Government Budget

Government Budget – Last day of the month of February is well known in India as a day when the Finance Minister presents annual budget of the government. The Budget unfolds: The financial performance of the government over the past one year, and the financial programmes and policies of the government for the next one year.

As regards financial performance of the government, it is more like a description of what happened during the past one year.
Focus is placed largely on the other part of the budget describing programmes and policies of the government for the year to come. The programmes and policies of the government are summed up as ‘Budgetary Policy’ of the government, also called ‘fiscal policy’ of the government.

Government Budget

Government Budget has two aspects:

  1. Revenue Aspect
  2. Expenditure Aspect

On the revenue side, the budgetary policy unveils/ reveals expected receipts of the government in terms of tax receipt and non tax receipts. On the expenditure side, it unveils expected expenditure of the government terms of consumption expenditure and investment expenditure and transfer payments.

Government Budget

Thus, the government budget is basically an annual exercise relating to revenue and expenditure policy of the government. By managing the various components (or elements) of budgetary revenue and budgetary expenditure, the government tries to achieve economic stability along with faster rate of GDP growth.

Government budget is a statement of the estimates of the government receipts and government receipts and government expenditure during the period of the financial year. It unveils/reveals fiscal policy (budgetary policy) of the government,focusing on growth and stability of the economy.

Objectives of Government Budget

Budget is not simply a set of statistical statements showing expected receipt expenditures of the government. As already stated, it is an annual exercise relating to revenue and expenditure policy of the government, or budgetary policy of the government. The government frames its budgetary policy with a view to achieving a set of objectives. Following is a brief description of some principal objectives related to budgetary policy (with special reference to the Indian economy):

Balance of Payments
  1. High Rate of GDP Growth: Through its revenue and expenditure policy, the government strives to achieve (and maintain) a high rate of GDP growth. It makes investment expenditure on infrastructure including roads, dams, bridges and related projects. Investment-friendly environment is generated in the economy. Higher investment leads to higher GDP growth.
  2. Balanced Regional Growth: While allocating funds for infrastructural development, focus is placed on the development of backward regions in the country. In India, establishment of SEZ (Special Economic Zones) is an important step towards the development of backward regions, Tax Laws are relatively more liberal in SEZ compared to other parts of the domestic economy. Liberal tax laws along with infrastructural development make SEZ an attractive destination for investment. This contributes to balanced regional growth.
  3. Reallocation of Resources: In market economies, allocation of resources (to the production of different commodities) is determined by the forces of supply and demand (called price mechanism). Resources are allocated to the production of those goods which yield high profits. Profit is the pivotal force of production activity. Social welfare loses its significance. The government corrects the allocation of resources through its tax policy. High taxes are levied on the production of luxury goods (meant for the rich) while subsidies are offered for the production of necessities of life. Reallocation of resources is the central theme of the budgetary policy of the government.
  4. Provision of Public Goods: Supply and demand forces in a market economy do not allow enough production of public goods. These are those goods which satisfy collective needs of the people. Law & order and defence of the country are important examples of public goods. It is through budgetary allocation of funds that these goods are sufficiently provided to the people.

Balance of Payments

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