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Economics 5 Marks Each

Budget · Gujarat Board (GSEB) STD 11 Commerce (GSEB - English Medium). 8 questions.

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Question 15 Marks
Write a detailed note on important aspects pertaining to enforcement of Goods and Services Tax $(GST)$ in India.
Answer
  • India introduced $GST$ from July $1,201$7 after making amendment in the constitution.
  • $GST$ replaced about $17$ different indirect taxes which were imposed by the central and state government in India.
Some important enforcement areas of $GST$ in India:
1. Respective rates of central and state indirect taxes were determined by the centre and state with different considerations.
  • Since one single $GST$ was applied on the entire country, it became necessary for the government to set up a nodal agency to determine $GST$ rates and regulate the $GST$ procedures.
  • This nodal agency came in the form of $GST$ council. The finance minister of India was made its chairperson whereas the finance ministers of states were made its members. The council meets every three month.
$2.$ Rates of $GST$:
There are five different rates of $GST$ applied on various types of goods and services. They are:
$1$. Zero $GST$:
The government does not charge $GST$.on certain goods and services and hence they fall under the zero $(0\%)$
$GST$ rate.
Example:
Certain agricultural goods like vegetables, fruits, cereals, education and health services.
$2.$ Levels of rates:
The goods and services not exempted from $GST$ attract $5\%, 12\%, 18\%$ or $28\%$ depending on the type of needs which they satisfy. The highest $GST$ rate of $28\%$ is imposed mostly on entertainment and luxury goods and services.
$3.$ Compensation to states:
With the introduction of $GST$ it was calculated that some states may incur loss in revenue. Hende the government decided to provide compensation to such states for $5$ years since the introduction of $GST$.
$4.$ Goods and Services kept outside the realm of $GST$:
In the initial phase, government has not levied $GST$ on certain goods and services. These are to be taxed according to the earlier rates of various indirect taxes. Gradually these goods may be brought under the purview of $GST$.
These goods are:
$(a)$ Alcohol and
$(b)$ Petroleum products $($petrol, diesel, crude, Aviation Turbine Fuel $(ATF)$ and natural gas$)$
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Question 25 Marks
Explain the various types of deficits in a budget.
Answer
  • Introduction : In general terms, budget is of two types :
$(1)$ Balanced Budget $(2)$ unbalanced Budget,
  • In unbalanced budget there are two possibilities :
$(1)$ Surplus Budget, $(2)$ Deficit budget : In common term, budget which has shown expenditure more than income is deficit budget. In india mainly four types of Deficit are shown.$(1)$ Revenue Deficit = Total Revenue Income - Total Revenue Expenditure
$(2)$ Budgetary deficit = Total Income - Total Expenditure
$(3)$ Fiscal Deficit = Budgetary Deficit - Market borrowings
$(4)$ Primary Deficit = Fiscal Deficit - Payments of Interest
  • Types of Deficit :
  1. Revenue Deficit :
      • When revenue expenditure is shown more than revenue income in budget then the difference between revenue income and revenue expenditure is called revenue deficit.
      • In short, revenue deficit is Revenue Income - Revenue Expenditure. Revenue deficit in the budget shows lower competency.
      • This type of deficit is tried to recovered by capital account.
      • Government should raise surplus by economizing revenue expenditure in reality so that money can be distributed in capital expenditure.
      • It is necessary for the government to control its non-developmental expenditure.
      • Note : In revenue income, net tax income and total income in addition to taxes are included.
      • In revenue expenditure all expenditure related to planning and non-planning are included.
      • Each government should try to raise revenue surplus and that amount should he taken in capital account for development.
      • If this is not possible, revenue deficit should be kept either zero or minimum.
  1. Budgetary Deficit :There are two parts in Budgetary Deficit :
      • $(I)$ Revenue Section, $(2)$ Capital Section.
      • In government budget when Total expenditure shown $($Revenue Fop $+$ Capital Exp$.)$ more than total income $($Revenue Income $+$ Capital Income$)$ then the difference between total income and total expenditure is called Budgetary Deficit.
      • Note : To meet the Budgetary deficit, central government issues new currency note, it is called deficit supplementary.
      • Mile state government fills up the budgetary deficit by taking overdraft from central.
