Q.Explain in short, the term "function finance".
🔒You're viewing a preview — the full solution, concept, methods & PYQ mapping are locked.
🔒 Start your 14-day free trial to unlock the full solution →Concept understanding — Objectives of the Government Budget (Allocation, Redistribution, Stabilisation)
Why a Budget Is More Than Just Income and Expenditure
Imagine the government as the manager of a giant household of over a billion people. Every year it must decide how much to earn, how much to spend, on whom, and to what end. That annual plan is the government budget — but its real purpose goes far beyond bookkeeping. A budget is a tool of policy: through where it raises money and where it spends it, the government actively shapes the economy.
Government Budget = a statement of the estimated receipts and estimated expenditure of the government for a fiscal year (1 April to 31 March).
Note the word estimated — a budget looks forward to the coming year, not backward at what was actually spent last year. That distinction is a favourite trap in board questions.
The Three Core Objectives
The NCERT frames the budget's purpose around three functions the government performs through fiscal policy.
1. Allocation of Resources
The market, left alone, under-produces goods everyone benefits from (public goods like roads, defence, street lighting) and over-produces harmful ones. The budget corrects this:
- It directly provides public goods that no private firm would supply.
- It uses taxes and subsidies to steer resources — heavily taxing demerit goods (tobacco, luxury imports) to discourage them, and subsidising merit goods (education, sanitation) to encourage them.
2. Redistribution of Income
Markets reward the already-wealthy more than the poor, widening inequality. The budget narrows this gap through fiscal transfers:
- Progressive taxation — higher-income groups are taxed at higher rates, so the rich pay proportionately more.
- Transfer payments and subsidies — the revenue funds free/subsidised services and welfare schemes aimed at the poor, raising their real disposable income.
3. Economic Stabilisation …
"Functional finance" means the government uses its budget deliberately to achieve economic goals like full employment and stability, not just to balance accounts.
…
Budget as a policy tool for economic objectives, not just a balanced-accounting exercise.
Functional finance refers to the idea that government budgetary policy should be guided by its function/role in the economy — i.e., deliberately used to achieve desired macroeconomic outcomes such as full employment, price stability and economic growth — rather than following the traditional 'sound finance' principle of simply balancing government receipts and expenditure each year. Under functional finance, running a deficit or surplus …
Showing the 12 most recent of 13 on this concept.
- CBSE 2026Set ANNUAL1 markQ.Define Government Budget.
›Reveal solutionSolution
Government Budget = the annual statement of estimated government receipts and estimated government expenditure for a financial year.
A Government Budget is a statement of the expected/estimated receipts (revenue receipts and capital receipts) and expected/estimated expenditure (revenue expenditure and capital expenditure) of the government for a particular fiscal/financial year (in India, 1st April to 31st March of the following year). It is presented to the legislature (Parliament/State Assembly) for approval before the start of the financial year and serves as the main instrument through which the government plans its fiscal policy -- re …
- CBSE 2025Set ANNUAL1 markQ.Fill in the blank: Through the agricultural support price scheme the government fixed the ______ for some agricultural commodities.
›Reveal solutionSolution
The government fixes the Minimum Support Price (MSP) under the support-price scheme.
Through the agricultural price-support scheme, the government announces a Minimum Support Price (MSP) — a guaranteed floor price at which it assures to buy specified crops (wheat, rice, etc.) from farmers. This protects farmers from a sharp fall in prices and ensures them a remuner …
- CBSE 2025Set ANNUAL1 markMCQQ.Write True or False: The budget speech delivered in the Parliament by the Home Minister.(a) True(b) False
›Reveal solutionSolution
False — the budget is presented by the Finance Minister.
The Union Budget (the annual financial statement) is prepared by the Ministry of Finance and presented to Parliament by the Finance Minister, who delivers the budget speech. The Home Minister has no role in presenting the budget. Hence the statement that the Home M …
- CBSE 2025Set ANNUAL1 markQ.Suggest one step to be undertaken by the government to achieve objectives of both economic growth and price stability in the economy.
›Reveal solutionSolution
Economic growth and price stability can at times conflict (if demand outpaces supply, growth-stimulating measures fuel inflation); the way to pursue both together is to target the supply side -- raising an economy's productive capacity -- rather than relying only on demand-boosting measures.
One of the objectives of the government budget (and macroeconomic policy generally) is to achieve a high rate of economic growth without excessive inflation, which requires that the supply of goods and services in the economy grow in step with demand. A specific step the government can take is to channel public investment into infrastructure (power, transport, irrigation), agricultural productivity (seeds, fertilizers, storage, cold chains) and technology upgradation. Such investment directly adds to the economy's output capacity (promoting growth) while also removing supply bottlenecks for key goods (especially food and essential items), thereby containing the price pressure that would otherwise aris …
- CBSE 2025Set ANNUAL1 markMCQQ.Which of the following is the objective of economic planning?(a) rise in prices(b) self sufficiency(c) more cyclical fluctuations(d) environment protection
›Reveal solutionSolution
Self-sufficiency was a core objective of India's economic planning, alongside growth, modernisation and equity — the other options describe problems planning sought to avoid, not goals it pursued.
India's Five Year Plans, beginning in 1951, were built around a set of stated objectives for the economy:
- Economic growth — raising the rate of growth of national income and output.
- Modernisation — adopting new technology and changing the structural composition of the economy (e.g., a shift toward industry and services).
- Self-sufficiency (self-reliance) — reducing dependence on imports, particularly for food grains and capital goods, by building domestic production capacity.
