A budget as we all know is a document projecting the likely future incomes accruing in a country and the likely future expenditures in a period of 1 year.
A Budget allocates funds to various sectors of the economy as per the priorities of the Government and also deals with taxation and market/external borrowings to bridge the gap that arises out of shortage of Income over expenditure.
Despite resorting to additional taxation, as well as other measures like market and other borrowings, the budgetary gap in India remains unfilled and this is left uncovered. This is known as the fiscal deficit. The government would have to print additional currency notes to fill in this uncovered deficit and this leads to inflation as the money supply in the country expands.
It is normal for countries to have a budgetary deficit, but it should be ensured that the deficit does not get out of hand. If Greece is in distress today it is because of indiscriminate spending without bothering about fiscal deficit. So it went in for more and more borrowings till the time the loan burden became unserviceable.
There are two components in the union budget and they are:
1.Revenue Budget: It includes
a) Revenue Receipts of the Government received by way of taxation as well as other receipts
b) Revenue expenditure of the Government which is all expenditure incurred in running the government and all other expenditure spent on the public. This includes all the expenditure made by the government except capital expenditure.
2.Capital Budget: It includes
a) The Capital Receipts of the Government received by way of loans, small savings and recoveries of loans given to state governments
b)Capital Expenditure which is all the expenditure made in creation of a capital assets like buildings, machinery etc.
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