Tag: BUDGET

GOVERNMENT BUDGET

Government is required to undertake various economic, social, and other activities in every country. It is like to pursue various policies to achieve certain objectives like economic development, reduction of inequalities of income and wealth. The government has to incur expenditure in performing these activities and in pursuing its policies. For instance, the government has to incur expenditure in maintaining law and order and in undertaking various developmental activities. As such, government has to raise necessary revenue to finance these expenditures.

Accordingly, the government has to draw a financial plan corresponding to various activities it wants to undertake during the coming year . Such a financial plan is known as the budget of the government. “Budget of the government is an annual financial statement describing in detail the estimated receipts and proposed expenditures and disbursements of the government under various heads for the financial or fiscal year. The budget is the indicator of government functioning. It also gives the actual financial accounts for the previous year and the revised estimates for the current ye . In other democratic countries ,the government budget is a constitutional obligation in India. Under Article 112 of the constitution, a statement of estimated receipts and proposed expenditures of the Central Government has to be prepared for every financial or fiscal year and has to be placed before the parliament. It is titled Budget of the central government.

Government budget is a subject of immense importance for a variety of reasons.

  • Planned approach to government’s activities: The importance of government budget arises because of the fact that the activities of the government have increased tremendously. This calls for mobilization of large resources to meet the expenditure required to undertake these activities. There has to be a definite planning with regard to the estimated revenue and proposed expenditure for the proper conduct of the government activities.
  • Integrated Approach to Fiscal Operations: All these decisions and policies are interconnected and they must form a part of the overall set of objectives which the government wants to pursue. Government’s fiscal policy as reflected in the budget is an essential part of its overall economic and social policy.
  • Public Accountability: Budget proposals are discussed in the parliament. A popular debate also takes place in the media about the budget proposals. Parliament also exercises control over the government expenditure through various committees – Public Accounts Committee, the Estimates Committee and the Committee on Public Undertakings. Thus, Budget serves as a powerful weapon of financial control in respect of both collection of revenues and their disbursement.

STRUCTURE OF THE GOVERNMENT BUDGET

Constitution of the country demands that the budget must distinguish expenditure on revenue account from the expenditure on capital account. Revenue account covers those items which are recurring nature, while capital account covers those items which are of the nature of creating or reducing the capital assets. Budget is necessarily presented in two parts:

  • REVENUE BUDGET
  • CAPITAL BUDGET

Revenue budget shows revenue receipts of the government and the expenditures met from these revenue receipts. It consists of revenue receipts and revenue expenditure. Revenue receipts of the government are all those receipts which are non-redeemable. They create no liabilities or involve no sale or reduction in the assets of the government. Revenue expenditures relate to expenditures incurred by the government on day to day normal functioning of the government and interest payment on government debts. These expenditures neither create any physical or financial assets nor reduce any liability of the government .

Capital Budget comprises capital receipts and capital expenditure of the government. It shows capital requirements of the government and financing of these expenditures. Capital receipts are the receipts of the government which create liabilities or reduce assets of the government. The main component is to borrowing of all kinds from the public, RBI and repayment of loans to the central government by state government and public sector enterprises. Capital expenditures are those expenditures of the government which lead to creation of physical and financial assets or reduction of financial liabilities.

BUDGET DEFICITS

An important issue which is raked up every year during the budget in India is the issue of budget deficit. In the past two to three decades, government spending has increased more than its receipts. As a result , budget deficits and the government borrowings have increased sharply. Although politicians regularly make fine speeches about the need to reduce deficit, cutting down spending or raising taxes so as to reduce deficit are not politically popular. In every budget , the government has been setting the target of reducing the budget deficit, but reaching the target of reducing budget deficit has been rather difficult.

Budget deficit is financed by increasing the money supply and by borrowing from public and from other countries. This involves burden both on present as well as the future generations. The present generation has to shoulder the burden of budget deficits in terms of inflationary rise in prices. Higher debt also means that interest payments eat away a large part of government expenditure, which could otherwise be used for providing various economic and social services to the public. This deficit is a liability for future generations as well. Taxes will have to be increased in future to pay interest on the debt and to repay the debt. This is the burden of the debt on future generations.

