Meaning

“A government budget is an annual financial statement showing item wise

estimates of expected revenue and anticipated expenditure during a fiscal year.”

Just as your household budget is all about what you earn and spend, similarly the
government budget is a statement of its income and expenditure. In the beginning
of every year, government presents before the Lok Sabha an estimate of its receipts
and expenditure for the coming financial year.

The government plans expenditure according to its objectives and then tries to
raise resources to meet the proposed expenditure. Government earns money
broadly from taxes, fees and fines, interest on loans given to states and dividend by
public sector enterprises. Government spends mainly on (i) securing and providing
goods and services to citizens, (ii) on law and order and (iii) internal security,
defence, staff salaries, etc. In India there is constitutional requirement to present
budget before Parliament for the ensuing financial year. The financial (fiscal) year
starts on April 1 and ends on March 31 of next year. For example, fiscal or budget
year 2010-11 is from April 1, 2010 to March 31, 2011. Obviously, the budget is the
most important information document of the government because government
implements its plans and programmes through the budget.

The practice of presenting budgets and fiscal policy to parliament was initiated by
Sir Robert Walpole in his position as Chancellor of the Exchequer, in an attempt to
restore the confidence of the public after the chaos unleashed by the collapse of
the South Sea Bubble in 1720.[2]
Thirteen years later, Walpole announced his fiscal plans to bring in an excise
tax on the consumption of a variety of goods and services josh, such
as wine and tobacco, and to lessen the taxation burden on the landed gentry. This
provoked a wave of public outrage, including fierce denunciations from
the Whig peer William Pulteney, who wrote a pamphlet entitled The budget
opened, Or an answer to a pamphlet. Concerning the duties on wine and tobacco -
the first time the word 'budget' was used in connection with the government's fiscal
policies. The scheme was eventually rescinded.[3]
The institution of the annual account of the budget evolved into practice during the
first half of the 18th century and had become well established by the
1760s; George Grenville introduced the Stamp Act in his 1764 budget speech to
the House of Commons of Great Britain
How budget related to growth
As India's economy continues to reel in the aftermath of last year's demonetization
drive, Finance Minister Arun Jaitley must balance between the need for stimulating
growth and continuing fiscal discipline when he presents the 2017-2018 budget on
Wednesday.
India's fiscal year starts April 1, and the outlook has certainly changed from last
year. Entering 2016 as the world's fastest-growing economywith annual gross
domestic product (GDP) growth of 7.6 percent, the South Asian giant now faces
shrinking factory output, consumption and rural demand following Prime Minister
Narendra Modi's contentious currency reform that launched in November. The
cash shortage that ensued could see India enter four consecutive quarters of sub-7
percent growth, Societe Generale estimated.
This year's budget also boasts structural changes. Starting from this fiscal year, the
railway budget will now be merged with the government's annual financial
blueprint, ending a decades-old practice of presenting them separately. Meanwhile,
the budget date has also been brought forward by one month to help ministries
better allocate their spending.
"Against the economic backdrop and upcoming state elections, the key debate is
whether the government will tilt towards activating fiscal easing to revive domestic
demand and take a more populist stance in the budget and initiate transfers to
households," explained Morgan Stanley economists in a recent report.
But with government debt running well above fellow Asian emerging markets,
New Delhi has limited fiscal space for populist measures. For 2016, India's public
debt is seen at 66 percent of GDP, versus China's 38 percent, Malaysia's 55 percent
and Thailand's 43 percent, according to the International Monetary Fund.
"Despite the negative impact on short-term growth from demonetization, fiscal
discipline will remain a priority," said Radhika Rao, economist at DBS. "Signs of a
populist budget will be positive for markets but if accompanied by a larger-than-
expected borrowing program, sentiments will quickly reverse."
Still, Jaitley's hands aren't completely tied; Wednesday's budget is expected to have
growth-friendly measures in five key areas.

Area covered under the budget:

(i) It is a statement of estimates of government receipts and expenditure.
(ii) Budget estimates pertain to a fixed period, generally a year.

(iii) Expenditure and sources of finance are planned in accordance with the
objectives of the government.

