Introduction to Government Budget
The Government Budget is a yearly statement that shows the expected income and expenses of the government for the upcoming year, as mentioned in Article 112 of the Indian Constitution. At the beginning of each year, the Government of India prepares this document and presents it in the Lok Sabha. It includes the predicted revenues and planned spending for the financial year, which runs from 1st April to 31st March.
The budget is important because it helps address the country’s financial needs and problems and shows how to solve them. It also plays a key role in shaping the country’s growth and progress. One of the Main Objectives of Government Budget is to manage the economy and ensure fair use of resources.
Elements of Government Budget
A few significant aspects of the Union Budget are
It estimates capital receipts and revenues.
Ways and means to raise revenues.
Approximates total expenditure.
Explains actual receipts and expenditure of the closing year and reasons for deficit or surplus in that year.
Announces financial and economic policies for the upcoming year. These include spending programs, taxation upgradation, and proposals of new projects or government schemes.
Task for you: Can a strong budget help reduce income inequality? If so, how?
Now that we have learnt what are the Objectives of Government Budget, let’s look at the various Types of Budget.
Objectives of Government Budget
Economic growth- The overall economic growth of a nation relies on savings and investments. Budgetary policies are hence introduced to infuse enough recourse in different public sectors. Government makes provision to boost the rate of savings and investments made within the economy.
Reallocation of resources- Through a budget, the government endeavours to equally allocate resources and wealth. They encourage small industries like “Khadi” to flourish by allowing subsidised loans and reduced taxes on raw material, needed for production. Government can also levy hefty taxes upon production of harmful products like cigarettes and alcohol to discourage the production of those.
Redistribution of income- To close the income gap between rich and poor, several budgetary schemes are launched from the government's end. Fiscal instruments like subsidies, taxations, etc. are effectively used to achieve this goal.
Financial 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 within the economy.
Bringing down economic inequality- The Government tries to bring economic equality of society. They do so by imposing taxes on the affluent classes of society and spending them for welfare of the economically weaker section of the community.
Do you know – Higher tax rates on a certain group of nationals and organisations can have a severe impact on the overall economy.
Financing Public Enterprises- Several public sector industries are established for the social welfare of the public. An annual budget provides financial aid to such businesses to grow. This objective organically strengthens the economic structure of a nation.
Addressing Regional Disparity- One of the chief aims of the Government budget is to alleviate social disproportion. They achieve so by installing manufacturing facilities in the economically weaker section of the society. Also by producing goods and supply directly.
Task for you – Identify the characteristics of a robust as well as weak budget using the above mentioned objectives
Types of Budget
Primarily the budget is divided into 3 types.
Balanced Budget- Government’s budget is assumed to be balanced where anticipated expenditure is equal to the expected recipients in a financial year. It brings economic stability in a country by cutting down wasteful expenses. This can be expressed symbolically like, Balanced Budget = (Assumed collected revenues = Assumed expenditure)
Surplus Budget- A surplus budget occurs when the estimated revenues exceed the expected expenditure. In this case, imposed taxes surpass the expenses. It means that the Government is taking more money under its control which leads to fall in prices.
Deficit Budget- A budget is in deficit if the expenditure of the government is higher than that revenue generated in a fiscal year. Symbolically, Deficit budget = estimated expenditure > estimated revenues.
Significant Components of Union Budget
The two main components of government budget are
Revenue budget- It comprises revenue receipts and revenue expenditure of a government. These receipts are again classified into two segments: tax revenue (income, excise, corporate, custom taxes) and non-tax revenue (income and profits earned by government other than taxes).
Capital budget- Just like the former one, Capital revenue is classified into capital receipts and expenditure. Capital recipients are government liabilities (borrowings, disinvestments like shares of public enterprises). However, capital expenditure is long-term investments that the government makes by creating assets like building roads, hospitals etc.
Importance of Budget
It is essential for any government to plan a budget as it allocates various resources across the nation to ensure economic progress and stability. Apart from that, a few other important points of the government budget are listed below.
It helps to uplift underprivileged sections of society by introducing new policies.
Budget focuses on the advancement of defence capabilities.
Allocates money for improving educational facilities.
Successfully handles the economic infatuation of the country by balancing inflation and deflation.
Aids in achieving financial and economic goals of a country.
Impact of Budget
Since a budget is introduced to diminish any financial discrepancy within a country, its effects on society are far-reaching.
It brings discipline to fiscal planning through controlled expenditure, allocating several revenues. Based on budget, the government makes precautionary measures.
Government budget and its components assist in the redistribution of revenues based on social priorities.
The budget includes effective plans and programs for conveyance of goods and services to achieve its target.
