What to look for in a ‘GOOD’ Union Budget ( in India)?
Today(1st Feb ‘23), Honourable Finance Minister (FM) Nirmala Sitharaman will present the 2023 Union Budget — the last full Budget ahead of the 2024 Lok Sabha elections.
While India exited 2022 as a relatively bright spot in the global economy, the FM will endeavour to present a Budget that insulates India’s economy against global headwinds and recession in advanced economies, while sticking to the path of fiscal consolidation.
But how do we know if it is a ‘good’ budget, and what makes a budget ‘good’?
To determine whether a Union Budget is a good one, it’s important to analyse several key aspects, including:
1. Fiscal allocation:
The allocation of funds for different sectors such as infrastructure, healthcare, education, etc. can give an indication of the government’s priorities and the impact it will have on various segments of the economy.
Here’s a simple example to illustrate the concept of fiscal allocation:
Let’s say the government has ₹1000 to spend in a year. They have to decide how to allocate this money among different needs such as education, healthcare, defence, infrastructure, and social welfare. They might allocate ₹300 for education, ₹200 for healthcare, ₹250 for defence, ₹150 for infrastructure, and ₹100 for social welfare. This would be an example of fiscal allocation.
This allocation can change from year to year based on different priorities, economic conditions, and public needs. The goal of fiscal allocation is to allocate resources efficiently and effectively to achieve the best outcomes for the community.
2. Tax policies:
Changes in tax policies, such as changes in tax rates or the introduction of new taxes, can have a significant impact on businesses and individuals. A budget that reduces the tax burden and simplifies the tax system is generally considered positive.
Here’s a simple example to illustrate the concept of tax policies:
Let’s say the government has decided to impose a 10% tax on all candy purchases. This means that if you buy a chocolate bar for ₹20, you will have to pay an additional ₹2 in tax. This tax revenue will then be used by the government to fund various public goods and services, such as schools, roads, and healthcare.
The goal of this tax policy is to discourage excessive consumption of unhealthy foods and raise revenue for the government. Other examples of tax policies include income taxes, sales taxes, and property taxes, each with different goals and objectives.
It’s important to understand that tax policies can have both positive and negative impacts on the economy and individuals, and they are often subject to debate and political discussions.
3. Reform measures:
Reform measures aimed at improving the business environment, such as simplifying regulations, reducing red tape, and providing support to specific sectors, can be seen as a positive step towards boosting the economy.
Here’s a simple example to illustrate the concept of reform measures:
Let’s say there is a school system that is facing challenges with low student achievement, high dropout rates, and insufficient funding. In response, the government decides to implement a series of reform measures to improve the school system. These might include:
- Increasing funding for schools to hire more teachers and improve facilities.
- Implementing a new curriculum that emphasises hands-on learning and critical thinking skills.
- Providing extra support and resources for at-risk students, such as after-school programs and tutoring.
- Creating a system for evaluating and rewarding teachers based on their effectiveness in the classroom.
4 . Inclusive growth:
A budget that focuses on promoting inclusive growth, such as measures aimed at reducing inequality and promoting the welfare of marginalised sections of the population, is considered a good budget.
Here’s a simple example to illustrate the concept of inclusive growth:
Let’s say a country experiences economic growth, but only a small percentage of the population benefits from it in the form of higher salaries, better job opportunities, and improved living standards. This type of growth is not inclusive and can lead to income inequality and social tensions.
In contrast, inclusive growth creates opportunities for everyone, regardless of their background or socio-economic status. For example, if a country experiences economic growth through the creation of new businesses and industries that provide good jobs and benefits for a wide range of workers, this would be considered inclusive growth.
Inclusive growth is important because it helps to reduce poverty, create greater economic stability, and improve the overall well-being of a society. It’s not just about the overall size of the economy, but about ensuring that the benefits of growth are shared by everyone.
5. Fiscal deficit:
The fiscal deficit, which is the difference between the government’s revenue and its expenditures, should be analysed to determine whether the budget is sustainable in the long term.
Here’s a simple example to illustrate the concept of fiscal deficit:
Let’s say the government has ₹100 in revenue (income) and ₹120 in expenses (spending) in a given year. In this case, the government would have a fiscal deficit of ₹20, meaning it spent ₹20 more than it earned.
To finance this deficit, the government may borrow money by issuing bonds or taking loans, which increases its debt. If the deficit persists year after year, it can lead to a buildup of debt and eventually become a problem for the government’s finances.
The goal of responsible fiscal policy is to maintain a balanced budget or a surplus, where the government earns more than it spends, or to keep the deficit under control by reducing expenses or increasing revenue. However, in some cases, such as during an economic recession, the government may choose to run a deficit to stimulate the economy and provide support to the citizens. The key is to balance the need for spending with the need for fiscal sustainability.
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