(Iv) It requires to be approved (passed) by Parliament or Assembly or some other

authority before its implementation.

Objectives of a Government Budget:

It should be kept in mind that rapid and balanced economic growth with
equality and social justice has been the general objective of all our policies and
plans. General objectives of a government budget are as under:
(i) Economic growth:
To promote rapid and balanced economic growth so as to improve living standard
of the people Economic growth implies a sustained increase in real GDP of the
economy, i.e., a sustained increase in volume of goods and services. Public welfare
is the main guide.

(ii) Reduction of poverty and unemployment:

To eradicate mass poverty and unemployment by creating employment
opportunities and providing maximum social benefits to the poor .In fact, social
welfare is the single most important objective. Every Indian should be able to meet
his basic needs like food, clothing, housing (roti, kapda, makaan) along with
decent health care and educational facilities.

(iii) Reduction of inequalities/Redistribution of income:

To reduce inequalities of income and wealth, government can influence
distribution of income through levying taxes and granting subsidies. Government
levies high rate of tax on rich people reducing their disposable income and lowers
the rate on lower income group.

Again, government provides subsidies and amenities to people whose income level
is low. Again public expenditure can be useful in reducing inequalities. More
emphasis is laid on equitable distribution of wealth and income. Economic
progress in itself is not a sufficient goal but the goal must be equitable progress.

Redistribution of income:
Equalities in income distribution mean allocating the income distribution in such a
way that reduces income inequalities and also there is no concentration of income
among few rich. It primarily requires that rate of increase in real Income of poor
sections of society should be faster than that of rich sections of society. Fiscal
instruments like taxation, subsidies and public expenditure can be made use of to
achieve the object.

(iv) Reallocation of resources: (D11; A10):

To reallocate resources so as to achieve social and economic objectives .Again,
government provides more resources into socially productive sectors where private
sector initiative is not forthcoming, e.g., public sanitation, rural electrification,
education, health, etc. Moreover govt. allocates more funds to production of
socially useful goods (like Khadi) and draws away resources from some other
areas to promote balanced economic growth of regions. In addition govt.
undertakes production directly when required,

(v) Price stability/Economic stability: (A2012):

Government can bring economic stability, i.e., control fluctuations in general price
level through taxes, subsidies and expenditure. For instance, when there is inflation
(continuous rise in prices), government can reduce its expenditure. When there is
depression, government can reduce taxes and grant subsidies to encourage
spending by the people.

(vi) Financing and management of public enterprises:

To finance and manage public enterprises which are of the nature of national
monopohes like railways, power generation and water lines etc.

WHY BUDGET ARE PREPARED BY GOVT

Government Budget is a subject of immense importance for a variety of reasons

1. Planned approach to Government's activities

2. Integrated Approach to fiscal operations
3. Affecting economic Activities
4. Instrument of Economics policy
5. Index of Government's functioning
6. Public Accountability
7. Allocation of Resources
 8. GDP Growth

Weakness in Budget
The disadvantages of budgeting include:

