A government budget is a country’s year-long financial report explaining item-wise calculations of future revenue and expenditure. The budget explains the income and expense of a nation.
In India, in the beginning of every year, the government presents its budget in front of the Lok Sabha, explaining an estimated receipt and expense for the upcoming financial year. The fiscal year starts from 1st April and concludes on 31st March of the next year.
The government prepares an expenditure according to its objectives and then starts gathering the resources and funds to fulfil the proposed investment. The funds are collected from fees, taxes, interest on loans given to states, fines, and dividends by public sector enterprises.
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Objectives of Government Budget
Reallocation of resources – It helps to distribute resources, keeping in view the social and economic advantages of the country. The factors that influence the allocation of resources are:
Allowance or Tax concessions – The government gives allowance and tax concessions to manufacturers to encourage investment.
Direct production of goods and services – The government can take the production process directly if the private sector does not show interest.
Minimise inequalities in income and wealth – In an economic system, income and wealth inequality is an integral part. So, the government aims to bring equality by imposing a tax on the elite class and spending extra on the well-being of the poor.
Economic stability – The budget is also utilised to avoid business fluctuations to accomplish the aim of financial stability. Policies such as deficit budget during deflation and excess budget during inflation assist in balancing the prices in the economy.
Manage public enterprises – Many public sector industries are built for the social welfare of people. The budget is planned to deliver different provisions for operating such business and imparting financial help.
Economic growth – A country’s economic growth is based on the rate of investments and savings. Therefore, the budgetary plan focuses on preparing adequate resources for investing in the public sector and raising the overall rate of investments and savings.
Decrease regional differences – It aims to diminish regional inequalities by implementing taxation and expenditure policy and promoting the installation of production units in underdeveloped regions.
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Types of Budget
The budget is divided into three types.
Balanced budget – A government budget is assumed to be balanced if the expected expenditure is similar to the anticipated receipts for a fiscal year.
Surplus budget – A budget is said to be surplus when the expected revenues surpass the estimated expenditure for a particular business year. Here, the budget becomes surplus when taxes imposed are higher than the expense.
Deficit budget- A budget is on deficit if the expenditure surpasses the revenue for a designated year.
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Importance of Budget
Following are the importance of budget:
a. Though budgets do not assure 100% success in economic stability, they help to bypass failure.
b. A budget is a tool that transfers a general idea into a productive, action-oriented, and aspirational goal.
c. It acts as a device that identifies and focuses on the development of an underprivileged person.
d. It provides a benchmark to evaluate success or failure in achieving goals and provides suitable improving measures.
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Components of Government Budget
The budget is classified into two segments.
(i) Revenue budget – The revenue budget contains revenue expenditure and receipts. In these receipts, both tax revenue (such as excise duty, income tax) and non-tax revenue (like profits, interest receipts) are recorded.
(ii) Capital budget – The capital budget includes the capital receipts (such as disinvestment, borrowing) and lengthy capital expenditure (for instance, long-term investments, creation of assets). Capital receipts are government liabilities or decreased financial assets, such as the recovery of loans, market borrowing, etc.
Impact of the budget
A budget influences the society in three steps:
a. It improves the aggregate financial policy by controlling expenditure.
b. It allocates resources of a nation on a foundation of social priorities.
c. It comprises efficient and productive programmes to deliver goods and services and achieve targeted goals.
Elements of a Government Budget
The main elements of a budget are:
a. It determines government expenditure and receipts.
b. The budget is estimated for a fixed period, typically for a year.
c. Investment and sources of finance are prepared with the objectives of the government.
d. All the budget needs to be passed by assembly or parliament before its implementation.
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