(i) Government can start units in the public sector. It can give tax concessions to private producers. It can also give subsidies or any other incentives.
(ii) Government can tax the rich and exempt the poor from income tax. Money so collected from the rich can be spent on providing free services to the poor. It will reduces disposable income of the rich and increase that of the poor.
Detailed Answer:
(a) Setting up production units in Backward Areas:
Government may provide the following facilities through budget:
(i) Tax Holiday: Government may adopt the policy of Tax Holiday. The government has adopted this policy is case of Daman etc.
(ii) Economic subsidy: The government may provide economic subsidy when production units is established in backward areas.
(b) Reducing Inequalities of income and wealth: A government budget can help in reducing inequalities in income through redistribution of income and wealth in the economy. To achieve this objective, government uses fiscal instruments of taxation and subsidies. By imposing taxes on rich and giving subsidies to the poor, the government redistributes income in favour of poorer sections of the society. Distribution of food grains through 'fair-price shops' to BPL (below *** line) population is an important step in this direction. Equitable distribution of income and wealth is a sign of social justice.
