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Whats the big deal about the Budget every year?

On the first day of february every year business men, media, investment professionals go crazy when the budget is presented in the parliament.

Its dissected and discussed to the minutest details and finally a judgement is made about it.. “Pragmatic, revolutionary,visionary, commonplace ” are some of the adjectives used for the budget.

Some of us wonder what is the hue & cry about the budget.And why does it matter so much.

A budget is as the word suggests a Budget. We know its meaning. Its a sort of a financial plan.

In a household , the earning member of a family decides and allocates money for running his home. If he has a surplus he consults and decides on whether a holiday or a new car should be bought.

A homemaker, from the running expenses of the household handed over to her decides on the best allocation of the money. Most on necessities and some on luxuries.

Say the man of the house ( assuming he is the earning member ) decides to splurge on a car and a vacation and some jewellery thrown in a given year, it follows therefore that his family members would be thrilled.

But it may also mean that he has not saved enough for a rainy day or not invested well for his retirement.

The lady of the house may decide its ok to eat out three times a week and wishes to hire help for every chore. It may be affordable but she may have to cut down on other things. Like not pay for expensive hobby classes or having to take public transport elsewhere.

Or more disturbingly cut down on an important tutors fees for an academically weaker child.

Both the partners make some choices. The choices will decide the quality of their current life and their future

Very few people have the luxury of indulging in every whim of their own.

People understand that you have to make choices and then live with the consequences.

Sometimes you get windfall gains and you can buy whatever you wish.

Now coming to our own Union Budget.

Just like a household budget, corporates have their budget meets and so does the Government.

Not many of us know that Government is also like a very very large household. It has multiple sources of income and has to decide on where to spend on.

The announcement of the budget is the statement of intent on what they plan to do.

As you can imagine the budget is a humongous exercise but to explain in very brief . It lists out the expected income and expenditure for the coming financial year.

Some of the sources of income of the Government are.

Income tax that we pay

Indirect taxes like the GST, excise, custom duty etc

Dividends from its investments and its owned companies and projects

Expenses of the government are many.

1. The expenses of the day to day running of the government, the salaries, the facilities , defence, healthcare facilities, subsidised transport to name a few.

2. Welfare objectives. Expenses on uplifting the poor. Creation of employment.

3. Developmental objectives like Infrastructure development.
The above is a very simplistic explanation but you get the gist. Basically the budget decides where he money is going to come from and where will it be spent.

The impact is felt by people when they decide to tax some things more or less to generate the revenue or to promote some activity.

And depending on where the focus to spend and the permissions they give or take away will in turn decide the fate of many people.

Like if they decide to spend on electrification of villages. It will change the life of villagers as well the service providers of electricity. If they decide to build roads in remote areas, it will impact the inhabitants of the area plus all the people who can build those roads as well provide the raw materials.

The Government has tremendous powers. They can change the course of the prosperity and quality of life of the citizens.

They can levy additional taxes and make some of our lives miserable or create some opportunities for us to do business. Hence the obsession with a budget.

Another thing which not many people know is that just as sometimes we spend more than we earn, so does the Government.

The Government in developing countries like ours regularly borrows to fund their spending. Which is called the fiscal deficit.

This is a number closely watched by the gentry. Too high a deficit continuing for too long will bankrupt Governments just like too much borrowing can finish you and me. Its that simple.

This is the reason in a developing country like our budget is given so much importance. Otherwise it’s a non event.

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