Role of Government Budget in Economic Growth

Introduction

A government budget is a financial statement that presents the estimated receipts and proposed expenditures of the government for a financial year. It is a crucial instrument of economic policy as it outlines how resources are mobilized and allocated for development, welfare, and growth. The budget also reflects the priorities of the government and its role in stabilizing and directing the economy.

Objectives of a Government Budget

1. Resource Mobilization – The government raises money through taxes and borrowings.
   Example: GST collection in India has crossed ₹1.7 lakh crore in April 2024, showing strong tax mobilization.
2. Economic Stability – The budget helps in controlling inflation and unemployment.
   Example: During COVID-19 (2020), the government announced relief packages under the Atmanirbhar Bharat Abhiyan to stabilize the economy.
3. Redistribution of Income – Through progressive taxes and subsidies, the budget reduces inequalities.
   Example: Higher income groups pay more income tax, while schemes like PM-KISAN provide direct cash transfers to farmers.
4. Efficient Allocation of Resources – Funds are allocated to priority areas.
   Example: In the 2023-24 budget, a huge amount was allocated to renewable energy projects to reduce dependence on fossil fuels.
5. Public Welfare – Providing services like health, education, and social security.
   Example: Ayushman Bharat Yojana provides free health insurance coverage to poor families.

Components of a Budget

1. Revenue Budget
   • Revenue Receipts: Tax revenue (GST, income tax) and non-tax revenue (fees, dividends).
     Example: Income tax collected from individuals contributes a major share of revenue receipts.
   • Revenue Expenditure: Expenditure on subsidies, salaries, pensions.
     Example: Food subsidy under the National Food Security Act.
2. Capital Budget
   • Capital Receipts: Borrowings, disinvestment.
     Example: Government borrowing ₹12 lakh crore through bonds.
   • Capital Expenditure: Creation of assets like roads, dams, defense equipment.
     Example: Construction of expressways and railway projects under PM Gati Shakti Yojana.

Types of Budget Deficits (with Examples)

1. Revenue Deficit – When revenue expenditure > revenue receipts.
   Example: Subsidies on food and fertilizers cause revenue deficit.
2. Fiscal Deficit – Total expenditure > total receipts (excluding borrowings).
   Example: India’s fiscal deficit for 2024-25 is estimated at 5.1% of GDP.
3. Primary Deficit – Fiscal deficit – interest payments.
   Example: If fiscal deficit is ₹10 lakh crore and interest payments are ₹3 lakh crore, then primary deficit = ₹7 lakh crore.

Role of Budget in the Economy (with Examples)

• Promotes Growth: Heavy investment in infrastructure.
  Example: ₹11 lakh crore allocated for capital expenditure in Union Budget 2024-25.
• Controls Prices: Increasing subsidy on LPG cylinders to control inflation.
• Generates Employment:
  Example: MGNREGA provides rural employment.
• Encourages Investment:
  Example: Tax rebates for start-ups and MSMEs.

Conclusion

The government budget is more than a financial statement; it is an economic strategy. With schemes like PM-KISAN, Ayushman Bharat, and Make in India, the budget helps in achieving inclusive growth, reducing inequalities, and ensuring sustainable development.

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