity periods which may range from 3 year to 10 year period
7. Ways and means Advances:
The government of India takes ways and means advances from RBI to meet its short period expenditure.

EXTERNAL DEBT:
Government obtains funds not only from internal sources but also from external sources. External debt has increased from Rs.31,525 crore in 1990-91 to Rs. 1,39,581 crore in 2009-10.

EXTERNAL DEBT OUTSTANDING OF CENTRAL GOVERNMENT
Year Rs Crore % of GDP
1990-91
2009-10 31,525
1,39,581 5.9
2.1
Source: Economic Survey 2010-11

According to Global Development Finance Report 2009, India is ranked as 7th largest debtor country in the world. This is a huge burden.
Long Term Debt comprises of Multilateral borrowings, Bilateral borrowings, loans from World Bank etc. The government also borrows funds from external sources for short-term period. In 2009-10, the short term external debt was about 20% of total external debt of Central Government.

BURDEN OF PUBLIC DEBT:
Over the years the Central Government’s outstanding debt has increased by 13.4 times between 1990-91 and 2009-10. Public debt puts a burden on the economy on account of repayment of principal amount and interest.

Internal debt puts burden on the citizens and on the social and economic development of the nation. Internal debt constitutes a redistribution of resources within the community. The direct real burden is on the economy. Internal debt also has indirect real burden. If indirect taxes are raised for repayment of internal debt, then inflation may take place. Inflation will reduce the purchasing power of the poor. Internal debt may indirectly affect private investment. Internal debt involves huge interest payments. Therefore, lesser funds are available with the Government for development activities such as infrastructure. Due to internal debt, there is higher interest burden. Higher burden results in availability of lower funds towards social development activities like health, education, family welfare, etc.

External debt is beneficial in the initial stages as it increases the resources available to the country. But its repayment and servicing creates a burden on the debtor country. External debt creates direct money burden. This is because it involves transfer of funds from the debtor country to foreign citizens. To repay public debt, the government may increase taxes or reduce public expenditure. Quite often, borrowed funds are utilised for non development and unproductive purposes. Sometimes, highly indebted countries borrow funds to repay the earlier debts. Such heavy borrowings to repay earlier debts put highly indebted countries in external debt trap. Recent example of 2010 crisis are European nations such as Portugal, Italy, Span and Ireland. If the external debt is incurred for unproductive purposes, it will create a greater burden and sacrifice on the citizens of the debtor country. The repayment of external debt puts a burden on foreign exchange reserves of a country.

Government – Deficit and Borrowing
If the Government of India spends more than it earns in a year it has to take a loan from someone. It issues Government securities which include bills and bonds. The public including mutual funds and insurance companies can buy these securities. Foreign institutional investors (FIIs) also can buy this government debt. In effect they lend money to the government. The government owes this money to the securities holders.
These securities have a rate of interest that is paid to the security holder. The securities are traded in debt markets. One mutual fund may buy a Government bond initially and sell it to an insurance company a few months later. Interest is paid out at fixed intervals to the bond-holder. Usually, when the the debt period is over (also called as maturity) the principal is paid back to the bond-holder thus settling the debt.

INTERPRETATION

The deficit is the difference between the money governments takes in, called receipts and what the Government spends called the outlays, each year. When there is a deficit, Treasury must borrow the money needed for the government to pay its bills. It borrows money by selling treasury securities like T-bills, savings bond to public. Additionally, the government trust funds are required by law to invest accumulated surpluses in Treasury securities. The Treasury securities then become part of the total debt.

One way to think about debt is as accumulated deficits.

CONCLUSION
India crippled with its public finances for long enough. When presenting its first budget after independence in1947, the finance minister of the day insisted that the country was not living beyond its means. Yet every budget since, has failed to produce a surplus. India borrows more heavily then typically big emerging economies and faces more periodic crisis. Chidambaram is the latest to try to tame the fiscal beast. He became finance minister for the third time last July. On February 28 he will present hid budget, possibly the last one before the ruling Congress party goes to the polls.

India’s economy is a concern. Growth is running about 5%, nearly half as it was once. The external deficit is at a record, while inflation remains stubbornly high. Last year India faced the threat of a downgrade of its credit rating to junk status. Thankfully Mr. Chidambaram has shaken Congress from its stupor. Subsidies mainly to fuel almost double to 2.4% of GDP. The central governments deficit has been 5-6.5% of GDP. Add in spending by the states, and India’s overall budget deficit has been running an 8-10% of the GDP.

