What is a Budget? | Objective, important and components of budget

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Definition: The budget is an annual statement of the estimated receipts and expenditure of the government over the financial year from it 1st April to 31st March. It includes government report on its financial performance of the past one year. The budget also describes the expected receipts and expenditures of the govt in the year to come.

In today’s article we are going to know about What is a Budget? (Objective, important, components). So let’s discuss in details.

Objective of Govt budget or Public budget

The objectives of government budget are given on the following grounds-

• Success of Planning – Economic planning is an important component of economic development. Budget exceeds the plans into action. It means it provides practical shape to planning.

• Redistribution of Income and Wealth – Government uses fiscal instruments of taxation and subsidies to improve the distribution of income and wealth. Budget helps in achieving this objective.

• Re-Allocation of Resources – With the help of budget, the government allocates the resources in such a manner that there is a balance between the objectives of points maximization and social welfare.

• Economic Stability – The government always tries to save the economy from business cycle. Budget is an important tool to fight with situation of inflation and deflation.

• Managing Public Enterprise – Public enterprises are owned by the government. Through the use of budget the government regulates the public enterprises in an efficient manner.

• Promotion of Capital formation – A budget can aim at breaking the various circle of poverty. Through raising the rate at investment into productive channels. It can help us in raising the ratio at saving to income by controlling consumption expenditure.

• Current Programme – The purpose of modern budget is to project current programme and polices in inflation to future benefits and costs.

What are the components of Govt budget?

Generally there are two components of government budget or public budget-

• Revenue Budget – Revenue budget is a budget which comprises revenue receipts and revenue expenditure of the government. Revenue receipts are those receipt are those money receipt of the govt which do not create any liability or reduction in the assets of the government.

On the other hand, revenue expenditure refers to the estimate expenditure of govt. in a financial year which does not either create assets or causes a reduction in a liabilities, as for example – Salaries, school ships, etc.

• Capital Budget – Capital budget is a budget which comprises capital receipt and capital expenditure of the government. Capital receipts are those money receipt of the government which creates liability and creation in assets of the government.

As for example- Purchase of share, land, etc. On the other hand, capital expenditure refers to the estimated expenditure of the government in a financial year. Which either creates assets or causes reduction in liability of the government.

Define balanced budget and unbalanced budget

• Balanced budget – A balanced budget is that budget in which government receipts are equal to required to govt expenditure.

Balanced budget = Government budget = Government expenditure.

• Unbalanced Budget – An unbalanced budget is that budget in which government receipts are not equal to required government expenditure.

Unbalanced budget = Government Receipts ≠ Government expenditure.

Unbalanced budget is of two types-

(a) Surplus budget – A surplus budget is that budget in which government receipts are more than the government expenditure.

Surplus budget = Government receipt > Government expenditure.

(b) Deficit budget – A deficit budget is a budget in which government receipts are less then the government expenditure.

Deficit budget = Government receipt < Government expenditure.

Merits of Surplus budget

(i) It helps to control inflation.

(ii) It reduce unnecessary expenditure programme wasteful.

Demerits of Surplus budget

(i) Surplus budget reduce consumption level and aggregate demand.

(ii) It is not desirable during the time of depression.

Merits and Demerits of Deficit budget

Merits- (i) The deficit budget increases the aggregate demand of the economy.

(ii) It increases greater expenditure programme.

Demerits- (i) It increase wasteful expenditure programme.

(ii) It is not desirable during the time of inflation.

(iii) It accumulates public debt and reduce cash reserves.

Merits of Balanced budget

(i) Balanced budget ensures financial stability.

(ii) The government does not spend wastefully.

(iii) It helps in fighting a depression in the economy.

Demerits of Balanced budget

(i) It does not provide any solution in the problem of unemployment.

(ii) It is not suitable for growth and development programme of the UDCs (Under develop countries).

(iii) It restricts the freedom of the action on the part of the public authority.

(iv) It is not suitable even in depression.

What are the different types of Deficit budget?

Generally, there are three types of deficit budget (types of budget)-

• Revenue deficit – Revenue deficit is the excess of revenue expenditure over revenue receipts in a year. It can be expressed as follows-

Revenue deficit = Revenue expenditure Revenue receipt.

• Fiscal deficit – Fiscal deficit is the excess of estimated expenditure over the estimated government receipts in a year. It can be expressed as follows-

Fiscal deficit = Total expenditure Total receipts other than borrowings.

