Government Budget

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Introduction: Government Budget

Also known as the annual financial statement, the government budget is a financial statement of revenues and expenditures of the government on behalf of the nation. It is presented in the Lok Sabha every year at the beginning of the fiscal year. Like a personal budget, the government budget notes the income and expenditures of the government for the coming financial year.

A government budget is not just a note of government expenses and collections. It is the lifeblood of an economy. In order to achieve holistic economic growth, the government must prepare a good budget. The government budget shows the efficiency of the government in handling current and foreseeable economic issues of the future.

Planning of the Government Budget

The planning of a government budget requires two factors. The first is the foreseeable expenditure in the coming fiscal year and the revenue to be collected to meet this expenditure.

The revenues of a country are collected through tax and non-tax means, such as income and corporate taxes, interests on loans provided to states, fines, and levies on certain items, gifts and grants, and other means of earning revenues.

In turn, the government expenditures are made on three primary fronts:

  • Defense, security, and staff salaries

  • Maintenance of law and order

  • Allocating goods and services to the citizens

These expenditures and revenue streams are kept in mind while creating a budget for the coming fiscal year. Usually, the finance ministry is responsible for the planning and preparation of the budget. The fiscal year ends on the 31st of March and starts on April 1st every year.

Components of a Government Budget

The two components of the government budget are:

Capital Budget: The capital budget is an account of assets and liabilities that denote a change in capital. It includes receipts that reduce assets and increase liabilities. On the other hand, capital expenditure helps to create assets and reduce liabilities.

Revenue Budget: This refers to revenue receipts generated and expenditures met through the revenues. It includes both tax and non-tax revenues of the government.

Objectives of Government Budget

  • Reducing poverty and generating employment

    The government budget is aimed to increase the social good of the country. It aims to offer basic requirements to every citizen. Some of these requirements include food, clothing, housing, healthcare, and education. The budget also aims to create employment and reduce poverty.

  • Allocating resources

    The government budget aims to meet the resource allocation needs of the country, especially in sectors and areas where there is less or no private participation. Examples include the distribution of electricity and water in rural areas, offering healthcare and sanitation services, etc.

  • Promotion of economic growth

    It is one of the major objectives of preparing a budget. The government aims to promote the growth of the economy through various means by the budget. The budget aims to boost GDP and provide social welfare to the citizens.

  • Reduction of inequality

    The government budget aims to fill the gap in wealth creation and access to economic opportunities equally for every citizen. The idea is to reduce the inequality of income and the growth of the citizens. For this, governments may impose taxes and provide subsidies wherever necessary.

  • Income redistribution

    Income redistribution aims at distributing income equally among the citizens of the country. The intention is to stop the concentration of wealth among a select few. The government uses fiscal tools, such as taxes, public expenditure, and subsidies to do this.

  • Managing public enterprises

    The government budget aims to look after public enterprises, such as railways, energy services, etc.

Types of Government Budget

Balanced Budget

In a balanced budget, the receipts and expenditures are equal. This means that the government neither earns nor spends anything extra. Balanced budgets are aimed to provide the necessary cushion to the economy when there is no special need for extra inputs or when there is no need for any extra investment for the growth of the economy. In other words, a government budget will be balanced when the economy of the nation is in a balanced position.

Deficit Budget

In a deficit budget, the expenses are more than the revenues collected. The deficit happens when current expenses exceed the incomes generated via standard operations of the government. Similarly, when the capital disbursements of the government go above the capital receipts, a capital account deficit occurs. The budgetary deficit is usually shown in terms of the percentage of GDP.

Surplus Budget

When incomes from the budget exceed the expenses of the government, the budget is called a surplus budget. A surplus budget is a precursor to the good financial health of a country. The term surplus is usually used for budgets like the term savings is used for individuals. A surplus budget is the opposite of a deficit budget.

Importance of the Government Budget

Following are some of the key points of importance of the government budget:

  • Aims to solve the fundamental economic issues that plague the growth of an economy − By effectively planning for the eradication of poverty, healthcare, sanitation, energy, and other relevant issues, the government budget fuels the economic growth of the country.

  • Offers insight into the fiscal policy of the government − The citizens of a nation can have an idea of the issues on which the government is spending and the ones in which the spending is limited. These factors help citizens to better understand their economy in general.

  • Reduction of economic inequality − The government budget is prepared with a view to reducing the economic disparities among the citizens. It helps to bring the underprivileged to the same table as those who are privileged.

  • Resource allocation − The government allocates the resources with a view to handling the issues with reallocation. This helps all citizens to get the same preference in economic issues.

  • Fuelling economic growth − The government budget is prepared with a view to increasing economic growth. This is helpful in making a country richer and offering avenues of growth to the citizens.

  • Reducing regional inequalities − Regional inequalities can be eradicated with the help of a properly planned budget. A government budget reduced geographic and regional disparities and helps state economies regain momentum when there is slow growth.

Conclusion

By resorting to efficient planning processes, governments can prepare budgets that help the economy grow and the inequalities get removed among the citizens of a country. A good budget also contains measures of poverty alleviation and employment, meaning that the budget can be the key to the economic well-being of the citizens.

By noting the characteristics of a government budget, we can comment that it is the key to the economic growth and prosperity of a nation. Therefore, governments must create budgets with a holistic purview of the needs of the citizens and issues that plague the growth of the nation.

FAQs

Q1. When and where is the government budget presented in India?

Ans. The government budget is presented before the start of the new fiscal year, every year, in the Lok Sabha in India.

Q2. Who prepares the government budget?

Ans. The government budget is prepared by the finance ministry of India.

Q3. What are the three types of government budgets?

Ans. The three types of government budgets are balanced budget, deficit budget, and surplus budget.

raja
Updated on 13-Oct-2022 11:19:47

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