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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 debtwhat 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.
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