A government budget is a government document presenting the government’s proposed revenues and spending for a financial year. The government budget balance, also alternatively referred to as general government balance, public budget balance, or public fiscal balance, is the overall difference between government revenues and spending.

A positive balance is called a government budget surplus, and a negative balance is a government budget deficit. A budget is prepared for each level of government (from national to local) and takes into account public social security obligations.

The meaning of “deficit” differs from that of “debt”, which is an accumulation of yearly deficits. Deficits occur when a government’s expenditures exceed the revenue that it generates. The deficit can be measured with or without including the interest payments on the debt as expenditures.

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The primary deficit is defined as the difference between current government spending on goods and services and total current revenue from all types of taxes net of transfer payments.

Before the invention of bonds, the deficit could only be financed with loans from private investors or other countries. Changes in tax rates, tax enforcement policies, levels of social benefits, and other government policy decisions can also have major effects on public debt. For some countries, such as Norway, Russia, and members of the Organization of Petroleum Exporting Countries (OPEC), oil and gas receipts play a major role in public finances.

Large, long-term loans had a high element of risk for the lender and consequently gave high-interest rates. Governments later began to issue bonds that were payable to the bearer, rather than the original purchaser. This meant that someone who lent the state money could sell on the debt to someone else, reducing the risks involved and reducing the overall interest rates.

A fiscal deficit is often funded by issuing bonds, like treasury bills or consols and gilt-edged securities. These pay interest, either for a fixed period or indefinitely. If the interest and capital requirements are too large, a nation may default on its debts, usually to foreign creditors. Public debt or borrowing refers to the government borrowing from the public.

Government spending, inflation and lower revenue are among some of the main factors that point to fiscal deficit. The cynical nature of fiscal deficit does not only jeopardize the growth of the country but also the government’s economic management abilities.Another major reason for a growing fiscal deficit can be slow economic growth or sluggish economic activities.

Fiscal deficit has been a key concern for credit rating agencies and RBI is likely to be on alert when it pays its debt because paying high interests with cautious investors amid rising deficits might not be considered a smart move.

Fiscal policy is the use of government revenue collection (taxation) and expenditure (spending) to influence the economy, or else it involves the government changing the levels of taxation and government spending in order to influence aggregate demand and the level of economic activity. The two main instruments of fiscal policy are changes in the level and composition of taxation and government spending in various sectors. These changes can affect the following macroeconomic variables, amongst others, in an economy:

• Aggregate demand and the level of economic activity;
• The distribution of income;
• The pattern of resource allocation within the government sector and relative to the private sector.

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The three main stances of fiscal policy are:

• Neutral fiscal policy is usually undertaken when an economy is in equilibrium. Government spending is fully funded by tax revenue and overall the budget outcome has a neutral effect on the level of economic activity.
• Expansionary fiscal policy involves government spending exceeding tax revenue and is usually undertaken during recessions.
• Contractionary fiscal policy occurs when government spending is lower than tax revenue and is usually undertaken to pay down government debt.

Fiscal policy refers to the use of taxation and government spending to influence economic activity.  This is distinguished from monetary policy in that fiscal policy only deals with taxation and spending and is often administered by an executive under laws of a legislature, whereas monetary policy deals with the money supply, lending rates, and interest rates and is often administered by a central bank.

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Monetary Policy

Foreign Trade Policy (FTP)

Government budget

According to National Income committee, “National Income (NI) is the value of goods and services produced in an economy during a given period without duplication”. Four things must be kept in mind regarding this definition:

• It is measured in terms of money
• The value of goods and services must be counted only once. Therefore, only the value of final goods and service (and not the intermediary goods) are used while calculating National Income.
• The value of goods and service produced previously is not included in NI.

Since 1955, Central Statistical Organization (CSO) has been estimating National Income for the country. The Central Statistical Organization has divided the whole of the economy into 3 broad sectors for the purpose of calculating NI.

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3 broad sectors for the purpose of calculating NI

These sectors are as follows:

Primary Sector

This sector is further divided into following subparts – Agriculture, Forestry, Fishing, Mining, and Quarrying.

Secondary Sector

This sector is further divided into following subparts – Manufacturing, Power generation, Gas, and water supply

Tertiary Sector

This sector is further divided into following subparts – Transport, Communication & Trade, Banking, Insurance, Public administration, Defense and External Trade.