 Time required. It can be very time-consuming to create a budget, especially in a

poorly-organized environment where many iterations of the budget may be
required. The time involved is lower if there is a well-designed budgeting
procedure in place, employees are accustomed to the process, and the company
uses budgeting software. The time requirement can be unusually large if there is
a participative budgeting process in place, since such a system involves an
unusually large number of employees.
 Gaming the system. An experienced manager may attempt to introduce
budgetary slack, which involves deliberately reducing revenue estimates and
increasing expense estimates, so that he can easily achieve favorable variances
against the budget. This can be a serious problem, and requires considerable
oversight to spot and eliminate.
 Blame for outcomes. If a department does not achieve its budgeted results, the
department manager may blame any other departments that provide services to
it for not having adequately supported his department.
 Expense allocations. The budget may prescribe that certain amounts of overhead
costs be allocated to various departments, and the managers of those
departments may take issue with the allocation methods used.
 Spend it or lose it. If a department is allowed a certain amount of expenditures
and it does not appear that the department will spend all of the funds during the
budget period, the department manager may authorize excessive expenditures at
the last minute, on the grounds that his budget will be reduced in the next period
unless he spends all of the amounts authorized in the current budget.
 Only considers financial outcomes. Budgets are primarily concerned with the
allocation of cash to specific activities, and the expected outcome of business
transactions - they do not deal with more subjective issues, such as the quality
of products or services provided to customers. These other issues can be stated
as part of the budget, but this is not typically done.
 Strategic rigidity. When a company creates an annual budget, the senior
management team may decide that the focus of the organization for the next
year will be entirely on meeting the targets outlined in the budget. This can be a
problem if the market shifts in a different direction sometime during the budget
year. In this case, the company should shift along with the market, rather than
adhering to the budget.
Swot Analysis
A SWOT analysis can help entrepreneurs to develop company strategy by picking
apart the strengths, weaknesses, opportunities and threats a business faces from
internal and external sources. Each category of a SWOT analysis can be useful in
planning organizational budgets, as each identifies distinct spending priorities with
strategic impacts. Understanding how to use a SWOT analysis to develop budget
priorities can guide your decisions in budget planning
Strengths represent assets or organizational competencies that give a company a
strategic advantage over competitors. This portion of a SWOT analysis can help to
reveal exactly what it is that allows you to gain market share from competitors and
what sets your value proposition apart. Since these are crucial for strengthening
your competitive position, it can be wise to plan room in your budget to develop
your strengths even further. If you find that your company has faster or more
reliable shipping than competitors, for example, you might plan to use some of
next year's budget to focus on increasing shipping capabilities even further, making
it that much more challenging for competitors to keep up.
Overcome Weaknesses
The second element of a SWOT analysis reveals areas in which a company is not
as strong as it could be, or in which competitors have a distinct advantage. This
section of the analysis can help you to determine how much of your budget to
devote to addressing weaknesses in future periods, resulting in continuous
improvement. If you find that your company's sales processes and technology get
in the way of both customers and salespeople, for example, you might plan to
budget for a technology overhaul in the sales department. Alternatively, if you find
that a particular product consistently loses money, you might decide to stop
producing that product altogether, allocating precious resources to more profitable
products.

Take Advantage of Opportunities

The third element, opportunities, represents potentially profitable investments that
a company can make to expand, increase revenue or lower expenses. Opportunities
almost always require expenses, and making room in your budget to take
advantage of new opportunities can help you to stay one step ahead of the
competition. If you discover opportunities to expand into emerging markets with
sharply rising demand for your type of products, for example, you might budget for
international marketing and distribution in that market over the next few quarters.
Prepare for Threats
The final section of a SWOT analysis helps entrepreneurs to prepare for external
threats in the marketplace that could weaken their companies' competitive
positions if left unaddressed. Your analysis might reveal that supply in your boom
industry is quickly outpacing demand, for example, or that future tax changes may
have a negative effect on your profitability. Identifying threats early can give you
time to set aside money in the budget to prepare for or mitigate the effects of such
threats coming to fruition. Identifying threats early can give you time to reduce
spending in non-essential areas to allocate more budget resources to address
upcoming threats.

Impact of the budget:

A budget impacts the society at three levels, (i) It promotes aggregate fiscal
discipline through controlled expenditure, given the quantum of revenues, (ii)
Resources of the country are allocated on the basis of social priorities, (iii) It
contains effective and efficient programmes for delivery of goods and services to
achieve its targets and goals.

