• The Budget, which will be tabled in Parliament by the Finance Minister on 1st February is likely to address concerns around growth, inflation and spending.
  • Budget is the government’s blueprint on expenditure, taxes it plans to levy, and other transactions which affect the economy and lives of citizens.
  • According to Article 112 of the Indian Constitution, the Union Budget of a year is referred to as the Annual Financial Statement (AFS).
  • The Budget Division of the Department of Economic Affairs in the Finance Ministry is the nodal body responsible for preparing the Budget.

Important points:

  • All Government expenditure generates aggregate demand in the economy since it involves purchase of private goods and services by the Government sector.
  • All tax and non-tax revenue reduces net income of the private sector and thereby leads to reduction in private and aggregate demand.
  • But except for exceptional circumstances, the GDP (Gross Domestic Product) revenue receipt and expenditure typically show a tendency to rise over time.
  • Thus, the trend in absolute value of expenditure and receipts in themselves has little use for meaningful analysis of the Budget.
  • The trend in expenditures and revenue is analysed either by the GDP or as growth rates after accounting for the inflation rate.
  • Reduction in expenditure GDP ratio or increase in revenue receipt-GDP ratio indicates the Government’s policy to reduce aggregate demand and vice-versa.
  • For similar reasons, reduction in fiscal deficit-GDP ratio and primary deficit-GDP ratios indicate Government policy of reducing demand and vice versa.
  • Since different components of expenditure and revenue can have different effects on income of different classes and social groups, the Budget also has implications for income distribution.
  • For example, revenue expenditure such as employment guarantee schemes or food subsidies can directly boost the income of the poor. Concession in corporate tax may directly and positively affect corporate incomes.


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