When the economy was zipping along, the borrowing did not matter so much. For a while, the national debt factually felt as a proportion of the GDP, despite high budget deficits (the ratio is about70% today). But now with slow growth, a debt spiral is a real risk. Borrowing has taken a heavy toll. It has fueled inflation and balnce of payments gap. While crowding out the private investments in factories and infrastructure that India badly needs.

Mr. Chidambaram says that for the year to march 2013 he will limit the central government’s deficit to 5.3% of GDP. His budget is likely to project a modest decline to 4% by 2015. Chetan Ahya, an economist at Morgan Stanley, notes that the minister is squeezing spending; which fell by 9% in December. Subsidies on fuels are being cut. And the state is selling shares in Public companies.

In 2003, a Fiscal Responsibilities Act was passed to bind the politicians to fiscal rules. Meanwhile, the Reserve Bank of India keeps the debt market under its thumb. It forces banks to buy bonds, prevents foreign investments, an has propped up prices by buying bonds itself. It now owns 16% of the public debt, not far off the level in the year of crisis 1991.

Pressures tp spend will always exist, says Subir Gokarn, an economist and for person at the RBI. In such areas such as education and infrastructure, that is only right. So revenues need to rise. A new report by the IMF compares India with other countries, adjusting for their wealth. It implies that the India’s government revenues should be 25% of GDP. At present there are only 18%.

How to raise revenues? Selling of more badly run state firmed would help. Lots of state land lies idle and could also be sold. A recent mapping exercise in Ahmadabad, a modest sized city, concluded that $ 4 billion could be trained there.

But the tax system needs changing too. Before India launched market-friendly reforms in 1991, taxation meant clobbering manufacturers with custom and excise duties. Since then the mix has shifted to direct taxes on individuals and firms and indirect taxes on services, which make up 3/5th of GDP. (Farming, which employs half of all Indians, contributes only 1/7th of all GDP. And is largely exempted from tax.)

Much of the economy remains out of sight of the taxman. A lot of the service sectors is informal and cash based. The property market is notorious for black money. Big firms in the formal economy pay a decent rate of tax but many small business fall under the regime of for personal tax, where compliance is poor.

Surgeet Bhalla, of Oxus investments reckons income tax receipts are 2/3rd below what they should be. Just 32 million people or 25% of Indians pay income taxes.

Complexity discourages people from joining the formal economy and makes cheating easier. Each state has its own taxes, from the value added sort and levies on luxury goods to duty on entry to specific areas. To deal with this, the central government has a Goods and Services Tax (GST) in the works. Its aim is to unify the rates of indirect tax across India and replace a tangle of local taxes. It should cut red tape and encourage more activity, such as, construction to enter the formal economy, says Vijay kalkar of the India development foundation. Encouragingly, rationalization of codes for direct tax is also on the government’s to-do list.

The 1st print of these measures is still being debated. They have been in works for years. Some worries to win over the states, the government will dilute the impact of GST. Yet these reforms have the potential to bring more of the economies into the tax net, raising revenue by several percentage points of GDP. When Mr. Chidambaram speaks on February 28, it will be promises about progress on tax reform rather than about the deficit 2 years hence that will signal whether India is ready to cast off its Fiscal chains.

INDIA BUDGET 2007-08
One of the major aspects of the 2007-08 union budget was targeting the high risk groups as part of the government’s HIV/AIDS initiatives. The government also aimed to add 50 lakh farmers to the banking system in that period and set aside INR 500 crores for the National Agricultural Insurance Schemes. 100 crore rupees were also allocated for agricultural insurance in this fiscal. INDIA BUDGET 2008-09
As per the 11th Five Year Plan INR 179,954 crores were allocated as part of the Central Plan and this was 16% higher than the previous fiscal. The bharat nirman project was supposed to be allocated 31,280 crore rupees. 130 crore rupees were allocated as part of the jawahar navodaya vidyalaya programm and 1000 scholarships were awarded aspart of the national meanscum merit scholarship plan. INDIA BUDGET 2009-10 the union government increased its allocation to the national jighways authority of India for the national highway development programme by 23%. The railways were provided Rs. 15800 crore in the same period the Jawaharlal Nehru National Urban Renuewal Mission received Rs. 12887 crore which was 87% more than the previous fiscal. The llotment foe providing basic facilities and housing to the Urban poor in India was increased to INR Rs. 3973 crore as well.

