OBJECTIVES OF THE GOVERNMENT BUDGET

A govt. budget contains the estimated receipts and proposed expenditure for the upcoming
fiscal year. Through the budget govt. tries to manage its dual goal of Public Welfare and Profit
maximisation.

Followings are the objectives govt. tries to achieve through its budget-

1. RELLOCATION OF RESOURCES(ALLOCATION FUNCTION)-

One of the main objectives of the govt. budget is to reallocate resources of the country in
such a manner that there is balance between profit maximization and Social welfare.
As private sector (market) always produces the goods and services to maximize their profit,
goal of promoting Social Welfare is left behind; government allocates such resources as
Schools, Roads, Hospitals etc. through budget. It can be done in two ways-
(i) Self-Allocation- Certain goods and services which cannot be provided through the
market mechanism, such as Defence, roads, govt. administration are referred as Public
Goods. As they are allocated by the government itself, they are Non-Rivalrous and
Non-Excludable in nature.*
(ii) Fiscal Policy- Production of those goods are which are harmful to the society are
discouraged through heavy taxation i.e., liquor and cigarettes. Productions of socially
beneficial goods are encouraged through subsidies.
2. REDISTRIBUTION OF INCOME AND WEALTH(DISTRIBUTION FUNCTION)-
Equitable distribution of income and wealth is a sign of social justice and objective of
welfare state. The govt. uses fiscal instrument of Taxes and Subsidies with the view of
improving the distribution of Income and Wealth. This is done via-
(i) By imposing taxes on Luxury Goods
(ii) By Progressive tax structure having more burden of tax on richer section of the
society
(iii) By giving tax concessions, excise rebates and incentives for production of goods f
mass consumption and this making these goods available to the poorer section of the
society at lower prices.
(iv) Spending the amount collected as tax on social security like Free Education, Medical
facilities, Drinking water, sanitation, and transport facilities add to the real income of
the poor.
(v) Government incurs huge expenditure on providing guaranteed employment (min. 100
days) to jobless in rural areas.
(vi) By providing essential food items to BPL families at subsidised rate.

3. ECONOMIC STABILITY(STABILISATOIN FUNCTION)-

Free play of market forces of Demand and Supply generates trade cycle, also known as
business cycle. These refer to the phases of Recession, Depression, Economic Recovery
and Economic Boom.
Budget as govt. tools is used to control this trade cycle and the situation of inflation and
deflation. In other words it tries to prevent business fluctuations and maintain economic
stability with high level of Employment.
(i) The government can change the tax rates in response to the needs of the economy.
For example, during inflation or excess demand an increase in income tax rates
would reduce the disposable income; this would cut down the demand for goods and
services.
(ii) Public expenditure can also serve as an instrument to bring price stability. An
increase in public expenditure pumps in more money in the economy, while a cut in
public expenditure sucks out more money.

4. GROWTH OF THE ECONOMY-

The growth of a country depends upon the rate of savings and investment. This will
further promote capital formation and production levels, resulting in raising the
country’s national income.
(i) The Government makes various policies and provisions through its budgetary policy to
enhance savings and investment in an economy. This is done by providing various tax
rebates and other incentives for productive ventures.
(ii) The Government spends on essential services and facilities to have a solid
infrastructural base for the economy, like health, education, housing, and transport, so
that level of production rises in both the private sector and the public sector.
5. EMPLOYMENT OPPORTUINITIES-
Budgetary policy focuses on employment generation through investment in PSEs. Under
these policies, various schemes like MNREGA, Skill Development etc. are initiated to
create employment among Socially and Backward section of the society and reduce the
problem of the poverty.

6. MANAGING THE PUBLIC ENTERPRISE-

The Budgetary policy shows the interest if the govt. to increase the rate of growth
through Public Enterprises.
(i) Government undertakes commercial activities that are of the nature of natural
monopolies and requires heavy manufacturing i.e. Steel, Coal, Crude Oil, Nuclear
power.
(ii) Private sector in these areas may cause lesser production and higher price to
maximize profit and thereby reducing social welfare.

7. REDUCING REGIONAL DISPARITIES-

(i) To remove regional disparities, the government encourages setting up og the
production units in economically backward regions (SEZs).
(ii) Various types of tax concessions are offered to production units to take such
initiatives.
(iii) The govt. also provides subsidies to encourage production units to support the
govt. in achieving the objective of Regional Balanced Growth.