Government Budget – Meaning, Components, Objective

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Looking for What is government budget. It’s meaning, definition, components, and objective as per the syllabus of class 12.

I have explained all the above topics in detail.

What do you mean by government Budget?

See, all country’s government aim is the maximization of the welfare of country’s people.

The welfare of the people can be achieved through

  1. Price stability and
  2. Reduction in the inequalities in the distribution of the income.
  3. Optimum allocation of the available resources.

The government endeavors to achieve it through revenue expenditure policy (fiscal policy).

The Government planned its revenue resources and expenditure application for the coming fiscal year in advance each year.

The government document all these in a written document. Such a document is called a government budget.

Definition of the Government Budget

I am giving a general definition given in various reference books and NCERT with the same words as given.

A government’s budget is a statement showing item wise estimated receipts and expenditures of the government under various heads during a given year.

S.K Aggarwal

Government budget is an annual statement, showing item wise estimates of receipts and expenditures during a fiscal year.

Sandeep Garg

Government Budget is a statement of expected receipts and expected expenditure of the government (for the financial year to come) that reveals the budgetary policy of the government to achieve the twin objective of growth with stability.

TR Jain

Which article of the constitution of India make mandatory to present the budget.

Article 112 of the Indian constitution says it is mandatory to present before the parliament a statement of estimated receipts and expenditures of the government in respect of every financial year (1st April – 31st March).

On Which date annual budget is presented by the government in Parliament.

On 1st of February.

Objectives of the Government Budget

As I already mentioned above the government’s main aim is to increase the welfare of the people by maintaining economic stability.

following are the way a government intervenes in the economy.

Allocation Function of Government Budget:-

The government provides certain goods and services which can not be provided by the market mechanism (private sector).

It is due to the lack of profits or it involves huge investment expenditures.

For example:- National Defence, roads, government administration, water supply, sanitation, etc.

Such goods are referred to as public goods. The production of such goods is necessarily undertaken by the government in the public interest.

Apart from it, the government can also encourage the private sector through tax concessions, subsidies, etc., to undertake certain production in the public interest.

This way government influences the allocation of the available resources.

Redistribution Function of the Government Budget:-

The government’s aim is to reduce the income inequalities in society. It can be achieved by two fiscal policy steps.

First, the government can impose higher rates of tax on the income and the goods consumed by the rich.

It will reduce the disposable income of the rich.

Second, the government can spend more amount on providing free services to the poor like education, medical treatment, ration, etc.,

It will raise the disposable income of the poor.

In this way, the government can reduce income inequalities between rich and poor.

Stabilization Function of the Government Budget:-

The stabilization function means maintaining economic stability. The economic stability refers to the absence of large-scale fluctuation in the price level.

The fluctuations in price level create uncertainties and hardship for the people.

Such instability in price can be control through taxes and expenditure.

For example in an inflationary situation, the government can discourage spending by increasing taxes and at the same time reduces its own expenditure.

In a deflationary situation, the government can encourage spending by decreasing taxes and at the same time increases its own expenditure.

Components of Government Budget:-

The components of the Budget refers to the structure of the budget.

Although the budget document relates to the receipts and expenditure of the government for a particular financial year.

The impact of it will be there in subsequent years.

There is a need therefore to have two accounts –

  1. those that related to the current financial year (Revenue Budget)
  2. Those that concern the assets and liabilites of the government (Capital Budget)

Thus there are two main components of the budget

  • Revenue Budget:-

It deals with the revenue (day-to-day) aspect of the government budget. It records and explains how revenue is generated (collected) by the government and how it is allocated among various revenue expenditure heads.

Revenue Budget has two parts

  1. Revenue Receipts
  2. Revenue Expenditure
  • Capital Budget:-

It deals with capital (Assets – Liabilities) aspects of the government budget.

It consists of two parts

  1. Capital Receipts
  2. Capital Expenditure

Note:-

The components of the budget can also be categorized according to receipts and expenditures.

  1. Budget Receipts that includes 1. Revenue Receipts 2. Capital Receipts
  2. Budget Expenditure that includes 1. Revenue expenditure 2. Capital Expenditure

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Anurag Pathak
Anurag Pathak

Anurag Pathak is an academic teacher. He has been teaching Accountancy and Economics for CBSE students for the last 18 years. In his guidance, thousands of students have secured good marks in their board exams and legacy is still going on. You can subscribe his youtube channel and can download the Android & ios app for free lectures.

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