Questions related to Government Budget Objectives

1. Two friends, Deepak and Krish were discussing the impact of increase in GST rates on
luxury items, as recently undertaken by the Government. Krish was of the view that most of
the luxury items (like foreign travel, imported cigarettes, etc.) should be taxed exorbitantly,
while the items related to daily consumption of poor and middle class should be tax-free.
Identify and explain the objective of the Government budget Krish is suggesting.
Ans) The objective of the government budget that is referred is ‘Reducing inequalities
in income and wealth’ or ‘Redistribution of income and wealth’. Government aims to
influence distribution of income by imposing taxes on the rich and spending more on
the welfare of the poor. It will reduce income of the rich and raise standard of living of
the poor, thus reducing inequalities in the distribution of income in the economy.
2. “Government provides essential items like food grains almost free to families below the
poverty line.” Identify and explain the objective of government budget in this instance.
Ans) The objective of the government budget that is referred is ‘Reducing inequalities
in income and wealth’ or ‘Redistribution of income and wealth’. By providing food
grains at a very nominal price to BPL families the government aims to raise the
standard of living of the poor.
3. State whether the following statements are true or false, with valid reasons:
(i) High tax on higher income groups aims to achieve the ‘reallocation of resources’ objective
of the government.
Ans) The given statement is true that high tax on higher income groups aims to achieve
the ‘reallocation of resources’ objective of the government. In addition, government
will use the funds collected in the form of taxes to spend on the welfare of the poor. In
this way, government also aims to ‘Reduce inequalities in income and wealth’ through
this move.
(ii) Borrowings are revenue receipt for the government.
Ans) The given statement that ‘Borrowings are revenue receipt for the government is
incorrect. Borrowings create a liability for the government, as the loan has to be repaid
in future and during the existence of the loan, interest accrues on the loan. Hence,
borrowings are Capital Receipts and not Revenue Receipts.
4. “Government has started spending more on providing free services like health and
education to the poor”. In light of the above, explain how the government can use the
budgetary policy to reduce ‘inequalities of income’?
Ans) Government uses budgetary policy to reduce ‘inequalities of income’ by imposing
taxes on the rich and spending more the welfare of the poor. This will reduce
disparities in income and wealth in the economy and raise the standard of living of the
poor. Providing free services like education and health are ‘Revenue expenditures’ and
are not capital expenditures as they do not create an asset or reduce a liability in the
short term. However, in the long term, education and health of citizens of a nation will
help them contribute positively to the GDP of the nation and raise their own standard of
living too.
5. (i) Explain the economic stability objective of Government Budget.
(ii) ‘Under the Ayushmaan Bharat Scheme, the Government provides free medicines to the
economically backward section of the society’. Identify and discuss the nature of the
government expenditure indicated in the given statement.
Ans) Expenditure incurred by the government under Ayushmaan Bharat Scheme for
providing free medicines to the economically backward section does not lead to any
creation of assets or reduction in liabilities. Hence, it can be classified as revenue
expenditure.
6. Answer the following questions. (a) "National highway is a private good because it is
funded by taxes." Defend or refute the given statement with valid arguments.
Ans) I refute the given statement that ‘National highway is a private good because it is
funded by taxes’. National highway is a Public good as it is non-excludable and non-
rivalrous. It is not possible to exclude anyone from enjoying the benefits of the highway
(non-Excludable). So also, one person’s consumption does not reduce the availability of
the good to others (non-rivalrous).
(b) How does the government budget ensure economic equality in an economy?
OR
(a) In the 2022-23 budget in India, a lot of importance has been given to reforming the
education system and all-inclusive welfare. Analyse the value of such an allocation.
Ans) ‘Redistribution of income and wealth’