The Concept Of Government Budget and Economy

The most important aspect of any government and economy is the Government’s Budget and its components. In India, the Government Budget is presented on 1st Feb every year, as enshrined in Article 112 of the Constitution of India. It is referred to as the “Annual Financial Statement.” 

Earlier, the budget was divided into two components- Common Budget and the Rail Budget, which were eventually merged in the year 2017. It is presented in the parliament by the Finance Minister of India, and entails the last year’s financial enactment of the government and introduces new financial policies and programmes for the current year. 

Aims and Objectives of Government Budget

The aim of the Government Budget and its components includes allocation of resources, classification of wealth and income, local area growth, employment opportunities etc. The budget also introduces the individual taxation and subsidies to be provided during the coming fiscal year. It aims to maintain economic stability in the country.

Government Budget and its components

The budget is divided into two parts- Budget Receipts, which constitute Revenue Receipts and Capital Receipts, and Budget Expenditure, which includes the Revenue Expenditure and Capital Expenditure.

  • Budget Receipt: They have estimated money receipts from all the sources during the government’s fiscal year. The classification of Budget receipts is as follows:
  1. Revenue Receipts: They are the receipts that neither create any liability nor cause any reduction in government assets. They are further divided into Tax Receipts, like Income Tax, Corporate Tax, Excuse Duty, GST etc., and Non-Tax Receipts like Fines, Special Assessment, Grants and Donations etc.
  2. Capital Receipts: They are the receipts that either create liability or cause a reduction in assets for the government. They are paid in interest payments, recovery of loans and disinvestment of assets to the private sector.
  • Budget Expenditure: The estimated expense during the government’s fiscal year. Following is the classification of expenditure of the government:
  1. Revenue Expenditure: They are expenditures that neither creates any asset nor cause any reduction in liability of the government. For example, Salaries, pensions, grants during calamities etc.
  2. Capital Expenditure: They are the expenditures that either an asset or cause any reduction in liabilities for the government. 

Types of Taxes

The classification of taxes is as follows:

  • Progressive and Regressive Taxes
  1. Progressive Tax: It is a type of tax that causes relatively less burden on the poor and more on the rich. A tax is said to be progressive when the rate increases with income growth. Example: Income Tax.
  2. Regressive Tax: It is a type of tax that causes relatively more burden on the poor than the rich. It occurs when there is a greater real burden on the poor than the wealthy. Example: House tax. 
  • Direct and Indirect Taxes:
  1. Direct Tax: A direct tax is a tax borne by the person it is imposed on. It is non-transferable to another person. Example- Income Tax, Corporate Tax, Wealth Tax etc.
  2. Indirect Tax: It is a tax in which the initial burden is on anyone and can be further transferred to another person. It is imposed on producers. Example GST.

Budget Deficit and its classification

A situation where the budget expenditures of the government are greater than the budget receipts is termed as Government deficit or Budget Deficit. There are three important types of Budget deficit in India namely Revenue Deficit, Fiscal Deficit and primary deficit: 

  1. Revenue Deficit: It is a state where the government expenditure is more than revenue receipts. It implies that they should practice disinvestment and increase their borrowings to meet demands. 
  2. Fiscal Deficit: The excess of total expenditure over total receipts without considering borrowings. It denotes borrowings by the government and leads to inflation, attrition of credibility, crowding-out and national debt.
  3. Primary Deficit: It is the difference between fiscal deficit and interest payment of the government. It displays the lack of economic discipline in a nation.

Balanced and Unbalanced Budget

  1. Balanced Budget: It refers to the situation of equilibrium between government receipts and government expenditure. It displays the financial stability of the government.
  2. Unbalanced Budget: It refers to the budget where receipts and expenditures of the government are not in equilibrium. It means either there is a Surplus Budget or Deficit Budget.
  1. Surplus Budget: A budget where the government expenditures are lower than the government receipts is known as Surplus Budget. It reduces inflation in the economy.
  2. Deficit Budget: A budget where the government receipts are lower than the government expenditures is known as Deficit Budget. It is recommended in a state of depression in the economy.

Conclusion

All the aspects of the Government Budget and its components make it highly essential for any economy. Its drafting requires a plethora of resources and hard work from all the officials involved, as it’s a year-long process and requires scrutiny. The task holds high significance and responsibility as it determines the country’s financial situation for a whole year. The policies presented in the Budget are followed and maintained by the cooperation of the central government and Reserve Bank Of India (RBI). The budget also requires the citizens to abide by it as it is formulated for their benefit.