Conclusion
Government Budget thus plays a crucial role in determining the rapid growth of a nation. The budget helps in areas like economic growth, fair distribution of resources, controlling debt, and improving public welfare. By focusing on these areas, the budget helps build a better future, reduce inequality, and improve people’s lives. A good budget is key to a strong and balanced economy. If you want to learn more, check out our website today for more information about economics, finance and business study-related topics.
FAQs on Objectives of Government Budgets
1. What are the primary objectives of a Government Budget as per the CBSE Class 12 Economics syllabus for 2025-26?
According to the CBSE syllabus, the primary objectives of a Government Budget are:
- Reallocation of Resources: To direct the country's resources towards a mix of social and economic priorities.
- Reducing Inequalities in Income and Wealth: To use fiscal instruments like taxation and subsidies to bridge the gap between the rich and the poor.
- Economic Stability: To control price fluctuations like inflation and deflation in the economy.
- Economic Growth: To create conditions for a sustained increase in the country's real national income by encouraging savings and investment.
- Management of Public Enterprises: To provide financial support and oversight to public sector industries that work for social welfare.
- Addressing Regional Disparities: To promote development in economically backward regions of the country.
2. What are the two main components of a Government Budget?
A Government Budget is primarily divided into two main components:
- Revenue Budget: This includes the government's estimated revenue receipts and the expenditure that is met from these revenues. Revenue receipts are those which do not create a liability or cause a reduction in assets. They are further divided into Tax Revenue (e.g., income tax, GST) and Non-Tax Revenue (e.g., profits, dividends).
- Capital Budget: This includes the government's capital receipts and capital expenditure. Capital receipts create liabilities (e.g., borrowings) or reduce assets (e.g., disinvestment). Capital expenditure leads to the creation of assets (e.g., building roads, hospitals) or a reduction in liabilities.
3. How does a Government Budget act as a tool for promoting economic growth?
A Government Budget promotes economic growth by influencing the rates of savings and investment in the economy. Through its budgetary policies, the government makes provisions to mobilise resources for investment in the public sector. It allocates funds towards the development of infrastructure, healthcare, and education, which are crucial for long-term growth. Furthermore, by offering tax rebates and other incentives, the budget encourages private sector investment, leading to higher production and an overall increase in the GDP.
4. Why is the reallocation of resources considered a crucial objective of the Government Budget?
Reallocation of resources is a crucial objective because it allows the government to influence how the country's limited resources are used to maximise social welfare. Through its budgetary policy, the government can discourage the production of harmful goods (like cigarettes) by imposing heavy taxes, while encouraging the production of essential goods and services by providing subsidies or tax concessions. This ensures that resource allocation aligns with the nation's social and economic priorities rather than being solely driven by the profit motive of the private sector.
5. How does the Government Budget aim to reduce income and wealth inequality?
The Government Budget addresses income and wealth inequality through its fiscal policy, primarily using two instruments:
- Taxation: The government imposes a progressive tax system, where the tax rate is higher for individuals and companies in higher-income brackets. This reduces their disposable income.
- Expenditure: The revenue collected from these taxes is then spent on social welfare schemes that benefit the economically weaker sections of society. This includes providing subsidies on essential goods, funding education and healthcare, and offering social security pensions, thereby increasing their real income.
6. How are surplus and deficit budgets used to manage economic instability like inflation and deflation?
A Government Budget is a key tool for achieving economic stability by managing aggregate demand:
- During Inflation: To combat high inflation (a situation of excess demand), the government can implement a Surplus Budget. This involves increasing taxes and/or reducing its own expenditure, which reduces the purchasing power in the economy and helps bring down the aggregate demand and prices.
- During Deflation or Recession: To tackle deflation or a recession (a situation of deficient demand), the government can use a Deficit Budget. This involves decreasing taxes and/or increasing its expenditure on public works, which increases purchasing power and boosts aggregate demand, thereby stimulating economic activity.
7. What is the difference between a balanced, surplus, and deficit budget?
The difference lies in the relationship between the government's estimated revenue and its estimated expenditure:
- A Balanced Budget is one where the government's estimated revenue is exactly equal to its estimated expenditure. It signals fiscal discipline but may not be suitable during a recession.
- A Surplus Budget occurs when the government's estimated revenue is greater than its estimated expenditure. This implies the government is taking more money out of the economy than it is putting in.
- A Deficit Budget occurs when the government's estimated expenditure is greater than its estimated revenue. This is often used to stimulate economic growth during a slowdown.
8. What measures can a Government Budget include to address regional disparities?
To address regional disparities and promote balanced growth, a Government Budget can include specific measures such as:
- Establishing public sector industries in economically backward areas to generate employment and stimulate growth.
- Providing tax holidays and concessions to private businesses for setting up manufacturing units in underdeveloped regions.
- Allocating funds for the development of infrastructure like roads, electricity, and communication in these areas to make them more attractive for investment.
