(a) (i) From the information given in the diagram, categorize the items into revenue receipts and capital rece

Question 34 of 54

Figure — CBSE Class 12 Economics government budget: pie chart 'Where India gets its money from' for every one rupee the government earns - Corporation tax 21 paise, Borrowings and other liabilities 20, GST and other taxes 19, Income tax 16, Non-tax revenue 9, Excise duties 8, Customs 4, Recovery of loan 3. — FigureCBSE Class 12 Economics government budget: pie chart 'Where India gets its money from' for every one rupee the government earns - Corporation tax 21 paise, Borrowings and other liabilities 20, GST and other taxes 19, Income tax 16, Non-tax revenue 9, Excise duties 8, Customs 4, Recovery of loan 3.

Q. (a)

(i) From the information given in the diagram, categorize the items into revenue receipts and capital receipts, stating valid reasons. [Diagram – WHERE INDIA GETS ITS MONEY FROM? For every ₹ 1 that the Govt. earns : Corporation tax 21 paise | Recovery of loan 3 paise | Non-tax revenue 9 paise | Borrowings and other liabilities 20 paise | GST and other taxes 19 paise | Customs 4 paise | Income tax 16 paise | Excise duties 8 paise]

(ii) Distinguish between Revenue deficit and Fiscal deficit.

(OR)

(b)

(i) From the following data, calculate the primary deficit. (Amount in ₹ crore) |

(i) Revenue deficit | 40 |

(ii) Non-debt creating capital receipts | 190 |

(iii) Tax revenue | 125 |

(iv) Capital expenditure | 220 |

(v) Interest payments | 20 |

(ii) Elaborate ‘Economic stability’ function of the Government Budget.

Goa GbshseCBSE Class XII Board 2023Subjective· 6mImportance★★★★★

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Part (a)Concept understanding — Fiscal Deficit Definition

Fiscal Deficit: What It Really Means

Think of your household budget. If your monthly expenses exceed your income, you have a shortfall. You cover it by borrowing from someone — a friend, a bank. That shortfall is your personal "deficit."

Now scale that up to the entire country. The government earns money (mostly through taxes) and spends money (on roads, salaries, defence, subsidies). When the government's total spending exceeds its total non-borrowed income, it runs a fiscal deficit. It's the gap the government must fill by borrowing.

The Precise Definition (NCERT Class 12)

The NCERT Macroeconomics textbook defines fiscal deficit as:

Fiscal Deficit = Total Expenditure − Total Receipts excluding borrowings

Let's unpack that. "Total Receipts excluding borrowings" means all the money the government gets without going into debt — mainly tax revenue and non-tax revenue (like fees, dividends from public sector companies, etc.). Borrowings are not counted as "receipts" here because they are the source of finance for the deficit, not income.

So the formula is:

\text{Fiscal Deficit} = \text{Total Expenditure} - \text{(Revenue Receipts + Non-debt Capital Receipts)}

Where:

Total Expenditure = Revenue Expenditure (day-to-day running costs) + Capital Expenditure (building assets like highways, dams)
Revenue Receipts = Tax revenue + Non-tax revenue (fees, fines, dividends)
Non-debt Capital Receipts = Money from selling government assets (disinvestment), loan recoveries — these don't create debt

The fiscal deficit is not the same as "total borrowing." It is the amount that must be borrowed. In practice, the government covers this gap by:

Borrowing from the market (selling bonds)
Borrowing from the RBI
Drawing down cash balances

Why Does It Matter?

A fiscal deficit isn't automatically bad — it depends on why it exists and how it's financed.

When it's good: If the government borrows to build a national highway network, that creates jobs, boosts transport, and generates future tax revenue. The deficit is an investment.

When it's bad: If the deficit is caused by wasteful subsidies or paying salaries without any productive outcome, and the government keeps borrowing year after year, it piles up debt. Future generations must repay it. Large deficits can also fuel inflation if the RBI prints money to finance them.

Important

The fiscal deficit is the single most watched number in the Union Budget. It tells you how much the government is living beyond its means. A high fiscal deficit (say, above 6% of GDP) signals stress; a low one (below 3%) signals fiscal discipline.

