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Objectives of Government Budget

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  • Last Updated : 29 Sep, 2021

A government budget is a document prepared by the government that shows the government’s expected revenues (income tax, corporate tax, import taxes) and projected government expenditures (Defense, Healthcare, Education, Defense, Roads, State Benefits) for the next fiscal year. The budget is presented to the legislature, and it frequently requires legislative approval. The government executes economic policies and fulfills program goals through this budget. The utilization of monies from individual chapters is in the hands of the government, ministries, and other organizations after the budget is approved. Taxes, customs charges, fees, and other sources of revenue make up the majority of the budget’s revenue. Generally, budget expenditures encompass state operations that are either mandated by law or mandated by the constitution. The budget does not allocate funding for government initiatives on its own, necessitating further legislative actions. The Indian government In 2021-22, plans to spend Rupees 34,83,236 crore. The government spent Rupees 34,50,305 crore in 2020-21, a 13 percent increase over the budget estimate, according to revised estimates.

Government Budget Components are divided into two parts:

1. Revenue Budget – The revenue budget is made up of revenue receipts and expenditures. Both tax revenue (excise duty, income tax) and non-tax revenue (profits, interest revenues) are reported in these receipts.

2. Capital budget – The capital budget comprises both short-term capital expenditures (such as disinvestment) and long-term capital expenditures (such as borrowing) (for instance, long-term investments, Creation of assets). Government liabilities or decreasing financial assets, such as loan repayments, market borrowing, and so on, are examples of capital receipts.

Budgetary Objectives of the Government:

1. Administration of Public Corporations:

A public enterprise is a government agency that manages the government’s commercial and economic activities. The government’s budget policy demonstrates how the government tries to boost growth through public enterprises. The budget assists the government in managing public enterprises that are natural or state monopolies in nature. Railways, electricity, and water supply, for example, are all established and managed for the public’s social welfare. The government manages such businesses through the budget process, making various provisions and providing financial assistance.

2. Health-care financing:

Governments contribute significantly to healthcare finance through mobilizing funds via public budgets and other channels. By combining health-development resources, coordinating resource allocation, and procuring health services from a range of sources healthcare financing has been done. Health ministries are in charge of guaranteeing access equity by enhancing financial risk protection, decreasing financial barriers to access, especially for the poor and vulnerable, and ensuring that health care financing is equitable across all income levels. Health-care finance is becoming a more essential role in healthcare systems as access inequalities within and across nations widen due to financial obstacles and a lack of adequate social protection.

3. Education:

The National Education Policy emphasizes early learning for all children, a revamped curriculum that focuses on basic numeracy and literacy in the early years, a shift away from rote learning, and a new evaluation system that evaluates abilities and learning rather than memorizing. Government funding on education in India is mostly for government schools (nearly one million), with just a tiny percentage going to government-aided institutions. 

According to the Economic Survey, India allotted Rupees 6.43 lakh crore ($88 billion) in public funds for the education year 2019-20. School education received Rupees 56,537 crore ($7.74 billion) while higher education received Rs 38,317 crore ($5.25 billion) from the national government.

4. Economic stability:

Economic instability arises when the forces that influence an economy are out of balance. Inflation, or a decrease in the value of money, is a common feature of unstable economies. Changes in the conditions that kept the economy stable cause economic instability. To achieve the goal of economic stability, the government budget is used to prevent business fluctuations in inflation or deflation. Through its budgetary policy, the government aims to control the various stages of business fluctuations. Surplus budget policies during inflation and deficit budget policies during deflation help to keep prices stable in the economy.

5. Manage public enterprises:

Many public-sector industries are designed to benefit people’s social well-being. The budget is expected to include various measures for running such a business and imparting financial help. The central or state government, or the local government, owns and manages public enterprises. The government may own all or part of the public enterprises, or the government may own them jointly with private industrialists and the general public. In any case, the government retains primary control, management, and ownership. Government funds provide capital to public enterprises, and the government must account for this capital in its budget. The government’s rules and regulations compel public enterprises to operate in an overly formal manner. As a result, management is a delicate task, hence public enterprises are managed by the government through budgeting. 

6. Reallocation of resources: 

The fiscal strategy of the government strives to reallocate resources according to the country’s economic (profit maximization) and social (public welfare) interests.  For example, To encourage investment, the government can provide tax breaks, subsidies, and other incentives to producers. For example, as we see the government uses heavy taxes to discourage the production of harmful consumption goods (such as liquor and cigarettes) while the government providing subsidies to encourage the use of ‘Khaki’ products or ‘Made in India’ products.

7. Economic growth:

It is determined by the pace of investment and savings in a country. As a result, the budgetary plan focuses on setting aside sufficient funds for public sector investment and increasing the total rate of investment and savings.  A budget allows the government to control the taxation of various industries. Investment and expenditure are two of the most important factors in a country’s economic development. By providing tax breaks and subsidies, the government can encourage people to put more emphasis on saving and investing. Traditionally, gross national product (GNP) or gross domestic product (GDP) has been used to measure aggregate economic growth (GDP).

8. Reduce regional disparities:

Wide differences in per capita income, literacy rates, health and education services, levels of industrialization, and other factors exist between different regions, resulting in regional imbalances or disparities. States or regions within a state can be considered regions. There are massive imbalances in India on a variety of fronts. Government budgeting attempts to reduce regional disparities by adopting taxes and spending policies and encouraging the establishment of manufacturing units in undeveloped areas.

9. Reducing income and wealth disparities:

Economic inequality is a natural part of every economic system. Through its budgetary policy, the government aims to reduce such income and wealth disparities. The government aims to influence income distribution by imposing taxes on the wealthy and spending more on the poor’s welfare. It will lower the income of the wealthy while raising the standard of living of the poor, reducing income disparities. The government redistributes income in favor of the poor by levying taxes on the wealthy and providing subsidies to the poor. The goal of redistribution is to be achieved through progressive income taxation, which means that the higher the income, the higher the tax rate. Firms are taxed on a proportional basis, meaning that the tax rate is based on a percentage of profits.

It aims to ensure that income is not concentrated among a small number of wealthy individuals, as income disparities make GDP a poor indicator of economic well-being.

Conclusion:

The budgeting includes making a strategy for how the government will spend the money. Making a spending plan enables the government to know ahead of time if they will have enough money to complete the tasks they need to complete. Budgeting promotes forward-thinking, assists in defining and coordinating roles and responsibilities within the nation, provides a framework for operations, establishes standards and benchmarks for achievement, improves decision-making clarity by providing comparative performance indicators, and aids in control and prompts where corrective action and decision-making are required to make changes.

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