• Primary deficit – Primary deficit is the difference between fiscal deficit and interest payment. It can be expressed as follows-

Primary deficit = Fiscal deficit Interest payment.

What are the difference between balanced and unbalanced budget?

The main difference between balanced budget and unbalanced budgets are mentioned below-

Balanced Budget Unbalanced Budget
(i) Balanced budget denotes a budget situation where estimated revenue is exactly equal to the estimated expenditure.   (i) Unbalanced budget represents a situation where estimated revenue and expenditure are not equal. 
(ii) Balanced budget is one dimensional budget. (ii) Unbalanced budget is a two dimensional budget. It may be surplus budget or deficit budget.
(iii) Balanced budget is not a seal situation rather it is an imaginary accounting budget. (iii) Unbalanced budget always shows a reality in the budget.
(iv) Balanced budget represents efficient management of the economy. (iv) Unbalanced budget does not provide tree picture of the economy.
(v) Balanced budget does not revel the economic development.  (v) Unbalanced budget is closely related with economic. During the time of inflation government prepares surplus budget and during the situation of unemployment govt. prepares deficit budget.

Distinguish between revenue budget and and capital budget?

The basic difference between revenue and capital budget are given below-

Revenue budget Capital budget
(i) Revenue budget is not non- developmental expenditure. (i) Capital budget is a developmental expenditure budget.
(ii) Revenue budget is recurring in nature. (ii) Capital budget is non-recurring in nature.
(iii) Revenue budget is used for normal running of government department and services. (iii) Capital budget is formulated to acquisition of an assets by the government. 

Explain the concept of Programme and Performance of budget.

• Performance budgeting – Performance budgeting is a new type of budgeting system. In this system major emphasis is given an the use of the budget resources. Thus under this budgeting system, the performance of budgeting is evaluated.

We know that resources of the government are always scarce in comparison to various services provided by the government. The performance budget is an important type of budgeting system of the western countries. It is considered as an improvement the basis of following points-

• It highlights the performance of various department of the government.

• It provide an efficient mechanism to find the utilization of government funds.

• Performance budget is a powerful device to check misuse of public funds.

• Through the use of performance budgeting the govt. can review the budget objectives properly.

• The purpose and objective of funds clearly mentioned to bring out the programme in financial terms.

It should be noted here that, now all the ministers and department of the government of India have been preparing performance budgeting since 1975-76.

Limitation of Performance budgeting

• The performance budget ignores the qualities evaluation of the budget objectives. It provides importance on the quantitative evaluation.

• The sources of performance budgeting depends on the availability of efficient man power and govt. department.

• This system has no universal applicability.

• This system has limited scope in case of objectively measured operation of the govt as low and order, defense, external affairs, etc.

• Programme Budgeting – The programme budgeting involves the relationship of input and outputs to achieve the desired objective. Under programme budgeting the entire budget system is classified on the basis of different function (programme). It is an important management tool to use the public fund efficiently.

Advantages of Programme budgeting

• The programme implements the budget objectives in an efficient manner. Because here funds are allocated on the basis of several functions programme.

• It is an important device to utilize the public funds optimally.

• The programme budgeting provides economy to the different development agencies.

• Programme budgeting is helpful for attaining of balance growth of different department of the economy.

Limitations of Programme budgeting

• This system fails to define the objective and priorities of value judgement.

• It does not provide sufficient scope of innovations in budgeting technique.

• This system requires a strong and enlarged administrative set up.

• It does not give accurate information of the measurement of actual cost and benefits of various projects.

Public Budget

The word “Budget” is said to have its origin from the French word “BOUGETT” which refers a small leather bag. Today bag itself is not vital but people are anxious to see what bag contains. Therefore, the bag contains economic bill presented by Finance Minister in the parliament house annually.

 Feature of Budget (why is budgeting important)

The important features of budgets are as follows-

• It is a statement of expected revenue and proposed expenditure of the public authorities concerned.

• It possesses periodicity which is generally in one current year.

• It has a sanction of public authority.

• Budget proposal should be clear.

• It sets produce in which the collection of revenue and administration of expenditure is to be exceeded.

• The anticipation of revenue of expenditure should make positive contribution of economic goal.


So friends, this was the concept of budget. Hope you get the full details about it and hope you like this article.

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