A Simple Diagram (in words)

Imagine a vertical bar representing total government expenditure. Below it, a shorter bar represents total receipts (excluding borrowings). The gap between the top of the expenditure bar and the top of the receipts bar is the fiscal deficit. That gap is filled by borrowings.

Total Expenditure:  |████████████████████████████████|
                    |                                |
                    |           FISCAL DEFICIT       |
                    |           (borrowings)         |
Total Receipts:     |████████████████████████        |
                    |                                |
                    |   Revenue + Non-debt Capital   |
                    |________________________________|
``` …

Part (b)Concept understanding — Fiscal Deficit Definition

Fiscal Deficit: What It Really Means

The Precise Definition (NCERT Class 12)

The NCERT Macroeconomics textbook defines fiscal deficit as:

Fiscal Deficit = Total Expenditure − Total Receipts excluding borrowings

So the formula is:

\text{Fiscal Deficit} = \text{Total Expenditure} - \text{(Revenue Receipts + Non-debt Capital Receipts)}

Where:

Total Expenditure = Revenue Expenditure (day-to-day running costs) + Capital Expenditure (building assets like highways, dams)
Revenue Receipts = Tax revenue + Non-tax revenue (fees, fines, dividends)
Non-debt Capital Receipts = Money from selling government assets (disinvestment), loan recoveries — these don't create debt

The fiscal deficit is not the same as "total borrowing." It is the amount that must be borrowed. In practice, the government covers this gap by:

Borrowing from the market (selling bonds)
Borrowing from the RBI
Drawing down cash balances

Why Does It Matter?

A fiscal deficit isn't automatically bad — it depends on why it exists and how it's financed.

When it's good: If the government borrows to build a national highway network, that creates jobs, boosts transport, and generates future tax revenue. The deficit is an investment.

Important

A Simple Diagram (in words)

Total Expenditure:  |████████████████████████████████|
                    |                                |
                    |           FISCAL DEFICIT       |
                    |           (borrowings)         |
Total Receipts:     |████████████████████████        |
                    |                                |
                    |   Revenue + Non-debt Capital   |
                    |________________________________|
``` …

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Part (a)

(i) Categorisation of receipts. Revenue receipts neither create a liability nor reduce an asset; capital receipts either create a liability or reduce an asset.

Revenue Receipts	Capital Receipts
Corporation tax (21), GST & other taxes (19), Income tax (16), Excise duties (8), Customs (4), Non-tax revenue (9)	Recovery of loan (3), Borrowings & other liabilities (20)

Reasons: taxes and non-tax revenue create no liability and are recurring → revenue receipts. Recovery of loan reduces an asset, and borrowings create a liability → capital receipts.

(ii) Revenue vs Fiscal deficit.

Revenue Deficit	Fiscal Deficit
Revenue Expenditure − Revenue Receipts	Total Expenditure − Total Receipts (excluding borrowings)

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Part (a): Taxes + non-tax revenue = revenue receipts (no liability/asset change); recovery of loan + borrowings = capital receipts. Revenue deficit = revenue expenditure over revenue receipts; fiscal deficit = total borrowing requirement.
Part (b): Fiscal deficit = 40 + 220 − 190 = 70; primary deficit = 70 − 20 = ₹50 crore. Stability = counter-cyclical fiscal policy (expansionary in slump, contractionary in boom).

Part (a)

(i) Categorising the receipts.

Revenue receipts neither create a liability nor reduce an asset; they are regular and recurring:

Corporation tax (21 paise), GST & other taxes (19), Income tax (16), Excise duties (8), Customs (4) — all tax revenues, creating no liability.
Non-tax revenue (9 paise) — interest, dividends, fees earned without creating an obligation.

Capital receipts either create a liability or reduce an asset:

Borrowings and other liabilities (20 paise) — must be repaid → create a liability.
Recovery of loan (3 paise) — money previously lent is returned → reduces a financial asset.

(ii) Revenue Deficit vs Fiscal Deficit.

Basis	Revenue Deficit	Fiscal Deficit
Definition	Excess of revenue expenditure over revenue receipts	Excess of total expenditure over total receipts other than borrowings
Formula	Rev. Expenditure − Rev. Receipts	Total Expenditure − (Revenue Receipts + Non-debt Capital Receipts)

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