Concept of Government Budget

February 1 is a well-known date in India when the Finance Minister presents the government's annual budget for its approval by the parliament.

The government budget is a statement of excepted receipts and expected expenditures for the government for the coming financial year that reveals the budgetary policy of the government to achieve the twin objective of growth with stability.

Let me simplify it for you!

The budget unfolds the financial performance of the government over the past year and the financial programs and policies of the government for the next one year.

The financial performance of the government is more like a description of what happened during the past one year.

The financial performance of the government is more like a description of what happened during the past one year.

The policies and programs of the government, as presented in the budget, are known as budgetary policies or fiscal policies of the government. It has two aspects: (i) revenue aspects and (ii) expenditure aspects. On the revenue side, the fiscal policy reveals expected receipts and on the expenditure side, it reveals the expected expenditure of the government. The government tries to achieve 'growth with stability' by managing the budgetary revenue and expenditure.

Thus, the government budget is a statement of expected receipts and expected expenditures of the government that reveals the budgetary policy of the government to achieve the twin objective of growth with stability.

We will briefly cover receipts and expenditures in the next chapter. Let's look at the purpose of the government budget.

Objectives of Government Budget

GDP Growth: It is the central objective of government fiscal policy. We achieve it in two ways: (i) by making public investment expenditures and (ii) by inducing private investment expenditures.

Allocation of resources: Private enterprises will always desire to allocate resources to those areas of production where profits are high. However, it is possible that such areas of production (like the production of alcohol) will not promote social welfare. Through its fiscal policy, the government of a country directs the allocation of resources in such a manner that there is a balance between the goal of profit maximization and social welfare. Through heavy taxation on the production of harmful health goods and subsidies for socially useful products, we can encourage the production of the latter.

Redistribution of income and wealth: The government uses fiscal instruments of taxation and subsidies to improve the distribution of income and wealth in the economy. The government improves the distribution of income and wealth through two methods:

(i) by taxing the rich and providing subsidies to the poor, and

(ii) by selling food grains to the below poverty line (BPL) population at a low price.

Balanced Regional Growth: The fiscal policy places priority on the backward regions in the country. This can be achieved through liberal tax laws for the backward regions.

Employment Opportunities: Fiscal policy focuses on the generation of employment opportunities through investment in public enterprise.

Economic Stability: Free play of demand and supply can generate trade cycles, also known as business cycles. These refer to the phases of recession, depression, recovery and boom in the economy. The Budget is used as an important policy instrument to correct the situation of deflation and inflation. By doing so, the government tries to achieve a state of economic stability. Economic stability stimulates the inducement to invest and increases the rate of growth and development.

In conclusion, the government budget is more than just a financial statement. It's a comprehensive roadmap guiding the nation's economic journey. Through careful planning and strategic allocation of resources, the government seeks to foster economic growth while maintaining stability. The budget plays a pivotal role in shaping the country's economic future by addressing key objectives such as GDP growth, balanced regional development, and the redistribution of income. Understanding the government budget and its objectives helps us appreciate how fiscal policies influence our daily lives and contribute to the broader goal of national prosperity.