Budget 2022: All you need to know about the three types of budgets

A Union Budget, often known as an annual financial statement, highlights the estimated government expenditure and receipts or revenues for the next financial year. The budget also reflects the government’s balance sheet and informs the public about the current state of the economy. In India, the budgets are of three types – a balanced budget, surplus budget and deficit budget. 

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Here we have briefly explained all the three types of government budgets:

BALANCED BUDGET

If the estimated government expenditure is equal to expected government receipts in a particular financial year then the budget is said to be balanced. According to several classical economists, this type of budget is based on the principle of living within one’s means. Most economists believe that while it is easy to balance  estimated expenditure and revenue this balance is tough to achieve when it comes to implementation. 

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A balanced budget is an ideal approach to achieve a balanced economy and maintain fiscal balance but it doesn’t ensure financial stability in times of economic depression or deflation. Practically, such a balanced budget is hard to achieve.

The greatest merit of this type of budget is that it prevents wasteful expenditure by the government. However, one of its demerits is it can limit the scope of the government’s welfare activities and hamper the process of economic growth.

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SURPLUS BUDGET

A budget is in surplus when  projected government revenue exceeds  estimated government expenditure in a particular fiscal year. The surplus budget shows that the government’s income from taxes levied is higher than the government’s expenditure on public welfare.

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It highlights the financial affluence of a country which means that these funds can be allocated to pay dues, which reduces the interest payable and helps the economy in the long run.

Such a budget can be implemented at times of inflation to reduce aggregate demand. A surplus budget is not a suitable option during situations when there is deflation, slowdown or recession. 

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DEFICIT BUDGET

If estimated government expenditure exceeds projected government earnings in a particular fiscal year  the budget is said to be in deficit. It is highly suitable for developing economies, such as India. During a recession, a deficit budget helps generate additional demand and push the economic growth rate.

According to economist John Maynard Keynes, a deficit budget is the proper way to address the issues of under-employment and unemployment.

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The government’s spending on employment generation leads to an increase in demand for goods and services, which helps in reviving the economy. The government covers this expense through public borrowings or by drawing from its accumulated reserve surplus.