ASSIGNMENT

Unit 6: Government budget and Economics

1. Explain the meaning and features of a Budget.

Meaning
• It is a statement of the estimates of the government receipts and government expenditure
during the period of the financial (fiscal) year.
• Budget is an important instrument to describe the fiscal policy of the government.
• The budget unfolds: (i) the financial performance of the government last year, and (ii) the
financial programmes and policies of the government for the next one year.
• It has two aspects: (i) revenue aspect, and (ii) expenditure aspect.
Features
▪ It is an estimate and not an actual statement.
▪ It is prepared annually.
▪ It is a constitutional requirement to present budget before Parliament.
▪ Revenue and expenditure are planned according to government budget.
▪ Budget impacts the economy through aggregate fiscal discipline and resource allocation.

2. Explain the objectives of a Government budget.

Objectives of Govt. Budget

(i) Redistribution of Income & Wealth -
• The government uses fiscal instruments of taxation (govt. revenue) &
subsidies (govt. expenditure) to improve the distribution of income &
wealth in the economy.
• Higher taxes can be imposed by the government on income earned by the
rich and also on the goods consumed by them in order to reduce their
personal disposable income
(ii)Reallocation of Resources-
• It refers to the change in the direction of resources from one use to the other.
• It is done with a view to balance the goals of profit maximization & social
welfare.
• Production of goods which are injurious to health (like wine) is discouraged
through heavy taxation.
• On the other hand, production of ‘socially useful goods’ (like khadi), is
encouraged through subsidies.
• It is also known as allocation function.
 (i) Economic Stability
• Free interaction of market forces i.e., the forces of supply and demand are bound
to generate trade cycles, also called business cycles.
• Budget is used as an important policy instrument to combat the situations of
deflation and inflation.
• Economic stability increases the rate of growth and development.
• It is also known as stabilization function.
(iv) Managing Public Enterprises
• The government seeks to accelerate the pace of growth by establishing public
sector enterprises.
• The budgetary policy of the government targets to increase the rate of growth
through public enterprises.
• Often, public sector enterprises are encouraged in areas where private
monopolies occur.
(v) GDP Growth
• GDP growth is the central objective of government budgetary policy.
• It is achieved in two ways:
(i) by making public investment on infrastructure, and
(ii) by inducing private investment through tax rebates and subsidies.

3. Explain in detail Budget expenditure.

Expenditure Budget The Expenditure Budget of the government highlights

the allotment of funds for disbursement to different ministries, sectors,
departments in a financial year as part of the Union Budget. The allotments are
made under Plan and non-Plan estimates for departments and ministries
concerned.