Page 136 - DMGT401Business Environment

Unit 6: Fiscal Policy

6.1.2 Capital Budgets Notes

1. Capital Receipts: This includes loans raised by the government from the public called
market loans, borrowings by the government from RBI and other parties through sale of
treasury bills, loans received from foreign bodies and governments, and recoveries of
loans granted by the union government to states and union territory governments and
other parties.
2. Capital Payments: These payments consist of capital expenditure on acquisition of assets
like land, buildings, machinery, equipment, infrastructure, as also investment in shares,
etc. and loans and advances granted by the union government to state and union territory
government companies, corporations and other parties.
6.1.3 Expenditures of Central Government

All public expenditure is classified into:
1. Non-planned Expenditure: Non-plan expenditure of the central government is divided
into revenue expenditure and capital expenditure. Revenue expenditure includes: interest
payment, defence revenue expenditure, major subsidies (export, food and fertilizer), interest
and other subsidies, debt relief to farmers, postal deficit, police, pension and other general
services, social service, economic service (agriculture, industry, power, transport,
communications, science and technology, etc.) and grants to states and union territories,
and to foreign governments. Capital non-plan expenditure includes such items such as
defence capital expenditure, loans to public enterprises, loans to states and union territories
and loans to foreign governments.
2. Planned Expenditure: Plan expenditure is meant to finance central plans drawn up for
agriculture, rural development, irrigation and flood control, and industries like energy,
minerals, transport, communications, science and technology, environment, social services
and others. Plan expenditure also includes central assistance for plans of states and union
territories.

6.1.4 Budgets of State Government

In India, each State Government prepares its own budget of income and expenditure every year.
State Governments collect revenue from different sources to meet their expenditure.

Example: The important sources of revenue for states are VAT (earlier sales tax), grants,
aid and other contributions from the centre, the states own non-tax revenue consisting of interest
receipts, dividends, profits, general services (of which state lotteries are the most important),
social services and economic services.
Besides this, the state also collects taxes on income and commodities and imposes income tax on
agriculture and other professions. It also receives income from taxes on property and capital
transactions. The main sources are land revenue, stamps, and registration, and tax on urban and
immovable property.
States also charge commodity taxes like motor vehicle tax, electricity duties, etc. The state is also
empowered to impose taxes on alcoholic liquor, opium, Indian hemp, and other narcotics.

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