Factors effecting Budget

The budget is a critical planning tool for an organization. When developing a
budget, it is important to be as concrete and specific as possible about future
income and expenditure. The budget must consider direct and indirect costs
and enable the organization to allocate and plan for the coming year. Budgets
are prepared before the start of the fiscal year, so unknown factors need to be
predicted. Budget analysts review historical trends as well as make
assumptions about upcoming expenses to try and accurately predict the
organization's financial situation for the year ahead.
Revenue
Budget predictions are impacted when actual revenue received is not as much as
originally anticipated. External factors negatively affecting assumed revenue might
include an economic downturn, unexpected competition causing lowered sales or
an inability to sustain the level of growth needed. Internal factors such as
inadequate collections and poor accounts receivable practices could also impact
revenue. Aggressive projections that assume a high rate of growth or increased
revenue have a much greater potential for inaccuracy than conservative estimates
based on data from previous years.
Expenditure
Expenditure may be one of the most difficult areas of the budget to predict.
Increases to health insurance, turnover levels and collective bargaining in
unionized organizations can all change salary and benefits by a significant margin.
In many industries, salary and benefits is more than 50 percent of the
organization's total expenses. Any variance to employee compensation will have a
noticeable impact on budget predictions. Other unanticipated expenditures may
include rent increases, a previously unforeseen need for overtime and financial
audit fees and fines.
Market Conditions
The economy and current market conditions can impact the financial forecast in
several ways. Changes to the inflation rate and stock market conditions directly
affect the organization's net worth and its ability to generate funds or loans. If the
company relies heavily on investments as a funding vehicle, then poor stock
market performance will have a direct, negative effect on budget predictions.
Likewise, if the rate of return on investments outperforms the prediction, then the
budget will have a surplus.
Legislative Changes
Certain legislative changes have a direct impact on budget projections. In most
cases, businesses will be aware of pending legislation before it takes effect and can
plan accordingly. Sometimes, just the introduction of future legislation, even if it
has not taken effect, will disrupt current budget projections. An example of this
was the introduction of Governmental Accounting Standards Board (GASB)
legislation related to retirement and other postemployment benefits. Although the
legislation did not take effect immediately, the impact of the future legislation was
clear. It immediately revealed that local governments would have millions of
dollars of unfunded liability under some of the proposed rules. Consequently, the
organizations' bond ratings started to take into account the potential liability and
some were downgraded as a result, hampering ability to borrow money and
directly impacting cash flow. Another example of an immediate legislative change
that impacts budget forecasts is a change to taxation.

Types of Budget:
Recall, a budget is defined as an annual statement of the estimated receipts and
expenditure of the government over the fiscal year. Budgets are of three types:
balanced, surplus and deficit budgets—depending upon whether the estimated
receipts are equal to, less than or more than estimated receipts, respectively its
three types are explained hereunder.

(a) Balanced Budget:

A government budget is said to be a balanced budget in which government
estimated receipts (revenue and capital) are equal to government estimated
expenditure. Let us suppose for the sake of convenience that the only source of
revenue is a lump sum tax. A balanced budget will then imply that the amount of
tax is equal to the amount of expenditure.

Put in symbols:
Balanced Budget

Estimated Govt. Receipts = Estimated Govt. Expenditure

Two main merits of a balanced budget are:

(a) It ensures financial stability and (b) It avoids wasteful expenditure.

Two main demerits are:

(i) Process of economic growth is hindered and (ii) Scope of undertaking welfare
activities is restricted.

According to Adam Smith, public expenditure should never exceed public

revenues, i.e., he advocated a balanced budget. But Keynes and modern
economists do not agree with the policy of a balanced budget. They argue that in a
balanced budget, total expenditure (public and private) falls short of the amount
necessary to maintain full employment.
Therefore, government should increase its expenditure to close the gap between the
expenditure essential for full employment and expenditure that actually takes
place. Ideally, a balanced budget is a good policy to bring the near full
employment economy to a full employment equilibrium.

Unbalanced Budget:
When government estimated expenditure is either more or less than government
estimated receipts, the budget is said to be an unbalanced budget. It may be either
surplus budget or deficit budget.

(b) Surplus Budget:

When government receipts are more than government expenditure in the budget,
the budget is called a surplus budget. In other words, a surplus budget implies a
situation where in government revenue is in excess of government expenditure.

Symbolically:
Surplus Budget =

Estimated Govt. Receipts > Estimated Govt. Expenditure

A surplus budget shows that government is taking away more money than what it
is pumping in the economic system. As a result, aggregate demand tends to fall
which helps in reducing the price level. Therefore, in times of severe inflation,
which arises due to excess demand, a surplus budget is the appropriate budget. But
in situation of deflation and recession, surplus budget should be avoided. Mind,
balanced budget and surplus budget are rarely used by the government in modern-
day world.