National Income does not include data from

• Income from illegal activities like smuggling, gambling
• Income from work done without remuneration like that performed by housewives
• Black money

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Measures of National Income

1. Gross Domestic Product (GDP) – GDP is the measure of National Income, within the political boundary of a country by nationals or non-nationals.
2. Gross National Product (GNP) – GNP is calculated as follows:
   GNP =GDP + Net factor income from abroad
   Net factor income from abroad = Factor income received by Indian national from abroad – Factor income paid to foreign nationals from India
3. Net National Product (NNP) – NNP is calculated as follows:
   NNP = GNP – Depreciation
4. Net National Product (NNP) at factor cost (or NI) – NNP at factor cost is calculated as follows:
   National Income = NNP – Indirect Tax (Value Added Tax) + Subsidies
5. Personal Income – In order to calculate Personal Income, we need to deduct from the income of household which is not actually received by them. Thus, Personal Income is calculated as follows:
   Personal Income = National Income – Social contribution – Corporate Income Tax – Undistributed corporate profit + Transfer Payment
6. Disposable Income – Disposable Income is calculated as follows:
   Disposable Income = Personal Income – Personal Tax

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Methods of Calculation of National Income

1. Output or Production Method – This method is also called as the value-added method. According to this method, the net value of all the production that has occurred in the three sectors of the economy is added to arrive at National Income.
2. Income Method – According to this method, the NI is calculated by adding up the income earned by each individual of the country. This includes wages and salaries of employee, profits earned by the entrepreneurs and self-employed, rent, interest on capital etc.
3. Expenditure Method – According to this method, the National Income is calculated by adding up the expenditures made by the individuals, households, business enterprises and government.

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Limitation of National Income

1. Difficulty in measurement – There is no general consensus up on certain areas that hinder the calculation of National Income. For example – It is matter of debate whether one should include the value of housewives’ service in the calculation of NI or not. Similarly, it is also a matter of debate whether the consumption of food grain for household usages should be included in the calculation of National Income or not.
2. Because of illiteracy, most producers do not keep a track of their output. Moreover, they don’t have adequate knowledge about the market value of output. This makes the task of calculation of National Income very difficult.
3. The lack of occupational specialization also makes the task of calculation of NI very difficult. An individual may earn partly from ownership, partly from agriculture and partly from industry.
4. In India, a large portion of agriculture and industry is still unorganized. This makes the calculation of National Income subject to guess work as such makes the data unreliable.

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Stock Exchange (also called Stock Market or Share Market) is one important constituent of the capital market. It is an organized market for the purchase and sale of the industrial and financial security. A stock exchange is a form of exchange which provides services for stock brokers and traders to trade stocks, bonds, and other securities.

Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. Securities traded on a stock exchange include stock issued by companies, unit trusts, derivatives, pooled investment products, and bonds. It often function as “continuous auction” markets, with buyers and sellers consummating transactions at a central location, such as the floor of the exchange

LSE is the oldest stock exchange in the world. While BSE is the oldest in India.

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Companies must meet an exchange’s requirements to have their stocks and shares listed and traded there, but requirements vary by stock exchange:

New York Stock Exchange

To be listed on the NYSE a company must have issued at least a million shares of stock worth $100 million and must have earned more than $10 million over the last three years.

To be listed on the NASDAQ a company must have issued at least 1.25 million shares of stock worth at least $70 million and must have earned more than $11 million over the last three years.

London Stock Exchange

The main market of the LSE has requirements for a minimum market capitalization (£700,000), three years of audited financial statements, minimum public float (25 per cent) and sufficient working capital for at least 12 months from the date of the listing.

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Bombay Stock Exchange

BSE has requirements for a minimum market capitalization of ₹250 million (US$4.3 million) and minimum public float equivalent to ₹100 million (US$1.7 million).

Functions of Stock Exchange – Main Functions in the Market

• Continuous and ready market for securities
• Facilitates evaluation of securities
• Encourages capital formation
• Provides safety and security in dealings
• Regulates company management
• Facilitates public borrowing
• Provides clearing house facility
• Facilitates healthy speculation
• Serves as Economic Barometer
• Facilitates Bank Lending

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Heads of Indian Organizations

A bank is a business that accepts and holds money for people. Banks pay interest in return for holding money. Banks make money by loaning money out to other people and businesses at a higher rate of interest.

Why are banks important?

Banks are very important to the economy. They help money flow and business to occur. On one hand, banks provide the service of keeping people’s savings safe. On the other hand, they use that money to help people buy houses, cars, and start businesses. Banks are an essential part of the modern economy.

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Deposits

One of the main functions of a bank is to accept and hold deposits. Deposits are money that people put into a bank. There are two main types of accounts that people have.

Checking Account – A checking account is an account where people can get easy access to their money. They can use their money in the checking account by writing cheques or using a debit card. There are often fees associated with checking accounts and possible minimum balance requirements.

Savings Account – A savings account is mostly for savings. These accounts has less services and access than checking accounts, but typically offer higher interest and less fees.

