Union Finance Minister Nirmala Sitharaman has started presenting the Budget today for the fiscal 2021-22. Expectations of stimulus packages and tax cuts are higher this year in order to revive the economy from coronavirus-induced downward spiral. Industries such as hospitality, aviation, real estate and automobile have been hit hard due to the ongoing coronavirus crisis and are expecting some sort of a relief.
Some finance officials have also suggested the Centre to focus on export promotion, which is pivotal to ensure a boost in domestic manufacturing, during the drafting of the Union Budget 2021. While the officials concerned work at fulfilling these expectations - did you know there are three different types of budgets?
A government budget is a financial document comprising revenue and expenses over a year. Depending on these estimates, budgets are classified into three categories-balanced budget, surplus budget and deficit budget.
Also read: Budget 2021
In case of a balanced budget, the estimate government expenditure shall be equal to its estimated revenue in a financial year. Many economists believe that a government's expenditure should not be higher than its revenue. While this is considered to be an ideal situation by economists, attaining this can be quite a task for the ruling dispensation.
Notably, a balanced budget does not automatically translate into financial stability in times of deflation or economic depression due to absence of any scope for extra expenditure. The plus point with this type of budget is that it thwarts wasteful government expenditure. This type of budget is not considered viable for developing nations as it restricts the scope of government spending on public welfare schemes.
In case of a surplus budget, the expected revenue surpasses the estimated expenditure in a financial year. This implies that a government's earnings from taxes are greater than the amount spent by a government on public welfare.
A surplus budget indicates the financial affluence of a country which means that the extra funds can be used to pay dues, which reduces the interest payable and is helpful for the economy in the long run. Such a budget can be considered during inflation to reduce aggregate demand. A surplus budget is not an appropriate option for a government in cases of deflation, economic slowdown and recession.
In case of a deficit budget, the estimate expenditure exceeds the estimated revenue of a government in a financial year. This kind of budget is helpful in times of economic recession and also in boosting employment rate.
In times of recession, a deficit budget is helpful in generating additional demand and bolsters economic growth. In order to achieve this, a government usually covers this amount via public borrowings through government bonds or by withdrawing from its accumulated reserve surplus.
The disadvantage of this type of budget is that it can lead to excessive expenditures by the government or debt accumulation.