Mar 192014

A budget may be defined as a financial plan which serves as the basis for decision making and center of expenditure and revenue for a specific period of time, normally, a year – a fiscal year (in case of a government). Hence, budget is the statement of financial plan of a government. It indicates the revenue and expenditure of the last completed financial year, the probable revenue and expenditure estimates for the current year, i.e., not completed and the estimates of the anticipated revenue and proposed expenditure for the next financial year.

From the estimates of revenue and expenditures, one can judge the type of activities which the government undertakes and the methods of financing these activities. It also points out the way in which the financial resources in the economy are being directed by the government.
Every country’s financial minister presents the financial statement of expenditure and revenue in terms of budget in the parliament before starting the fiscal year. The government budget contains the following components:

  1. Review of current fiscal year and estimation of the coming fiscal year: The budget is prepared for the coming year. It is prepared in the end of the previous fiscal year. The budget is presented either presented in the parliament or other places where the ministry of finance fixes. The overview of the economic progress of the country during the current fiscal year is presented before the budget of coming year. It is discussed about the achievement, weaknesses and problems, which appeared in the economy. It includes revenue mobilization, expenditure, price situation, foreign exchange, foreign trade, economic growth, inflation, foreign assistance and challenges of the economy.
  2. Objectives, strategies and policy: Budget is the form of the fiscal and monetary policy of the government. Hence, it includes objectives, strategies and policies. The objectives of the budget may be price stability, high economic growth rate, poverty alleviation, increased employment opportunities, optimum mobilization of resources etc. It has also determined the targets of the objectives. Specific strategies and policies are also set of in the budget for achieving the targeted goals. Poverty alleviation has been set of the main objective in the tenth plan and it has fixed the target to reduce poverty from 38% to 30% in the end of the tenth plan.
  3. Estimation of revenue and expenditure: Government estimates expenditure for a particular time period in the budget. The expenditure is divided into development and regular expenditure. To bring into operation and achieving the targeted programs, the government needs revenue. The government also presents sources of revenues in the budget. The sources of government are tax revenues, non-tax revenues, debt assistance, foreign subsidies etc. Hence, sources of revenue and expenditure are presented in the budget.
  4. Mobilization of deficit finances: Most of the developing countries mobilize deficit finances because their sources of revenues are less than their expenditure areas. It means, the expenditure is more than the sources of revenue. Preparing deficit budget is compulsory for these countries. Deficit budget is fulfilled from internal and external debts. Sometimes, government fulfills the gap of deficit budget by issuing more notes or increasing cash stock. The government should present the amount of debt, which the government is going to borrow from internal and external sources.