INDIA BUDGET 2010-11
The government waived off the excise duty on solar panels and exempted accredited news agency from service taxes. The government also made a count auditing regulatory for all earnings in excess of Rs. 15 lajkhs. The tax net was also widened to include more services.

INDIA BUDGET 2011-12
The management system was more result oriented and transparent. It is expected that the budget will help India achieve a growth rate of 9%. The government has also targeted a revenue of Rs. 40000 crore from disinvestment. public sector banks will be provided INR Rs. 6000 crore in that perion so that they could have a minimum Tier1 CRAR of 8%.
However these efforts have helped a lot in the growth of the Indian economy.

KEY FEATURES OF THE LATEST BUDGET

For Indian economy, recovery was interrupted this year due to intensification of debt crises in Euro zone, political turmoil in Middle East, rise in crude oil price and earthquake in Japan. GDP is estimated to grow by 6.9 per cent in 2011-12, after having grown at 8.4 per cent in preceding two years.

DISINVESTMENT POLICY: Government has further evolved its approach to divestment of Central Public Sector Enterprises by allowing them a level playing field vis-à-vis the private sector in respect of practices like buy backs and listing at stock exchanges. For 2012-13, Rs. 30,000 crore to be raised through disinvestment.

INFRASTRUCTURE AND INDUSTRIAL DEVELOPMENT: During Twelfth Plan period, investment in infrastructure to go up to Rs. 50 lakh crore with half of this, expected from private sector. Allocation of the Road Transport and Highways Ministry enhanced by 14 percent to Rs. 25,360 crore.

TEXTILES: Government has announced a financial package of Rs. 3,884 crore for waiver of loans of handloom weavers and their cooperative societies.

MICRO, SMALL AND MEDIUM ENTERPRISES: Rs. 5,000 crore India Opportunities Venture Fund to be set up with SIDBI. To enable greater access to finance by Small and Medium Enterprises (SME), two SME exchanges launched in Mumbai recently.

AGRICULTURE: Plan Outlay for Department of Agriculture and Co-operation increased by 18 percent. Initiative of Bringing Green Revolution to Eastern India (BGREI) has resulted in increased production and productivity of paddy.

RIDF (Rural Infrastructure Development Fund): Allocation under RIDF enhanced to Rs. 20,000 crore. Rs. 5,000 crore earmarked exclusively for creating warehousing facilities.

EDUCATION: For 2012-13, Rs. 25,555 crore provided for RTE-SSA representing an increase of 21.7 per cent over 2011-12.

HEALTH: Vaccine units to be modernised and new integrated vaccine unit to be set up in Chennai.

SECURITY: A provision of Rs. 1,93,407 crore made for Defence services including Rs. 79,579 crore for capital expenditure.
COMMON TERMS OF THE INDIAN UNION BUDGET:
Assets with banking system
It includes current account balances with other banks, advances to banks and money at call and short notice of a fortnight or less.

Ad-valorem duties
This is a Latin term and it used to refer to duties that are levied on commodities/products as a certain percentage of their price.

Appropriation Bill
It is like a green signal enabling the withdrawal of money from the Consolidated Fund to pay off expenses. These are instruments that Parliament clears after the demand for grants has been voted by the Lok Sabha.

Aggregate demand & supply
It is the sum of all demand in an economy.
Balance of Payment
An overall statement of a country`s economic transactions with the rest of the world over some period, often a year. A table of the balance of payments shows amounts received from the rest of the world and amounts spend abroad.

Budgetary Deficit
Such a situation arises when the expenses exceed the revenues. Here the entire budgetary exercise falls short of allocating enough funds to a certain area.

Budget Estimates
These estimates contain an estimate of Fiscal Deficit and the Revenue Deficit for the year.
Bond
A certificate of debt (usually interest-bearing or discounted) that is issued by a government or corporation in order to raise money; the issuer is required to pay a fixed sum annually until maturity and then a fixed sum to repay the principal.

Bear
An investor with a pessimistic market outlook; an investor who expects prices to fall and so sells now in order to buy later at a lower price.
Bull
An investor with an optimistic market outlook; an investor who expects prices to rise and so buys now for resale later.

Bank credit
It includes loans, cash credit and overdrafts, and inland bills and foreign bills purchased and discounted. Bills exclude those rediscounted with RBI and IDBI.

