Skip to content

What is Government Budget?

A government budget refers to an annual financial statement that denotes its anticipated expenditure and expected revenue generation in a fiscal year. It is presented by the government in Lok Sabha at the beginning of every fiscal year, to give an estimate of its expenditure and receipts for the upcoming year. The government prepares an expenditure according to its objectives and then starts gathering the resources and funds to fulfill the proposed investment. The funds are collected from fees, taxes, interest on loans given to states, fines, and dividends by public sector enterprises.

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.
  • Minimize 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: Budget keenly focuses on lowering the price fluctuations in the market. Policies like Deficit budget during deflation and Surplus budget during inflation thrive on bringing stability to 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 a 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: The government budget aims to reduce regional disparities through its taxation and expenditure policy for encouraging the setting up of production units in economically backward regions.

Government Budget

Components of Government Budget

The budget is classified into two segments.

  1. Revenue Budget: The revenue budget contains revenue expenditure and receipts. In these receipts, both tax revenue and non-tax revenue are recorded.
  2. Capital budget: The capital budget includes capital receipts and lengthy capital expenditures. Capital receipts are government liabilities or decreased financial assets, such as the recovery of loans, market borrowing, etc.