As we know the Indian government prepares an annual budget for every financial year explaining the government plans for the expenditure of the upcoming year. But have you ever thought that from where does so much money comes to the government?
In this article, we are going to discuss the Indian government’s revenue sources. The contents of the article will include
- Basic Functions of Indian Government
- Structure of Government Budget
- Revenue receipts
- Capital receipts
Basic Functions of Indian Government
First of all, let’s take a glimpse of the functioning of the Government. The government has 3 basic functions namely allocation, distribution, and stabilization.
Allocation: allocating budget for social welfare services like Education, Health, water, Infrastructure, etc. Government avails these services for the general public at the cheapest rates possible if not free.
Distribution: It is the responsibility of the government to reduce the difference between the rich and poor and try to distribute wealth equally among them so that there would not be a huge difference in their standard of living. To achieve this government enforces progressive taxation in the country. (for example in India, if you have an income of less than 5 lakh per annum, you don’t have to pay any income Tax, else if you have an income of more than 5 lakh, you are entitled to pay income tax according to the slab rate given below).
Stabilization: It is the duty of the government to keep the economy of the country Stabilized. Whenever there is a huge drop in demand for some goods in the free market, the production of those goods will decline and that will lead to unemployment. The government’s role in this situation is to somehow raise the demand for those goods. To achieve that, the government may purchase those goods in huge quantities from the free market which results in again rise in the demand for those goods, which will keep a check on unemployment.
On the other hand, whenever there is a huge demand for some goods in the free market, Inflation will rise (i.e. prices of those goods will rise). The government’s role in this situation is to somehow fulfill this demand. For that, the government has to do the preplanning. Government has to keep the storage of such goods which are expected to be in high demand in the future. For Example, in India whenever there is a huge demand for onions in the market, the government’s role here is to bring the onions(which they stored) in the market to keep the inflation checked.
Structure of Government Budget
Next, let’s take a look at the basic structure of the Government Budget’s Receipts before explaining it in detail one by one.
Revenue receipts
Tax Revenue receipts include all the taxes that government imposes like income tax, Corporate tax, Goods and services tax, Excise tax, customs tax, etc.
Non-Tax Revenue receipts include
- interest receipts
- Dividends and profits from PSUs(Public sector undertakings like steel authority of India, Hindustan machine tools, Bharat heavy electricals, etc)
- profit from Indian Railways and RBI
- money collected in the form of fees and penalties by various ministries of the government.
Capital Receipts
Non-Debt Capital receipts are those receipts that don’t create debt on the government which includes
- Loan repayments of the loan which is given by the Central government to the state government.
- Disinvestment of PSUs(Public sector undertakings) like recently done in ONGC, Air India, BSNL, etc.
Debt Capital Receipts are those receipts that create debt on the government which includes
- Loans raised by the government for private banks
- Borrowings from RBI
- Loans raised from international organizations like World Bank
- Bonds issued by the government
You may refer to this video if you want the explanation in Hindi
