Understanding the Government...Part 5 (Budget)

“Aunty, what is this budget thing? Is this something similar to what Amma talks to Appa about monthly expenditure?”

“You are quite close! Budget is about writing down the expenditure you are likely to incur in the future. Thus, it’s planned expenditure. Expenditure can’t happen without income! So, you write down both: expenditure and income. In short, it’s about your wallet! How much money will come there, and where it will go! In-fact  the word ‘budget’ comes from the French word -bougette, which means ‘purse’!”

“Okk! I never understood this budget! They present it in the parliament and keep raising the taxes on all, and everybody gives their comment on that!! Why it is so important Aunty?”

“It’s important for all, because, unlike the house budget, the country’s budget, will tell where the government is spending money! It will also tell where the government is getting the income! As the expenditure is done on public benefit and income is also taken from public, it’s important for us, the public!”

“You mean, our income and expenditure also will be affected by that?”

“Yes, it will be! For example, if you are planning to buy your dream bike, Yamaha, its cost may go up or down depending on the budget! If it’s cost is 50,000 rupees now, and if the sales tax is increased by 5%, then your cost goes up to 50,000 plus 2,500, this 57,500! So, your dad has to make provision for that in his budget!!”

“Ok aunty! I got it! So, budget is all about planning the expenditure and income for the coming year!”

“Yes, my dear! Govt also plans lots of things! Like building dams, roads, hospitals etc. The expenditure associated is called as ‘plan expenditure’. Some people call this as ‘capital’ expenditure, as it creates an asset/capital!”

“All the money of the government goes on such capital works every year?”

“No, it goes on something called ‘non-plan expenditure' or its also called as 'revenue expenditure'.”

“What is this ‘non-plan aunty? You just now said all is planned in the budget, and now you say 'non-plan'!! And what is this ‘revenue expenditure’?! Looks like a perfect oxymoron!!!”

Aunty laughed out loud (LOL!)

“Well said Raju!! There is no scarcity of oxymoron in the government! But, seriously, this ‘non-plan’  is about all expenditure that is recurring, and which is consequent to your plan expenditure!”

“Like?”

“Like, once you buy your Yamaha, you would want additional money for petrol every month?"

“Of-course, aunty!  At-least 15 liters! And, if I get lucky this year to woo that pretty Zoya, then it's 30 liters!!”

“Bad boy! First get good marks in the college and get a job! Then all girls will stand in queue for you! Else, this Zoya also won’t come near you! And you won’t have enough money to maintain even your Yamaha!!”

“Lol! Aunt, leave that! You better teach me Budget!”

“What to teach now?! You have already learned! You have planned expenditure, like buying a bike, and then the expenditure that you did not ‘plan’, but which comes along, the cost of ‘petrol’, called as ‘non-plan expenditure’, which is recurring in nature.”  

“Funny aunty! That’s all is Budget?! Only ‘plan’ and ‘non-plan expenditure’?! And you never told me why the oxymoron ‘revenue expenditure’ for the ‘non-plan’ expenditure!”

“Oh yes! The name is because, traditionally, the governments used to balance the ‘non-plan expenditure’ with that of the ‘revenue’ they used to get by taxation! So, it was called as ‘revenue-expenditure!”

“If the tax money goes to only 'non-plan', then, where will the money come for planned expenditure, like buying Yamaha?!”

“Dear, for that, the government generally borrows money!”

“Government borrows?! Why? I thought they have all the money in the world and they can print more notes if they want money!!!”

“They have lots of money which comes from taxes, but the expenditure is also huge Raju! Imagine the huge army, air force and navy! Police, government offices, hospitals, roads, ports etc!  So, they taxes are not enough and you can’t keep increasing the taxes! So, the government borrows!”

“Okk! But, whom does it borrow from? World Bank, Asian Development Bank etc?”

“You are right! It borrows from them also, and it also borrows from the public, by issuing bonds! Public buy the bonds,and thus the money goes to government  I will explain later how government raises funds by bonds. I will also tell you, how printing rupee notes endlessly are not a solution and how it will lead to everybody having lots of money and thus the cost of commodity will go up!”

“Oh yes! All that later, now only as much as required to ask some smart questions to my ‘Finance commissioner’ and impress him!!!”

(to be continued)