“Article 112 of the Indian Constitution defines the Union budget or the annual financial statement as a statement of the estimated receipts and expenditure of the government for that particular year.”
The budget is the most important information document of the government because the government implements its plans and programmes through the budget.
Union Budget manages the account of the Government’s finances for the fiscal year running from 1st April to 31st March.
At the beginning of every year, the government presents before the Lok Sabha an estimate of its receipts and expenditure for the coming financial year.
Expenditure and sources of finances are outlined in accordance with the objectives of the government.
But most important of all, it must be approved (passed) by Parliament or Assembly for its implementation.
CLASSIFICATION OF A BUDGET
The classification of the particular budget depends on whether the estimated spending by the government over the year is equal to or less than or more than the receipts anticipated. Let’s understand the three categories.
Estimated Govt. Receipts = Estimated Govt. Expenditure
A balanced budget indicates the equality in the government’s estimated spending to the estimated income.
Merits of a Balanced Budget
- It ensures economic stability if implemented successfully
- Ensures that the government refrains from imprudent expenditures
Demerits of a Balanced Budget
- Unfeasible during the recession since it does not offer any solution to problems like unemployment
- Inapplicable in less developed countries because it limits the scope of economic growth
- Restricts the government from spending on public welfare
Estimated Govt. Receipts > Estimated Govt. Expenditure
- In a surplus budget, the government’s income is more than the estimated expenditure
- It indicates that the government is drawing more money from the economic system of the nation rather than pumping into it
- Therefore, the consequences of a budget would be a fall in aggregate demand, thus leading to price reduction
- That’s why Surplus Budget is implemented during inflation to reduce aggregate demand
Estimated Govt. Expenditure > Estimated Govt. Receipts
- When the government’s total estimated spending exceeds the total income, it is termed as deficit budget. A deficit budget implies 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.
- The main objective is to meet the growing needs of people.
- As a result, the deficit budget is a good tool to fight the recession.
Merits of a Deficit Budget
- Addresses public concerns such as unemployment at times of economic recession
- Enables the government to spend on public welfare
Demerits of a Deficit Budget
- Can encourage imprudent expenditures by the government
- Increases burden on the government by accumulating debts