Public Finance in India — Budget Structure, Deficits, FRBM, GST, Subsidies

1) What is public finance?

Public finance studies:

• government revenues,
• government expenditures,
• public debt,
• fiscal policy and its macro effects.

In India, “Union Budget” is the key annual fiscal document.

2) Government budget: basic structure

2.1 Receipts vs expenditure

• Receipts: money government receives.
• Expenditure: money government spends.

2.2 Revenue vs capital (very testable)

Revenue receipts (do not create liability / do not reduce assets):

• tax revenue: direct + indirect taxes,
• non-tax revenue: dividends, fees, interest receipts.

Capital receipts (create liability or reduce assets):

• borrowings,
• disinvestment/privatization proceeds,
• recovery of loans.

Revenue expenditure:

• day-to-day running expenses: salaries, interest payments, subsidies, pensions.

Capital expenditure:

• creates assets or reduces liabilities: infrastructure, loans to states, equity infusion.

Key CUET angle: Capital expenditure is generally more “growth-enhancing” than revenue expenditure, but both can be necessary.

3) Fiscal deficits and related concepts (high-yield)

Let:

• $TE$ = total expenditure
• $TR$ = total receipts excluding borrowings