SOME FACTS ABOUT INDIAN BUDGET OVER THE YEARS

  • The budget system was introduced in India on 7 April,1860.
  • James Wilson, the first Indian Finance member, delivered the budget speech
  • The first budget after independence was presented on 26 November, 1947 by R.K.S. Chetty.
  • Yashwant Sinha, the then finance minister, moved the budget to 11a.m. in 1999, instead of 5 P.M. as was the practice till then.
  • Arun Jaitley, the present Finance minister, has advanced the presentation of the budget to 1st February from the 2017-18 Budget. He has presented 4 regular budgets till date.
  • 24 people have presented budget in independent India.
  • Morarji Desai holds the record for the most budget presented in independent India with 8 full budgets and 2 interim budgets.
  • P Chidambaram has matched Morarji Desai’s record of presenting 8 full budgets.
  • All the three Prime Ministers from the Nehru family- Jawaharlal Nehru, Indira Gandhi and Rajiv Gandhi have presented one budget each.

Sources: Frank ISC Economics Class XII

Government Budgeting

Description of the budget

The word ‘budget’ is derived from the French word, Bougette, which means a leather wallet or purse.Therefore, the term modern budget refers to a document that contains estimates of revenue and expenditure of a country, usually for one year.

Types of Budget

Budgets can be categorized based on the following principles:

  1. Combined time.
  2. Number of budget’s tabled in the legislature.
  3. The overall finance budget’s position is presented in the budget.
  4. An approved policy on the takeover of revenue and expenditure in the budget.
Division of receipts and expenses in the budget.

Based on these principles budget’s can be:(Annual budget’s or long-term budget’s.

  1. One or more budget’s.
  2. Excess budget’s, deficits or estimates.
  3. Budget or revenue budget.
  4. Departmental budget or operating budget.

A brief description of the different types is as follows
1. ANNUAL or long-term budget’s

Generally, Government budget’s are for one year that is, for one year. In India, England and many other commonwealth countries the financial year, starts on April 1 and ends on March 31, but in the U.S.A., Australia, Sweden and Italy the dates are 1st July and 30th June. Some countries adopt a planned economic policy and meet the requirements for long-term planning, using a long-term budget, that is, preparing a budget for three years or more. Such a budget is a long-term plan rather than a long-term budget because what is offered is a financial plan over the years to fund the program.These countries spread the use of program costs over many years. The legislature approves the plan and estimates its costs, but that does not equal the actual voting of all-time shares. Every year, the national budget will include expenditure on a plan for that year, to be approved by the legislature.

2. One or more budget’s

When the estimates of all Government functions are allocated to a single budget, it is known as a single budget. The advantage of a single budget is that it reflects the financpractisetion of the Government as a whole.But if there are separate budget-related budget’s passed by the legislature, it is called a mass budget. In India, we have two budget’s — one for the railway line and one for the rest of the departments. The practice of having a separate train budget began in 1921. In England, there is one budget.

3. Extra income, deficit or limited budget

A budget is a surplus if the estimated income exceeds the estimated cost/expense But if the expected revenue falls below the expected cost, it becomes a budget deficit. According to economists, a deficit budget is a sign of global development. A limited budget is when the expected revenue is equal to the expected cost/expense. Budgets are often in short supply.

4. Income or budget of income

A budget is one in which the estimates of various items of income and expenditure include amounts to be acquired or used in one year,.In revenue and expenditure budget’s, accumulated in one financial year,, are planned for that financial year, regardless of whether the revenue is available or expenses incurred in that financial year,. In India, Britain and the U.S.A., counts are calculated, in France and other continents, counting income.

5. Departmental or operational budget

The current practice is to have a departmental budget, that is, the revenue and expenses of one department are organized under it. It does not provide any information about the work or activity that has been budgeted for. The operating budget is another where the total cost of a particular project is compiled under the head of a specific program.It is organized into activities, programs, activities and projects, for example, in the case of collaboration (employment), it will be divided into programs such as higher education, Secondary and Higher Education. Each program will be divided into activities, for example, teacher training is a task. The project is the final unit of division of labor.It symbolizes work as a major project, such as the construction of a school building. The A.R.C. proposed the adoption of a budget for all the departments and agencies of the Central and provincial governments that have managed development programs.

REFERENCE

Essay on Budget: Top 4 Essays | Government | Public Administration