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Every receiving or accrual of money to a government by revenue and non- revenue sources is a receipt. Their sum is called total receipts. It includes all incomes as well as non-income accruals of a government.
Revenue receipts of a government are of two kinds—Tax Revenue Receipts and Non-tax Revenue Receipts—consisting of the following income receipts in India:
This includes all money earned by the government via the different taxes the government collects, i.e., all direct and indirect tax collections.
This includes all money earned by the government from sources other then taxes. In India they are:
(i) Profits and dividends which the government gets from its public sector undertakings (PSUs).
(ii) Interests recieved by the government out of all loans forwarded by it, be it inside the country (i.e., internal lending) or outside the country (i.e., external lending). It means this income might be in both domestic and foreign currencies.
(iii) Fiscal services also generate incomes for the government, i.e., currency printing, stamp printing, coinage and medals minting, etc.
(iv) General Services also earn money for the government as the power distribution, irrigation, banking, insurance, community services, etc.
(v) Fees, Penalties and Fines received by the government.
(vi) Grants which the governments receives—it is always external in the case of the Central Government and internal in the case of state governments.
All expenditures incurred by the government are either of revenue kind or current kind or compulsive kind. The basic identity of such expenditures is that they are of consumptive kind and do not involve creation of productive assets. They are either used in running of a productive process or running a government. A broad category of things that fall under such expenditures in India are:
(i) Interest payment by the government on the internal and external loans;
(ii) Salaries, Pension and Provident Fund paid by the government to
government employees;
(iii) Subsidies forwarded to all sectors by the government;
(iv) Defence expenditures by the government;
(v) Postal Deficits of the government;
(vi) Law and order expenditures (i.e., police & paramilitary);
(vii) Expenditures on social services (includes all social sector expenditures as education, health care, social security, poverty alleviation, etc.) and general services (tax collection, etc.);
(viii) Grants given by the government to Indian states and foreign countries.
If the balance of total revenue receipts and total revenue expenditures turns out to be negative it is known as revenue deficit, a new fiscal terminology used since the fiscal 1997–98 in India.8
This shows that the government’s Revenue Budget (see the next topic) is running in losses and the government is earning less revenue and spending more revenues—incurring a deficit. Revenue expenditures are of immediate nature (this has to be done) and since they are consumptive/non-productive they are considered as a kind of expenditure which sums up to a heinous crime in the area of fiscal policy. Governments fulfil the gap/deficit with the money which could have been spent/intvested in productive areas.
A government might have its revenue expenditures less than its revenue receipts, i.e., having (revenue surplus) budget. Such fiscal policy is considered good where the government has been able to manage some money out of its revenue budget which could be spent for the creation of productive assets. Yes, another thing that should be kept in mind, as how the government has managed this surplus and whether the policies which made this happen are judicious enough or not. In the Second Plan, India emerged as a revenue- suplus state, but experts did not appreciate it as it had many bad impacts on the economy—higher tax rates culminated in tax evasion, corruption, creation of black money, etc.
Revenue deficit may be shown in the quantitative form (as how much the
gross/total deficit is in currency terms) or in percentage terms of the GDP for that particular year (shown as percentage of GDP). Usually, it is shown as a percentage of the GDP for domestic as well as international analyses.
Effective revenue deficit (ERD) is a new term introduced in the Union Budget 2011–12. Conventionally, ‘revenue deficit’ (RD) is the difference between revenue receipts and revenue expenditures. Here, revenue expenditures includes all the grants which the Union Government gives to the state governments and the UTs—some of which create assets (though these assets are not owned by the Government of India but the concerned state governments and the UTs). According to the Finance Ministry (Union Budget 2011–12), such revenue expenditures contribute to the growth in the economy and therefore, should not be treated as unproductive in nature like other items in the revenue expenditures. And on this logic, a new methodology was introduced to capture the ‘effective revenue deficit’, which is the Revenue Deficit ‘excluding’ those revenue expenditures of the Government of India which were done in the form of GoCA (grants for creation of capital assets).
The GoCA includes the Government of India grants forwarded to the states & UTs for the implementation of the centrally sponsored programmes such as Pradhan Mantri Gram Sadak Yojana, Accelerated Irrigation Benefit Programme, Jawaharlal Nehru National Urban Renewal Mission, etc., these expenses though they are shown by the Government of India in its Revenue Expenditures they are involved with asset creation and cannot be considered completely ‘unproductive’ like other items put in the basket of the Revenue Expenditures—the reason why a new ‘terminology’ was created.
The term was innovated by the Government of the time to show some rationale in its high revenue deficit by bringing the logic that all of it were not like a typical revenue expenditure (which are consumptive in nature) and some of it were used to create ‘capital assets’ also (though they cannot be shown in the ‘capital’ heads of expenditures). Though, the new Government at centre does not give the same significance to the term, it has been releasing data related to it.
The Union Budget 2017-18 has committed to reduce the effective revenue deficit to 0.7 per cent in 2017-18 and 0.2 per cent in 2018-19 (it was estimated to be 1.2 per cent for 2016-17). While the revenue deficits for 2017-18 and 2018-19 have been set at 1.9 per cent and 1.4 per cent by the budget.
The part of the Budget which deals with the income and expenditure of revenue by the government.
This presents the annual financial statement of the total revenue receipts and the total revenue expenditure—if the balance emerges to be positive it is a revenue surplus budget, and if it comes out to be negative, it is a revenue deficit budget.
The part of the Budget which deals with the receipts and expenditures of the capital by the government. This shows the means by which the capital is managed and the areas where capital is spent.
All non-revenue reciepts of a government are known as capital receipts. Such receipts are for investment purposes and supposed to be spent on plan- development by a government. But the receipts might need their diversion to meet other needs to take care of the rising revenue expenditure of a government as the case had been with India. The capital receipts in India include the following capital kind of accruals to the government: