< Previous | Contents | Next >
Budget is a statement of estimated receipts and expenditures of the government in respect of every financial year. Budgeting is the process of estimating the availability of resources and then allocating them to various activities of an organization according to a pre-determined priority. It is an attempt to balance scarce means with public needs and ends.
Budgets are beyond money; they also represent choices, policies and philosophies. It is about allocating resources to competing priorities and issues of fairness or social justice come into it. They indicate the direction in which a country is headed and the path it has chosen to achieve its objectives.
Apart from its financial roles, the other functions performed by or through budgets are:
♤ Budgets act as instruments of control. They act as a benchmark to evaluate the progress of various departments. If a department is off-target, w.r.t. its budgetary proposals, it can be informed and corrective actions could be taken.
♤ Budgetary process involves all the departments of the government. Conflicts among various departments have to be resolved. So, budgetary planning and implementation helps in bringing various departments together and hence achieve co-ordination among them.
♤ Budgets can also be used as tools of punitive action by reducing the allocation of under- performing departments. So, they are also helpful in maintaining efficiency in working of various departments.
♤ Budgets can also be helpful in bringing about and institutionalising a change that an administrator wants. For example, if the government wants to improve the productivity of its employees, it can introduce incentives like performance related bonus through budgets.
♤ Budget also provides a platform for redistribution of resources. This redistribution might be from rich to poor or between regions, between generations, between workers and non- workers.
♤ It serves the purpose of public accountability of funds.
In sum, it is a planned approach towards increasing government activities that calls for mobilisation of large resources. The criticality of budgets to governance can be well understood by the changes in budgetary process in response to changing public opinion about the functions of government over the years.
Government Budgeting | Business Budgeting |
It is legally required for almost all government entities | It is not legally required |
It has to stay within the amounts appropriated and any changes need formal approval and difficult to get through the system | It can implement budget as it pleases and may even abandon its budget in midstream |
It is formulated with welfare motive | It is mostly profit oriented |
Business and government budgeting are more different than alike. The differences between the two is tabulated below: