18Oct, 2022
Chapter-10: Government Budget

CONCEPT OF GOVERNMENT BUDGET

Government budget is a statement of the estimates of the government’s expected receipts and government’s expected expenditure during the financial year or fiscal year which runs from 1st April to 31st March.

 

In India, Article 112 of the Constitution requires the Central Government to prepare Annual Financial statement’ for the country as a whole. This is called ‘Budget of the Central Government’. Article 202 of the Constitution requires every state Government to prepare ‘Annual Financial Statement’ for the concerned state. This is called ‘Budget of the state Government’.

PUBLIC GOODS

The goods which cannot be provided through the market mechanism and hence must be provided by the government are called public goods. These goods have two important features of non- rivalrous and non-exclusive in consumption. e.g. Roads, public parks, street lighting, etc.

 

PRIVATE GOODS

The goods which can be provided through market mechanism, i.e. transitions between individual consumers and producers are termed as private goods. These goods are either rivalrous or exclusive in consumption. e.g. Food items, clothes, shoes, etc.

 

TYPES OF BUDGET

 

  1. Balance Budget

It is that budget in which government’s estimated revenues are equal to government’s estimated expenditures.

Total Receipts = Total Expenditure

  1. Surplus Budget

It is that budget in which government’s estimated revenues are more than government’s estimated expenditures.

Total Receipts >Total Expenditure

  1. Deficit Budget

It is that budget in which government’s estimated revenues are less than government’s estimated expenditure. It is a goods policy to control recession.

Total Receipts < Total Expenditure

 

OBJECTIVES OF GOVERNMENT BUDGET

Objectives of government budget are as follows:

 

  1. Re- distribution of Income and wealth

Government through fiscal tools of taxation and transfer payments, brings fair distribution of income, Equitable distribution of income and wealth is a way to bring social justice. For this purpose, progressive tax increase in income. It is also known as distribution function.

 

  1. Re – allocation of Resources

The government of a country, through its budgetary policy, directs the allocation of resources in a manner such that there is a balance between the goals of profit maximization and social welfare .e.g. there should be production of necessity goods as well as comfort and luxury goods.

The goods which cannot be provided through market mechanism and hence must be provided by the government are called public goods. e. g. Roads, parks, street lights, etc. these goods have two distinct features, as that of.

 

  • Non – rivalrous It means consumption by one individual not reduce the amount available for the others.
  • Non – excludable It means that once a public good is provided, then no one can be excluded from its consumption. these goods promote social welfare.

 

On the other hand, goods which can be provided through transaction between consumers and producers are termed as private goods. e.g. food items, clothes, shoes, etc. these goods are rivalrous and excludable in nature. These aim at profit maximization.

 

  1. Economic Growth

The growth rate of a country depends on the rate of saving and investment. Therefore, the roles that are assigned to budgetary policy in this regard are to create conditions conducive for increase in saving investment.

 

  1. Generation of Employment

Government needs to promote labour intensive technology, public works programmes like construction of roads, dams, canals, bridges, etc. to promote employment generation in the economy. Several programmes are initiated through budget to reduce the problem of poverty and unemployment.

 

  1. Economic Stability

Government tries to establish economic stability by its budgetary policies. Economic stability refers to a situation without fluctuations in price levels and stability of exchange rate in an economy. Economic stability is achieved by protecting the economy from harmful effects of various trade cycles and its phase, i.e. boom, recession, depression and recovery.

 

 

 

  1. Management of public Enterprises

Public sector enterprise are owned and government and through budgetary policy, it tries to manage the expenditure and revenue of PSUs.

 

 

IMPACTS OF BUDGET

 

Budget impacts an economy at three levels:

 

  1. It brings aggregate fiscal discipline level, i.e. budget tries to maintain an ideal balance between revenues and expenditures of the government.
  2. It brings better allocation of resource, i.e. government, through its budget will allocate resources to those areas where it is socially desirable.
  3. Through budget, government can effectively and efficiently plan and implement its social welfare programmes.

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