Explain the following objectives of government budget:
- Allocation of resources.
- Reducing income inequalities.
CBSE DELHI - OUTSIDE DELHI - FOREIGN SET 1 2018
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- Allocation of Resources: Many times market fails to allocate the resources idealy and creates certain types of disparity and imbalances (such as economic disparity, regional disparity and sectoral disparity) which are not according to the social and economic requirement of the country. Then Government reallocate the resources by budget to decrease these disparity. For example government can invest in backward areas or provide facilities to private sector or provide tax concession or tax holidays to private sector in order to invest in remote areas, rural areas and backward areas which will help in reduction of regional disparity. Government can provide subsidies in agricultural inputs to encourage agriculture sector to reduce sectoral disparity.
- Reducing Inequalities of Income: Budget is a powerful tool which is used to reduce economic inequalities or disparity of income and wealth. To decrease the income and wealth gaps between rich and poor, Government imposes more taxes on income of rich persons and standard deduction on the income of economically weaker persons by progressive taxation on income (it will decrease the disposable income of rich person) or increasing the exemption limit of income tax and make expenditure on social security, subsidies to poor, provide food items at cheaper rate for BPL families, public works, etc. which will raise the level of poor people. Allocation of funds on social welfare schemes such as MGNREGA helping much in rural areas to reduce the gap between rich and poor.
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