Introduction to Government Budget
Government budget is an annual financial statement of estimated receipts and expenditure of the government during a fiscal year, as recorded in Article 112 of the Indian Constitution.
In the beginning of every year, the Government of India prepares a document and presents it before Lok Sabha. It contains anticipated revenues and proposed spending for the upcoming financial year (which starts from 1st April and extends till 31st March of following year). Government budget primarily addresses monetary needs and problems of a country and how to resolve it.
Budget is a crucial activity as it shapes economic development and progress of a nation.
Do you know who presented the first Union Budget of independent India?
Elements of Government Budget
A few significant aspects of the Union Budget are
It estimates capital receipts and revenues.
Ways and means to raise revenues.
Approximates total expenditure.
Explains actual receipts and expenditure of the closing year and reasons for deficit or surplus in that year.
Announces financial and economic policies for the upcoming year. These include spending programs, taxation upgradation, and proposals of new projects or government schemes.
Task for you: Can a strong budget help reduce income inequality? If so, how?
Objectives of Government Budget
Economic growth- The overall economic growth of a nation relies on savings and investments. Budgetary policies are hence introduced to infuse enough recourse in different public sectors. Government makes provision to boost the rate of savings and investments made within the economy.
Reallocation of resources- Through a budget, the government endeavours to equally allocate resources and wealth. They encourage small industries like “Khadi” to flourish by allowing subsidised loans and reduced taxes on raw material, needed for production. Government can also levy hefty taxes upon production of harmful products like cigarettes and alcohol to discourage the production of those.
Redistribution of income- To close the income gap between rich and poor, several budgetary schemes are launched from the government's end. Fiscal instruments like subsidies, taxations, etc. are effectively used to achieve this goal.
Financial stability- Budget keenly focuses on lowering the price fluctuations in the market. Policies like Deficit budget during deflation and Surplus budget during inflation thrive on bringing stability within the economy.
Bringing down economic inequality- The Government tries to bring economic equality of society. They do so by imposing taxes on the affluent classes of society and spending them for welfare of the economically weaker section of the community.
Do you know – Higher tax rates on a certain group of nationals and organisations can have a severe impact on the overall economy.
Financing Public Enterprises- Several public sector industries are established for the social welfare of the public. An annual budget provides financial aid to such businesses to grow. This objective organically strengthens the economic structure of a nation.
Addressing Regional Disparity- One of the chief aims of the Government budget is to alleviate social disproportion. They achieve so by installing manufacturing facilities in the economically weaker section of the society. Also by producing goods and supply directly.
Task for you – Identify the characteristics of a robust as well as weak budget using the above mentioned objectives
Types of Budget
Primarily the budget is divided into 3 types.
Balanced Budget- Government’s budget is assumed to be balanced where anticipated expenditure is equal to the expected recipients in a financial year. It brings economic stability in a country by cutting down wasteful expenses. This can be expressed symbolically like, Balanced Budget = (Assumed collected revenues = Assumed expenditure)
Surplus Budget- A surplus budget occurs when the estimated revenues exceed the expected expenditure. In this case, imposed taxes surpass the expenses. It means that the Government is taking more money under its control which leads to fall in prices.
Deficit Budget- A budget is in deficit if the expenditure of the government is higher than that revenue generated in a fiscal year. Symbolically, Deficit budget = estimated expenditure > estimated revenues.
Significant Components of Union Budget
The two main components of government budget are
Revenue budget- It comprises revenue receipts and revenue expenditure of a government. These receipts are again classified into two segments: tax revenue (income, excise, corporate, custom taxes) and non-tax revenue (income and profits earned by government other than taxes).
Capital budget- Just like the former one, Capital revenue is classified into capital receipts and expenditure. Capital recipients are government liabilities (borrowings, disinvestments like shares of public enterprises). However, capital expenditure is long-term investments that the government makes by creating assets like building roads, hospitals etc.
Importance of Budget
It is essential for any government to plan a budget as it allocates various resources across the nation to ensure economic progress and stability. Apart from that, a few other important points of the government budget are listed below.
It helps to uplift underprivileged sections of society by introducing new policies.
Budget focuses on the advancement of defence capabilities.
Allocates money for improving educational facilities.
Successfully handles the economic infatuation of the country by balancing inflation and deflation.
Aids in achieving financial and economic goals of a country.
Impact of Budget
Since a budget is introduced to diminish any financial discrepancy within a country, its effects on society are far-reaching.
It brings discipline to fiscal planning through controlled expenditure, allocating several revenues. Based on budget, the government makes precautionary measures.
Government budget and its components assist in the redistribution of revenues based on social priorities.
The budget includes effective plans and programs for conveyance of goods and services to achieve its target.
Government Budget thus plays a crucial role in determining the rapid growth of a nation. If you want to learn more, check out our website today for more information about economics, finance and business study related topics.
1. What are the Different types of Government Budget?
Ans. Apart from the three main types of budget, there are Zero budgeting, Outcome Budget and Gender budgeting.
Zero budget starts from the zero base, and it is made based on needs and cost of government.
Outcome budget evaluates the progress of each ministry and department and prepares a report on how the specific ministry has implemented the budget layout.
Gender budget aims at gender equality, specifically by introducing new schemes and policies to empower women.
2. What is the Budget Forecasting?
It is a projection or estimation of financial trends and its outcome, prepared solely depending on the previous years’ data. It is essential because it helps to set a goal for future financial planning.
3. What is the “Fiscal Deficit” in the Government Budget?
It refers to the excess of total estimated budget expenditure (Revenue Expenditure + Capital Expenditure) over total budget recipients, excluding borrowing.
4. What is the Performance Budget?
This budget keeps records of each ministry of country and their functions, activities during a financial year. It prepares appraisal reports for each major central sector projects/programmes to keep a track of parity between the taxpayers’ fund and the services provided by state and central government.