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