Here are the types of government budgets in India

Here are the types of government budgets in India
An India Rupee note is seen in this photo Reuters
A government budget can be defined as the statement of the estimated income and expenditure by the government in a given fiscal year.

Budgets in India fall under three types -- namely balanced, surplus and deficit budgets. The classification of a particular budget will depend on whether the estimated spending by the government over the year is equal to or less than or more than the receipts anticipated.

Balanced Budget

A budget is said to be balanced when the government’s estimated spending is equal to the estimated income. The merits of a balanced budget are that it paves way for financial stability and it also prevents wasteful expenditure. On the other hand, the demerits include that it can hinder the process of economic growth and restrict the scope of welfare activities by the government.

Adam Smith strongly recommends a balanced budget since he says the public revenues must never exceed the public expenditure. On the other hand, Keynes and some modern economists are of the opinion that the total expenditure in a balanced budget will fall short of the spending necessary to create and sustain a full employment. The ideal stand is that the government must increase its spending to bridge the gap between the expenditure that is needed to sustain full employment and the actual spending.

Unbalanced Budget

If the government’s estimated spending will be more or less than the estimated income, we can say the budget is an unbalanced one. An unbalanced budget can be further classified either as a surplus or deficit budget.

Surplus Budget

In a surplus budget, the government’s income is more than the estimated expenditure. A surplus budget will indicate that the government is drawing more money from the economic system of the nation than what is pumped into it. The result will be a fall in the aggregate demand leading to price reduction.

Every condition of inflation happens due to increase in demand and during such times, a surplus budget is the right approach. When there is deflation and recession, surplus budget will never be the right option for a government. In actual practice, governments across the world today are rarely seen presenting a balanced budget or a surplus budget.

Deficit Budget

A deficit budget indicates that the government’s total estimated spending exceeds the total estimated income. The implication of a deficit budget is that the government’s revenue is less than its expenditure.

A deficit budget is the most common kind of budget presented by the most popular democracies in the world today. This is done to meet the growing needs of people. According to Keynes, a deficit budget is the best approach to address the issues of under-employment and unemployment.

When a deficit budget is announced, the government tries to bridge the gap between the income and expenditure by borrowing or drawing from its resources. A deficit budget will therefore mean an increase in the government’s liabilities and a decrease in its reserves. A deficit budget is a good tool to fight recession.