Bank credit to commercial sector
It includes credit to commercial sector by RBI and commercial banks. RBI`s credit includes advances to and investments in shares and debentures of financial institutions, and land mortgage banks.
Borrowings by commercial banks
From RBI constitute outstanding against refinance schemes, like general refinance, and export credit refinance.

Cash balances with RBI
Indicates cash balances maintained by scheduled banks with RBI and include these balances under cash reserve ratio (CRR) requirements.

Capital Budget
The word, capital, is long-term in nature. Capital Budget keeps track of the government`s capital receipts and payments.

Capital Payments
Expenses incurred on acquisition of assets are termed capital payments.

CENVAT
This is a replacement for the earlier MODVAT scheme and is meant for reducing the cascade effect of indirect taxes on finished products
Central Plan Outlay
It is the division of monetary resources among the different sectors in the economy and the ministries of the government.
Custom Duties
These duties are levied on goods whenever they are either brought into the country or exported from the country. The importer or the exporter pays custom duties.

Countervailing Duties
This is levied on imports that may lead to price rise in the domestic market. It is imposed with the intention of discouraging unfair trading practices by other countries.

Consolidated Fund
This is one big reservoir where the government pools all its funds together. The fund includes all government revenues, loans raised and recoveries of loans granted.

Contingency Fund
The government has created this fund to help it tide over difficult situations. The fund is at the disposal of the President to meet unforeseen and urgent expenditure, pending approval from Parliament
Capital Expenditure
Long-term in nature they are used for acquiring fixed assets such as land, building, machinery and equipment.
Capital Receipt
Loans raised by the Center from the market, government borrowings from the RBI & other parties, sale of Treasury Bills and loans received from foreign governments all form a part of Capital Receipt.
Central Plan
It refers to the government`s budgetary support to the Plan and, the internal and extra budgetary resources raised by the Public Sector Undertakings.

Consumer price index
A price index covering the prices of consumer goods. This is contrasted with a more general price index, such as the GDP deflator, which also includes investment gods and goods purchased by the government.

Corporate Tax
A tax on the profits of firms, as distinct from taxation of the incomes of their owners. There are strong arguments for having separate income tax schemes for firms and individuals the system of allowances and progressive tax rates appropriate for a tax on individual incomes is quite different from a sensible scheme for taxing firms.
Currency liability
The currency liability of Central government constitutes one-two-five rupee coins, small coins, and other commemorative coins issued by the government mints.
Current Account Deficit
An excess of expenditure over receipts on current account in a country`s balance of payments.

Current Account Surplus
An excess of receipts over expenditure on current account in a country`s balance of payments.

Direct Taxes
Taxes imposed directly on the customers such as the Income Tax and the Corporate Tax fall under this category.

Disinvestment
The dilution of the government`s stake in Public Sector Undertakings is called as disinvestment.

Demand for grants
It is a statement of estimate of expenditure from the Consolidated Fund. This requires the approval of the Lok Sabha.

Demand deposits
It include current deposits, demand liabilities portion of savings bank deposits, overdue deposits and cash certificates, outstanding telegraphic and mail transfers and margins against letter of credit/guarantees.

Deposit money
It consists of demand deposits with commercial and cooperative banks. It also includes current deposits portion of savings bank deposits. These deposits do not earn any interest.

Demand for grants
It is a statement of estimate of expenditure from the Consolidated Fund. This requires the approval of the Lok Sabha.

Excise Duty
A tax levied on the consumption of particular goods. These may be levied to raise government revenue, and are often levied at higher rates on goods whose consumption is believed to have adverse effects on public health, public order, or the environment.
Foreign Direct Investment
The acquisition by residents of a country of real assets abroad. This may be done by remitting money abroad to be spent on acquiring land, constructing buildings, mines, or machinery, or buying existing foreign business.
Finance Bill
Consists the government`s proposals for the imposition of new taxes, modification of the existing tax structure or continuance of the existing tax structure beyond the period approved by the Parliament.

Fiscal Deficit
It is the difference between the Revenue Receipts and Total Expenditure.

Gross National Product
Total market value of the finished goods and services manufactured within the country in a given financial year, plus income earned by the local residents from investments made abroad, minus the income earned by foreigners in the domestic market.

