1. Meaning of Government Budget

A government budget is an annual statement of estimated receipts and expenditure of the government during a financial year, presented to the legislature for approval. In India, it is presented by the Finance Minister on 1st February each year.

2. Objectives of a Government Budget

1. Reallocation of Resources – Through taxation and subsidies to promote desired sectors.

2. Reducing Inequalities of Income and Wealth – Progressive taxation and welfare spending.

3. Economic Stability – Controlling inflation/deflation through fiscal policy.

4. Economic Growth – Investing in infrastructure, health, and education.

5. Management of Public Enterprises – Providing funds for government undertakings.

3. Components of the Budget

Revenue Budget

• Revenue Receipts – No repayment obligation; includes:

  • Tax Revenue – Direct taxes (Income Tax, Corporate Tax) and indirect taxes (GST, Customs Duty).

  • Non-Tax Revenue – Fees, fines, dividends from PSUs, interest receipts.

• Revenue Expenditure – Expenditure that does not create assets or reduce liabilities (e.g., salaries, subsidies, interest payments).

Capital Budget

• Capital Receipts – Create liabilities or reduce assets; includes:

  • Borrowings (internal and external loans).

  • Recovery of loans.

  • Disinvestment proceeds.

• Capital Expenditure – Creates assets or reduces liabilities; includes:

  • Investment in infrastructure.

  • Loans to states/UTs.

  • Acquisition of assets.

4. Budget Deficits

1. Revenue Deficit = Revenue Expenditure – Revenue Receipts.

2. Fiscal Deficit = Total Expenditure – (Revenue Receipts + Non-debt Capital Receipts).

3. Primary Deficit = Fiscal Deficit – Interest Payments.

5. Types of Budget

• Balanced Budget – Receipts = Expenditure.

• Surplus Budget – Receipts > Expenditure.

• Deficit Budget – Receipts < Expenditure.

6. Fiscal Policy

The government’s use of taxation, public expenditure, and borrowing to influence the economy.

• Expansionary Fiscal Policy – To boost demand in a slowdown (increase expenditure/reduce taxes).

• Contractionary Fiscal Policy – To control inflation (reduce expenditure/increase taxes).

7. Importance of the Budget

• Ensures efficient allocation of resources.

• Maintains economic stability.

• Supports growth and development.

• Reduces economic disparities.