(c) Deficit Budget:

When government estimated expenditure exceeds government receipts in the
budget, the budget is said to be a deficit budget. In other words, in a deficit budget,
government estimated revenue is less than estimated expenditure.

Symbolically:
Deficit Budget = Estimated Govt. Expenditure > Estimated Govt. Receipts
These days’ popular democratic governments adopt mostly deficit budget to meet
the growing needs of the people. It may be mentioned that Keynes had advocated a
deficit budget to remedy the situation of unemplo3mient and under-employment.

Government covers the gap either through borrowing or through withdrawals from
its reserves. Thus, a deficit budget implies increase in government liability and fall
in its reserves. When an economy is in under-employment equilibrium due to
deficient demand, a deficit budget is a good remedy to combat recession.

Merits and demerits of deficit budget:

A deficit budget has its own merits especially for developing economy For
example (i) It accelerates economic growth and (ii) It enables to undertake welfare
programmes of the people, (iii) It is a cure for deflation as it checks downward
movement of prices. At the same time.

It has demerits also such as:

(i) It encourages unnecessary and wasteful expenditure by the government, (ii) It
may lead to financial and political instability, (iii) It shakes the confidence of
foreign investors

The situation of excess demand leading to inflation (continuous rise in prices) and
the situation of deficient demand leading to depression (fall in prices, rise in
unemployment, etc.). A surplus budget is recommended in the situation of
inflationary trends in the economy whereas a deficit budget is suggested in the
situation of recession.

Gst Effecting Budget

The implementation of the Goods and Services Tax (GST) will make the country
seem like a different place from July 1. And, your wallet will be impacted most by
the introduction of the levy that is considered to be the single biggest tax reform
since Independence. The GST will essentially replace a large number of central
and state taxes on products and services - among them, value added tax (VAT) and
central sales tax. It is expected to turn India into a single common market and
allow free flow of goods and services across state borders. According to some
estimates, the reform will help boost GDP by 1.5% to 2%. Services such as
healthcare and education, which did not attract service tax earlier, will continue to
be exempt from GST. Items such as food grains, vegetables, milk etc. are also
exempt from GST.

According to Santosh Dalvi, GST is aimed at keeping inflation in check. "This

means that in the medium to long term, prices of a whole range of products and
services should come down," said Dalvi, partner, indirect tax, at advisory firm
KPMG India.

"GST is simpler and clearer, and is aimed at increasing tax compliance and
increasing government's revenue. It will also bring benefits to consumers by
reducing unnecessary tax burden," said Archit Gupta, founder and CEO of
cleartax.com. But exactly how will the tax reform affect your monthly budget?
Will it help you save more, or will you have to fork out more money for the same
services? And, what about medicines or banking? Let's take a look.

Be prepared to shell out more, as the tax burden will now be 18% as compared to
the current service tax at 15%. The same holds true for beauty parlours.

LPG Model in India

After Independence in 1947 Indian government faced a major problem to develop
economy and to solve the issues. Considering the issues pertaining at that time
government decided to follow LPG Model. The Growth Economics conditions of
India in that time were not very good. This was because it did not have proper
resources for the development, not in terms of natural resources but in terms of
financial and industrial development. At that time India needed the path of
economics planning and for that used ‘Five Year Plan’ concept of which was taken
from Russia and feet that it will provide a fast development like that of Russia,
under the view of the socialistic pattern society. India had practiced a number of
restrictions ever since the introduction of the first industrial policy resolution in
1948.

Liberalization is defined as making economics free to enter in the market and

establish their venture in the country. Privatization is defined as when the control
of economic is sifted from public to a private hand. Globalization is described as
the process by which regional economies, societies, and cultures have become
integrated through a global network of communication, transportation, and trade.

Liberalization:
 Soon after independence the time period was known as License Raj. As a result of
the restriction in the past, India’s performance in the global market has been very
dismal; it never reached even the 1% in the global market. India has vast natural
resources with high-efficiency labor, but after all this it was still contributing with
0.53% till 1992.