Gross Domestic Product (GDP)
One of the main measures of economic activity. `Gross` indicates that it is calculated without subtracting any allowance for capital consumption; `domestic` that it measures activities located in the country regardless of their ownership.
Gross Investment
Spending on creating new capital goods, before making any allowance for capital consumption. Gross investment consists of gross fixed investment, plus net investment in stocks and work in progress.
Income Tax
A tax on income. The income tax is usually progressive.
Inflation
A persistent tendency for prices and money wages to increase.
Indirect Taxes
Taxes imposed on goods manufactured, imported or exported such as Excise Duties and Custom Duties.

MODVAT
It stands for Modified Value Added Tax and is a way of giving some relief to the final manufacturers of goods on Excise Duties borne by their suppliers.

Monetized Deficit
Measures the level of support the RBI provides to the Centre`s borrowing program.

Medium term loan
It is granted for 1-3 years. Long-term loans are for more than 3 years.

Merchandise Account
The part of balance-of-payments accounts referring to visible trade, or merchandise imports and exports.

Non-Plan Expenditure
Consists of Revenue and Capital Expenditure on interest payments, Defense Expenditure, subsidies, postal deficit, police, pensions, economic services, loans to public sector enterprises and loans as well as grants to State governments, Union territories and foreign governments.

Net bank credit to government includes total net credit to Central and State governments by RBI and commercial banks. Credit to government by commercial banks indicates investments by banks in government securities.

Net foreign exchange assets with banks include net foreign exchange with RBI and commercial banks. Foreign exchange assets of commercial banks include net foreign currency balances with authorised foreign exchange dealers.

Net non-monetary liabilities of the banking sector indicate net non-monetary liabilities, other than time deposit liabilities of commercial banks, and net non-monetary liabilities of RBI. These include capital and reserves, branch adjustments, and bills payables; the liabilities are net of investments in fixed assets, and branch adjustments.

Peak Rate
It is the highest rate of Custom Duty applicable on an item.
Performance Budget
It is a compilation of programs and activities of different ministries and departments.

Public Account
It is an account where money received through transactions not relating to consolidated fund is kept.

Plan Expenditure
Consists of both Revenue Expenditure and Capital Expenditure of the Center on the Central Plan, Central Assistance to States and Union Territories.

Primary Deficit
Fiscal Deficit minus Interest payments.
Reserve money refers to money supplied by RBI and Central government. This indicates monetary liability of RBI and the government of India to public including banks. The reserve money, or currency notes and coins, is held by public and banks in their currency chests and as deposits with RBI. It also includes "other" deposits with RBI.

Revenue Deficit
It is the difference between Revenue Expenditure and Revenue Receipts.

Revenue Surplus
Opposite of Revenue Deficit, it is the excess of Revenue Receipts over Revenue Expenditure.

Revised Estimates
Usually given in the following budget, it is the difference between the Budget Estimates and the actual figures.

Revenue Budget
Consists of Revenue Receipts and Revenue Expenditure of the government.

Revenue Receipt
Consists of duties imposed by the Centre, interest and dividend on investments made by the government.

Revenue Expenditure
Expenditure incurred for the normal functioning of the government departments and various other services such as interest charges on debt incurred by the government.

Scheduled banks are banks, which are included in the second schedule to the Reserve Bank of India Act 1934. These banks enjoy certain privileges such as free concessional remittance facilities and financial accommodation from the RBI. They also have certain obligations like minimum cash reserve ratio (CRR) to be kept with the RBI.

Subsidies
Financial aid provided by the Center to individuals or a group of individuals to be competitive. The grant of subsidies is also aimed at improving their skills of those who benefit from the subsidies.

Term deposits are deposits with a fixed maturity of not less than 15 days. This would also include cash certificates, and cumulative or recurring deposits, but would exclude interest accrued and payable on these deposits.

Value Added Tax
It is based on the difference between the value of the output over the value of the inputs used.

Wholesale Price Index
The prices of goods, which are dealt with, wholesale, mainly bulk goods, which are mostly inputs to production rather than finished commodities.
CONCLUSION
• Attempts must be made to contain most revenue expenditures within the revenues raised by the government so that government’s net borrowing is only for productive purposes.
• Reduction in current expenditure for Government staff.
• Reduction in subsidies and grants.
• Encouragement of foreign investments should be done.
• More disinvestments by the government handing over the sick units to the private sector for development.
• Proper monitoring of public expenditure because if the expenditure is less and efficient the need for debt automatically reduces.
• There is an urgent need for creating CSF( Consolidated Sinking Fund) to break the vicious cycle of burden of debt and repayment.