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Business Environment

Notes distribution of income, controlling the quantity of money, controlling fluctuations, ensuring
full employment, and influencing the level of investment."
W.A. Lewis and Philip V. Taylor give a more comprehensive definition when they say, "A
budget is a master financial plan of the government. It brings estimates of anticipated revenues
and proposed expenditures, employing schedule of activities to be undertaken towards the
direction of national objectives. It is a device for consolidating various interest, objectives,
desires and needs of people into a programme whereby they provide for their safety, convenience
and comforts." This unit will provide you a clear understanding of fiscal policies.

6.1 India's Fiscal Policy

It is through fiscal policy that the government tries to correct inequalities of income and wealth,
which increase with the development of a country. Such inequalities expand internal market,
reduce unessential imports, counteract inflationary pressure, provide incentives for desirable
types of development projects, and increase the total volume of savings and investment. For all
this, the government adopts appropriate taxation, budgetary expenditure and public borrowings
policies.
Fiscal policy is the projected balance sheet of the country, prepared by the chief finance officer of
the country i.e. the finance minister of the State. Public finance is the study of generating resources
for the development of the country and about the allocation of those resources. Fiscal policy is
implemented through the budget, which is a statement of the State's revenue and expenditure.
There are three major functions of a fiscal policy: The first is the function of allocation in the
budget policy to make provisions for social goods. It is a process by which the total resources are
divided between private and social goods and by which the mix of social goods is chosen.
The second is the distribution function of budget policy. This includes distribution of income
and wealth in accordance with what the society considers a 'fair' or 'just' distribution. The third
is the stabilisation function of a budget policy, that is marinating high employment, a reasonable
degree of price stability, an appropriate rate of economic growth, with due considerations of its
effects on trade and the balance of payment.
The budget includes revenue and expenditure. The two are divided into capital and revenue
accounts. Thus, receipts are broken into revenue receipts and capital receipts, and disbursements
are broken up into revenue expenditure and capital expenditure.

6.1.1 Revenue Budget

It consists of revenue receipts and revenue expenditure.

1. Revenue Receipts: This includes tax revenue and other revenues:
(a) Tax revenue: These comprise of taxes and other duties levied by the Union government.
(b) Other revenue: These receipts of the government mainly consist of interest and
dividends on investment made by the government, fees and receipts for other
services rendered by the government.
2. Revenue Expenditure: This includes expenditure for normal running of government
departments and various services interest charges on debt incurred by the government,
subsidies, etc. Expenditure which does not result in the creation of assets is treated as
revenue expenditure.

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