Other types of accounts at banks include CDs (Certificate of Deposit), Money Market Accounts, and IRAs (Individual Retirement Accounts).

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Transactions

Getting money in and out of your bank account is called a transaction. There are a number of ways to put money in or take money out. The most obvious way is to go to the bank physically and get your money or give them money. Some other ways include:

Cheque – One of the oldest ways to use money in a chequing account is by writing a cheque. Once the cheque is written out for a certain value and signed, the person or business who it is written to can go to their bank and get the money.

ATM – ATM stands for Automated Teller Machine. Banks often offer a card that you can use at ATMs which may be located in different places like a grocery store or a gas station. With this card and a password, the ATM will give you cash and deduct it from your bank account.

Debit Card – A debit card is a card you can use to buy things directly. Debit cards work similar to credit cards, but the money comes directly out of your bank account.

Electronic Transactions – Money can even be moved in and out of a bank account electronically. Many people get their paychecks sent directly to their bank account using direct deposit. The money is sent electronically from their employer’s bank right into their checking account.

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Loans

What do banks do with all of the money they get? They loan it out to other people and businesses. They make money by charging a higher rate of interest on loans than they pay for deposits. Banks provide loans for people to buy cars, houses (a home loan is called a mortgage), and to start businesses.

What if the bank goes out of business?

You might think your money is completely safe, but what if the bank is robbed or goes out of business? Today, this isn’t too much of a problem. Most bank deposits (up to a certain amount) are protected by the U.S. government through the Federal Deposit Insurance Corporation (which is usually just called the FDIC).

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Interesting Facts About How Banks Work?

• The largest three banks in the United States by total assets in 2013 were JPMorgan Chase, Bank of America, and Citigroup.
• The word “bank” comes from the Italian word “banco” which means bench or counter.
• Modern banking began in the early Renaissance in Italy in the 1300s. The oldest bank in existence is headquartered in Siena, Italy and has been in business since 1472.

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Bank and Their Headquarters

History of Money

Coins are made from metals. In the past, coins are money which were sometimes made from valuable metals such as gold and silver. Today, most coins are made with some combination of copper, zinc, and nickel.

Where are coins made in the United States?

U.S. coins are made by the U.S. Mint which is a division of the Department of the Treasury. There are four different U.S. Mint facilities that make coins. They are located in Philadelphia, Denver, San Francisco, and West Point (New York). The majority of the coins that the public uses today are made in Philadelphia or Denver.

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Who designs new coins?

New coins are designed by artists that work for the U.S. Mint. They are called sculptor-engravers. The designs are reviewed by the Citizens Coinage Advisory Committee and the Commission of Fine Arts. The final decision on a new design is made by the Secretary of the Treasury.

Making Coins

The U.S. mint goes through the following steps when manufacturing coins:

• Blanking – The first step is called blanking. Long strips of metal are run through a blanking press. The press cuts out blank coins from the press. The leftovers are recycled to be used again later.
• Annealing – The blank coins then go through the annealing process. In this process, they are heated up and softened. Then they are washed and dried.
• Upsetting – The next step is the upsetting mill. This process forms the raised rim around the edges of the coin.
• Striking – Striking takes place in the coining press. The coining press strikes the coin on both sides with a great amount of pressure. It stamps the design of the coin right into the metal.
• Inspecting – Now that the coin is made, it still needs to be inspected. Trained inspectors examine the coins to make sure they were made correctly.
• Counting and Bagging – Next the coins are counted by a machine and placed into bags to be shipped to banks.

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What metals are U.S. coins made from?

• Penny – 2.5% Copper and the rest is Zinc
• Nickel – 25% Nickel and the rest is Copper
• Dime – 8.3% Nickel and the rest is Copper
• Quarter – 8.3% Nickel and the rest is Copper
• Half Dollar – 8.3% Nickel and the rest is Copper
• One Dollar – 88.5% Copper, 6% Zinc, 3.5% Manganese, 2% Nickel

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Interesting Facts About How Coins Are Made

• Some coins may be struck with over 150 tons of pressure by the coining press.
• The inscription “In God We Trust” was first used on coins during the Civil War. It became a law to have it on coins in 1955.
• Three historical women have been portrayed on U.S. coins including Helen Keller, Sacagawea, and Susan B. Anthony.
• Booker T. Washington was the first African-American to appear on a U.S. coin.
• You can tell which U.S. Mint made a coin by the Mint mark: ‘S’ for San Francisco, ‘D’ for Denver, ‘P’ for Philadelphia, and ‘W’ for West Point.
• In the year 2000, the U.S. Mint made 28 billion new coins including 14 billion pennies.

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