- Equity — ensuring that the benefits of growth are shared widely, reducing poverty and inequality. …
- CBSE 2025Set ANNUAL1 markMCQQ.Who was the ex-officio chairman of the planning commission?(a) President(b) Finance Minister(c) Home Minister(d) Prime Minister
›Reveal solutionSolution
The Prime Minister of India was the ex-officio (by virtue of office) chairman of the Planning Commission, underlining how central economic planning was to the government's own executive leadership.
The Planning Commission was set up in 1950 to formulate India's Five Year Plans, assess the country's resources, and recommend their allocation across sectors to achieve the plan's objectives (growth, modernisation, self-sufficiency, equity).
…
- CBSE 2024Set ANNUAL1 markMCQQ.Who was the first chairman of Planning Commission in India?(a) Mahatma Gandhi(b) Jawaharlal Nehru(c) Dr. Rajendra Prasad(d) Dr. B R Ambedkar
›Reveal solutionSolution
Jawaharlal Nehru, India's first Prime Minister, was the first Chairman of the Planning Commission, set up in 1950.
The Planning Commission was constituted in 1950 as an extra-constitutional, advisory body to formulate India's Five Year Plans. By design, the Prime Minister of India holds the post of ex-officio Chairman of the Planning Commission. Since Jawaharlal Nehru was the Prime Minister at that time, he became its first Chairman, steering India's early planning strategy including the launch of the First Five Year Plan (1951–56). The other names listed — Mahatma Gandhi, Dr. Rajendra …
- CBSE 2024Set ANNUAL1 markMCQQ.In which five year plan did the Government set the target of creating 50 million employment?(a) second plan(b) fifth plan(c) tenth plan(d) twelfth plan
›Reveal solutionSolution
The Tenth Five Year Plan (2002–2007) set the target of creating 50 million employment opportunities.
Successive five year plans progressively sharpened their employment-generation goals as unemployment and underemployment remained persistent problems. The Tenth Five Year Plan (2002–2007) is specifically remembered for setting a quantified target of generating 50 million employment opportunities over its five-year period, alongside its broader goal of reducing poverty. This was a sharper, numerically specified employment target compared with the Second, Fifth or Twelfth Plans, which pursued employment growth through …
- CBSE 2023Set ANNUAL1 markQ.Answer in one sentence: Who determine the Minimum Support Price?
›Reveal solutionSolution
MSP is fixed by the Government of India on the CACP's recommendation.
The Minimum Support Price (MSP) is the guaranteed (floor) price at which the government assures to buy certain crops from farmers to protect them against a sharp fall in prices. It is determined by the Central Government (Government of India) on the recommendations of the **Commission for Agricultural Costs and Price …
- CBSE 2022Set ANNUAL1 markMCQQ.The duration of the Financial Year in India is -(a) 1 January to 31 December(b) 1 February to 31 December(c) 1 April to 31 March(d) 1 July to 30 April
›Reveal solutionSolution
India's financial year is 1 April to 31 March — option (c).
The financial (accounting) year adopted by the Government of India for its budget and accounts runs from 1 April of one calendar year to 31 March of the next. The Union Budget presents estimated receipt …
- CBSE 2020Set 58/3/11 markQ.State, whether the following statement is true or false : ‘‘Government budget is an annual statement showing actual receipts and actual payments of the government for the last fiscal year.’’
›Reveal solutionSolution
The statement is false because the government budget is a forward-looking estimate of receipts and expenditures for the upcoming fiscal year, not a record of actual transactions from the past year.
The confusion here stems from mixing up two different fiscal documents: the budget and the budget accounts. Understanding what a government budget actually represents clears this up immediately.
A government budget is fundamentally a plan or blueprint for the coming year. When the Finance Minister presents the Union Budget in Parliament (typically on February 1st), they are laying out the government's fiscal strategy for the year ahead—what revenue they expect to collect, what expenditures they plan to incur, and how they will bridge any gap between the two. It is an ex-ante (before the fact) document, not an ex-post (after the fact) record.
The statement claims the budget shows "actual receipts and actual payments" for the "last fiscal year." That describes something entirely different: the budget accounts or actuals, which are published after a fiscal year ends to show what really happened. Those are historical records; the budget itself is a forward-looking estimate.
Let me break down why the statement is incorrect:
-
Time orientation: The budget pertains to the upcoming fiscal year (April 1 to March 31 of the next year), not the previous one. When the 2024–25 budget is presented in February 2024, it covers estimates for April 2024 through March 2025.
-
Nature of figures: The budget contains estimated or projected receipts and expenditures, not actual ones. These are based on economic forecasts, policy intentions, and planned programs. Actual figures can only be known after transactions occur.
-
Purpose: The budget serves as an authorization tool—Parliament approves the government's spending plans and taxation proposals. It's a policy instrument, not a financial report card. …
-
- CBSE 2020Set ANNUAL1 markQ.Fill in the blank: Budget is presented in Parliament by ______.
›Reveal solutionSolution
The budget is presented in Parliament by the Finance Minister.
The Union Budget (the annual financial statement) is prepared by the Ministry of Finance and presented to Parliament by the Finance Minister, who delivers the budget speech. Henc …
🎓Unlock everything free for 14 days
- ✓Full step-by-step solutions
- ✓Concept-first explanations
- ✓Methods, shortcuts & mistakes
- ✓PYQ mapping + timed mock tests
Full access for 14 days. No credit card required.