When revenue disbursement exceeds receipts, the government would have to borrow. Such borrowing is considered regressive as it is for consumption and not for creating assets. It results in a greater proportion of revenue receipts going towards interest payment and eventually, a debt trap. The FRBM Act, which we will take up later, requires the government to reduce fiscal deficit to zero by 2008-09.
Public debt: Public debt receipts and public debt disbursals are borrowings and repayments during the year, respectively. The difference is the net accretion to the Get More Info public debt. Public debt can be split into internal (money borrowed within the country) and external (funds borrowed from non-Indian sources). Internal debt comprises treasury bills, market stabilisation schemes, ways and means advance, and securities against small savings.
Treasury bills (T-bills): These are bonds (debt securities) with maturity of less than a year. These are issued to meet short-term mismatches in receipts and expenditure. Bonds of longer maturity are called dated securities.
Market stabilisation scheme: The scheme was launched in to strengthen RBI’s ability to conduct exchange rate and monetary management. These securities are issued not to meet the government’s expenditure but to provide RBI with a stock of securities with which it can intervene in the market for managing liquidity.
Ways and means advance (WMA): One of RBI’s roles is to serve as banker to both central and state governments. In this capacity, RBI provides temporary support to tide over mismatches in their receipts and payments in the form of ways and means advances.
Securities against small savings: The government meets a small part of its loan requirement by appropriating small savings collection by issuing securities to the fund
Miscellaneous receipts: These are receipts from disinvestment in public sector undertakings. Capital account receipts of the consolidated fund – public debt, recoveries of loans and advances, and miscellaneous receipts and revenue receipts are receipts of the consolidated fund.
We now take up the disbursements on capital account from the consolidated fund. The first part deals with capital expenditure incurred on general, social and economic services. Some of the biggest expenditure items under these heads are defence services, investment in agricultural financial institutions and capital to railways.
The consolidated fund has certain disbursements ‘charged’ to the fund. These are obligations that have to be met in any case and, therefore, do not have to be voted by the Lok Sabha. These include interest payments and certain expenditure such as emoluments of the President, salary and allowances of speaker, deputy chairman of the Rajya Sabha, and allowances and pensions of Supreme Court judges, Parliament and so on.
Receipts in the capital account of the consolidated fund are grouped under three broad heads – public debt, recoveries of loans and advances, and miscellaneous receipts
Budget at a glance This is a snap shot of the budget for easy understanding. Nonetheless, it introduces some new concepts. While receipts are broken down into revenue and capital, unlike the consolidated fund, it shows the centre’s net tax revenues. This is because a decent part of the gross tax revenue, as decided by the relevant Finance Commission, flows to the state governments. Budget at a glance also segments expenditure into plan and non-plan expenditure, instead of splitting into revenue and capital. Each of these is then split into revenue account and capital account. Before discussing plan and non-plan expenditure it is important to discuss the concept of the central plan.
Central plan: Central or annual plans are essentially Five Year Plans broken down into annual instalments. Through these plans, the government achieves the objectives of the Five Year Plans. The central plan’s funding is split almost evenly between government support (from the budget) and internal and extra budgetary resources of public enterprises. The government’s support to the central plan is called budget support. We will take up plan and non-plan expenditure in the next part.