What is Budget?

What is Budget?

A budget is an estimation of revenue and expenses over a period of time

What is Government Budget?

It is a document prepared by government containing item vise details of estimated Revenue and expenditure of government over next financial year.

Constitutional Requirement of Budget

As per Article 112 of Constitution

It is compulsory to present statement of

Estimated Receipts and Expenditures of Govt

for every financial year

Important Points About Govt Budget

1 It is Prepared on Estimated Basis and not actual basis

(As it is about future)

2 It is prepared for 1 year

We follow Financial Year (not calendar year)

Example- Budget for Financial year 2020-21 means Budget for Period starting 1 Apr 2020 to 31 Mar 2021

3 It is Prepared by all types of Governments

Central Govt, State Govt and Municipality

However, in this chapter, we will study about Central Govt budget which is called Union Budget

4 It is presented by Finance Minister in Parliament every year around February

Example

Budget for Financial year 2020-21 means Budget for Period 1 Apr 2020 to 31 Mar 2021. It is Presented in Advance in Feb 2020

Budget for Financial year 2021-22 means Budget for Period 1 Apr 2021to 31 Mar 2022. It is Presented in Advance in Feb 2021

FUNCTIONS OF BUDGET

OR

FUNCTIONS OF TAX AND EXPENDITURE POLICY

1 Allocation Function

Government wants to allocate resources towards public goods like National Defence, Roads, Judiciary

If govt wants to increase production of certain goods and services, so it gives tax concessions on these goods

Also govt wants to restrict use of certain goods, for this it increases tax on these goods

Additionally, govt can directly produce goods in some areas like water supply, sanitation etc as these are non-profitable

2 Distribution Function

Govt wants to ensure fair distribution of income and reduce inequality between rich and poor

So it charges more tax for rich in the budget and give subsidies and tax concessions to the poor

3 Stabilization Function

In case Country is going through recession and decline in demand

Govt increases its public spending in budget to create more demand of goods

In case country is going through inflation

Govt decreases its spending in budget to reduce demand of goods

Note-Functions of Budget are also called Revenue and Expenditure measures of Govt

Objectives of Budget

Lets learn about it one by one

1 Allocation Function

Government wants to allocate resources towards public goods like National Defence, Roads, Judiciary

If govt wants to increase production of certain goods and services, so it gives tax concessions on these goods

Also govt wants to restrict use of certain goods, for this it increases tax on these goods

Additionally, govt can directly produce goods in some areas like water supply, sanitation etc as these are non-profitable

2 Distribution Function

Govt wants to ensure fair distribution of income and reduce inequality between rich and poor

So it charges more tax for rich in the budget and give subsidies and tax concessions to the poor

3 Stabilization Function

In case Country is going through recession and decline in demand

Govt increases its public spending in budget to create more demand of goods

In case country is going through inflation

Govt decreases its spending in budget to reduce demand of goods

4 Economic Growth

Govt can spend more on infrastructure like electricity, roads, dams etc

This helps in increase of production

Also govt gives tax concessions to sectors where there are chances of more growth

Example-Tax benefits to Export sector and Software Companies

5 Management of Public Enterprises

Business owned by Governments are called Public Enterprises

Example-PSU like SBI,ONGC,BSNL

Govt gets dividend income from these companies

Also if these are not profitable, govt can go for disinvestment and sell it's shares

In both cases, it is a source of Receipt for Govt which can be used to make different expenditure

6 Remove Regional Disparities

Some areas of India are less developed while others are more developed

So in order to encourage growth in these areas, govt can give tax concessions or subsidies

This will lead to development of backward areas

NCERT Questions

No questions in this part

Other Books

Question 1

In the following questions, select the correct answers:

Which one of the following is an objective of government budget?

1. Reallocation of resources
2. Economic stability
3. Increasing regional disparities
4. Economic growth

Question 2

Union Budget is the budget of:

1. Central Government
2. State Government
3. Local Government
4. Municipal Corporation

Question 3

What is the duration of the Union Budget?

1. Annual
2. Half-yearly
3. Two years
4. Five years

Question 4

Union Budget is presented in the Parliament by:

1. President
2. Prime Minister
3. Finance Minister
4. Home Minister

Oswaal Questions

Question 1

Assertion (A): Budget shows monetary policy of the government.

Reason (R): Policy adopted by the Central Bank of an economy in the direction of credit control or money supply is known as Monetary Policy.

Mark the correct choice:

1. Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of the Assertion (A).
2. Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A).
3. Assertion (A) is true, but Reason (R) is false.
4. Assertion (A) is false, but Reason (R) is true.