Written by Manivannan P Senior IAS officer
“Aunty, what is this budget thing? Is this something similar to what Amma talks to Appa about monthly expenditure?” Raju quipped.
“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’!”
“Ok! I never understood this budget! They present it in the parliament and then the prices go up! Everybody talks about it! Why it is so important Aunty?” Vani aunty smiled, “It’s important for all, because, the country’s budget, will tell not only where the government is spending its money, but also tell us how they are getting the income; i.e. Tax! And taxes will directly affect the prices of all commodities that we purchase!! “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 75,000 rupees now, and if the sales tax is increased by 10%, then your cost goes up by 7,500! So, your dad has to make provision for that in his budget!”
“Ok aunty! I got it! So, explain me the terms in the budget. What is ‘Plan expenditure’? What is ‘non-plan expenditure or revenue expenditure’? “ “The expenditure associated with planned projects or purchases is called as ‘plan expenditure’. It can be building dams, road, rail tracks, buying fighter jets etc. People call this as ‘capital’ expenditure too, as it creates an asset, in other words ‘capital’.“Ok, then what is non-plan expenditure or simply non-plan? Sudden unexpected expenditure?!”
“Well said Raju!! ‘non-plan’ could be sudden expenditure on calamities etc. But, primarily it’s about recurring expenditure, that DOES NOT create any asset!”
“Like, once you buy your Yamaha, you would want additional money for petrol every month?" “Of-course, aunty! At-least 15 litres! And, if I get lucky this year to woo that pretty Zoya, then it's 30 litres!!”
“Haha! First get good marks in the college and get a job! Else you won’t have enough money to maintain even your Yamaha!!” “Lol! Aunt, leave that! You better teach me Budget!”
“Yes, the expenditure on petrol is ‘non-plan’, as it does not create any asset! Thus, all expenditure like salary to officials, fuel to all the cars you see etc are ‘Non-plan’. Thus, non-plan is recurring and you need to do that expenditure every year! If you don’t, then cars will stop! Work will be hampered!
So, govts try to ensure that ‘non-plan’ expenditure is met with regular income, that is, from taxes we pay to the govt! Thus, the revenue needs to be equal to the non-plan expenditure! So, non-plan is also called as ‘revenue-expenditure’!! What an oxymoron!” “Haha! Wait aunty, 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? Govt can as well print any amount of the money it wants and build bridges and roads?!”
“Ah, that is a good question! But, it needs little deeper explanation! What will happen if the govt builds one long road with extra rupees printed? Say Rs 1000 crores? All the workers who built that road will get so much money? More employment? Imagine the govt builds 100 such roads with new printed currency, then we have around 1000x100= 1,00,000 crores! Now that’s lot of money! Many of us will be rich?!”
“Oh yes Aunty!! Then why doesn’t the govt print so much currency?!
“Haha! Listen pa! With so much money with all citizens what will happen? They will go and buy whatever they want? Imagine you want a Yamaha. Its cost is say 75,000 rupees. Now, due to these printing of new currency, your father has almost a lakh!
But, as the money is with everyone, even all your friends are flush with currency! Every body has money in lakhs!
But, did the number of bikes available for sales increase? No! The production will be same!! Because, production depends on raw materials, technology etc. So, you have 2 Yamaha bikes in showroom, but have 10 of you willing to buy!!
As you have more money, you may tell the shop keeper that you are ready to pay 1 lakhs! And your friend may offer 1.5 lakhs, as everybody seems to be rich! So, the 75,000 Yamaha becomes 1 or more lakhs!
Same will happen everywhere!! Movie tickets will cost few thousand rupees more! Thus, the rupee will not have value!! You will spend 1000 rupees to buy a kilo of potato! This is called inflation! Where, we have lots of money, but, less products/commodities in the market!
Thus, printing money will not solve the problem! The money is tied to what is produced in our country!! We can print more money, only if we can increase the total produce in the country! Got it?!”
“Hmm, yes Aunty, i get that! There are no short-cuts i guess! Now, I realise, why the govt increase the taxes to increase the revenue! Isn’t aunty?!”
“Yes Raju! The govt does that! They also borrow. We will discuss about taxes and borrowings of the govt in the next session?”
“Oh yes aunty! Let me also think deeper about whatever we discussed today! May be check some more sources on the net!"
(Source: Facebook page of Manivannan IAS)
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