IMPACT BEFORE LIBERALIZATION

 The low annual growth rate of the economy of India before 1980, which stagnated
around 3.5% from 1950s to 1980s, while per capita income averaged 1.3%. At the
same time, Pakistan grew by 5%, Indonesia by 9%, Thailand by 9%, South Korea
by 10% and in Taiwan by 12%.
 Only four or five licenses would be given for steel, power and communications.
License owners built up huge powerful empires
 A huge public sector emerged. State-owned enterprises made large losses.
 Infrastructure investment was poor because of the public sector monopoly.
 License Raj established the “irresponsible, self-perpetuating bureaucracy that still
exists throughout much of the country” and corruption flourished under this system

After liberalization India became second world of development and became the 7
largest economies. It contributed 1.3 trillion in the world’s GDP. Dr. Manmohan
Singh, former finance minister opened the way of free economy in the country
which lead to the great development of country.

PRIVATIZATION

India is leading towards privatization from government raj. As a result it lead in the
development of country 500 faster than previous. Now India is in the situation of
world fastest developing economy and may be chance that India will be at top till
2050.

GLOBALIZATION

The term is sometimes used to refer specifically to economic globalization: the

integration of national economies into the international economy through trade,
foreign direct investment, capital flows, migration, and the spread of technology.
However, globalization is usually recognized as being driven by a combination of
economic, technological, sociocultural, political, and biological factors.

LPG Model of Development & LPG reforms

(a) This has a very narrow focus since it largely concentrates on the corporate
sector which accounts for only 10 percent of GDP.

(b) The model by passes agriculture and agro based industries which are a major
source of generation of employment for the masses. It did not delineate a concrete
policy to develop infrastructure. Financial and technological support, particularly
the infrastructural needs of agro-exports.

(c) By permitting free entry of the multinational corporations in the consumer

goods sector. LPG model hit the interests of the small and medium sector engaged
in the production of consumer goods. There is danger of labor displacement in the
small sector if unbridled entry of MNCs is continued.

(d) By facilitating imports, the Government has opened the import window too
wide. Consequently, the benefits of rising exports are more than offset by much
greater rise in imports leading to a larger trade gap.

(e) Finally the model emphasizes a capital-intensive pattern of development and

there are serious apprehensions about its employment-potential. It is being made
out that it may cause unemployment in the short run but will take care

“Liberalization, Privatization and Globalization” (LPG Model & LPG Policy)

approach followed by Government of India

For an understanding of liberalisation, privatisation and globalisation or LPG

Model in the Indian context, it is important to detail out the eighth five-year plan,
since it was the inception of a host of LPG policy that were instrumental in
allowing India to unshackled its economy and engage in global trade and
commerce

Conclusions and Recommendations

Despite the challenges of producing reliable estimates of resource needs for the
components of the immigration enforcement system for which the U.S.
Department of Justice (DOJ) is responsible, the committee has identified specific
opportunities to improve estimates of resource needs. In addition, we see
opportunities to improve the use of available resources through analysis of the
relative effectiveness of alternative ways of applying budget resources. A new
approach to budgeting may allow those resources to be applied more effectively to
limit illegal immigration and achieve other policy goals.
To improve budget estimates and to support better decisions about the use of
budget resources, the committee proposes elements of a new model of budgeting
for DOJ immigration enforcement, including changes in the procedures used to
develop budgets. The committee’s recommended approach relies on new data and
analysis, focuses on improving the effectiveness of enforcement efforts, and offers
DOJ more flexibility in deploying whatever level of resources is available (through
appropriations) as an alternative to either seeking supplemental resources or
adapting procedures in ways that may degrade performance. Given the shared
responsibility of DOJ and the U.S. Department of Homeland Security (DHS) for
the enforcement system, greater collaboration across DOJ components and
between DOJ and DHS—beginning with early discussion of pending changes in
policy or practice and including greater sharing of information during the budget
process—can be expected to improve bud-
get decisions for both departments and may lead to more cost-effective use of the
funds expended by each.