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What is Populist Budget

Introduction

Every year, on the first of February, the Finance Minister of India presents the Union Budget in Parliament. That budget is also known as the annual financial statement of India, and it contains the details of the revenue sources and expenses to be undertaken by the Government during the applicable financial year.

In other words, the Union Budget of India keeps an account of the Government's finances for the upcoming fiscal year, i.e., the period between 1st April to 31st March. It acts as the Government's roadmap for fund collection and allocation during this period.

The importance of Union Budget

Since India is a democratic country, it is governed as per the Constitution of India. The constitution defines the role of the Central Government so that it can function efficiently for the welfare of its citizens. The Government has a wide range of responsibilities, including administering a country, maintaining law and order, ensuring national security, promoting social welfare, and improving economic stability.

However, the Government needs adequate resources and planning to carry out these tasks. It collects revenues by imposing taxes on its citizens and may take loans from foreign countries and the Reserve Bank of India (RBI).

Government proposes a Union Budget every year, which contains the details about how and where they plan to spend the accumulated revenues.

The overall objective of a Union Budget is to maintain a balance between society's economic growth and overall development. It aims to reduce the economic inequalities between the citizens and ensure proper allocation of Government resources. Below are some targets that the Government plans to achieve while presenting the Union Budget:

  • Efficient allocation of resources
  • Reduce unemployment and poverty
  • Reduce economic inequality in the society
  • Keep a check on prices
  • Rationalise the tax structure

The two types of Budgets

There are two types of Budgets – a Populist Budget and a Progressive Budget. A populist budget is the one that is aimed at pleasing the people, whereas a progressive budget is the one that aims to strengthen economic growth. As mentioned before, the Government always seeks to balance the two while presenting the Union Budget.

However, sometimes the budget can show more inclination towards populism especially if general elections are in near term, and such a budget is called a populist budget. Let's find out what is a populist budget and how it can impact the economy.

What is a Populist Budget?

As mentioned, a populist budget is the one that is typically meant to please the people. Such a budget spends more on lucrative schemes that can increase the government's fiscal deficit and push up the inflation rate. Examples of such schemes include waiving off farm loans, relaxing the existing tax structure, giving high procurement prices for agriculture produce, etc.

The positive aspect of a populist budget is that it can provide a sudden boost to the markets by increasing the demand for commodities.

Impact on the economy

A populist budget mainly revolves around the general concerns of the public. However, it does little to strengthen the overall economic growth of the country. Such a budget can increase the pressure on the Government's balance sheet and also augment the country's fiscal deficit. Hence, we cannot consider it to be good for the economy. This is also the reason why economic experts usually oppose the populist budget.

Conclusion

Although a populist budget can provide a short-term boost to the markets, it is not good for the country's long-term economic growth. Governments usually present a populist budget to please the general public before the elections. However, with proper planning and focus on the quality of spending, a budget can be made popular without being populist.

Disclaimer - CICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.

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