      • To fill up budgetary deficit, the government borrows money from the central bank through Treasury Bills and when the central bank has such securities in form of treasury bills, the government can issue currency money to that extent.
      • The extent to which government gets money by selling such treasury bills is called deficit supplementary.
      • In India since $1997$ the central government and the central bank have come to an understanding flag instead of discounting the Treasury bill the arrangement of ways and means of advance will be implemented.
      • Fiscal Deficit :
      • In present situation fiscal deficits is more important.
      • Fiscal deficit arises when government's total expenditure $($Planned and Unplanned$)$ is tote than Revenue income and Capital income.
      • To meet this, government acquires advances from the Make!.
      • This is called capital income but in reality it is government's debt.
  1. Fiscal Deficit = Total Expenditure /Total Income $($Excluding market borrowings$)$
      • Example : In Indian Budget the following fiscal deficit is shown in calculation.
      • $(1)$ Revenue income
      • $(2)$ Recovery of loans in Capital income and Other income
= Total Income - Total Expenditure $($Planned and Unplanned Expenditure$)$
= Fiscal Deficit
      • In other words, Fiscal deficit = Zero budgetary Deficit + Debt and Liability of the government from Market.
      • Note :
      1. In Revenue Income, Net tax income and income other than tax is included.
      2. In capital income only recovery of loan and other income is taken into consideration.
      3. In total expenditure, Planned and Unplanned Expenditure is taken into calculation.
      • Primary Deficit : When payment of Interest is deducted from fiscal deficit. We get primary deficit.
  1. Formula : Primary Deficit = Fiscal Deficit - Payment of interest
      • We can get clear idea after taking interest of Debt of past years.
      • Thus, primary deficit is calculated by deducting interest from fiscal deficit which gives current years income and expenditure estimation.
      • Income gained by the government from fiscal deficit is used in the non development expenditure like payment of interest.
      • So less income is left for development.
      • Thus if the burden of payment of interest decreases then only primary deficit can be reduced.
      • In India since many years efforts are made to decrease the interest rate at one point of time.
      • Government savings like $PF, PPF, NSC,$ etc. schemes were paid $10\%$ to $12\%$ which has now reduced to $8.5\%$ or less.
      • In India there is no importance of any subject policy for this type of deficit.
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Question 35 Marks
Write a note on budget of a state government in India
Answer
  • Introduction :
  • India's administration is of three levels.
  • So state government has to perform their responsibilities mentioned in constitution.
  • Like central, state government also presents budget, in which expected income and expected expenditures are mentioned.
  • State budget is presented by —state finance ministers. It is essential to get the consent from the representative of the public in the —vidhan sabha for the expected amount to be spent and income for the next financial year.
  • State budget is discussed in the vidhan sabha, in it changes are done and final budget is approved with majority.
  • Like central, state government also implements its approved budget from $1"$ April to $31"$ March The main difference between union budget and state budget is that union budget has division of expenditure in planned and unplanned expenditure while state government budget is divided into development oriented expense and Non development oriented expenses.
  • In general, the expenditure which gives speed to economic development in a direct way are termed as development oriented expenditure. E.g. Expense on agriculture or irrigation facilities while non-development oriented expenditure affects the long term development in indirect way. E.g. Expenditure on pension.
  • Most of the states of India has the complaint that the responsibilities delegated to them are more as compared to the financial income provided.
  • So they have to depend on central government for aid. State government has two parts :
$(1)$ Revenue account
$(2)$ Capital account.
  • Following are details of state government budget :
  • State Budget $($Important Details of State Budget$)$ :
Income $($Credit$)$ Expenditure $($Debit$)$
$(1)$ According to reference of finance commission, the share of tax income from the center. Developmental : $(1)$ Social service like Education, Health Nutrition. Information technology, Welfare of Backward, Class, Water supply and soon.
$(2)$ Mainly the following tax revenue is collected by the State $(A)$. Land Revenue, $(B)$. Stamp Duty $(C)$. Tax on Agricultural income $(D)$. State excise duties $(E)$ Sales tax – value $(F)$ Vehicles tax $(G)$Tax on Electricity $(H)$ Entertainment Tax $(I)$ Land and House Tax $(J)$ Other Taxes $(2)$ Economic Services like Agriculture, Rural Development, Irrigation Industries, Science, Technology communication and so on.
$(3)$ Other Income like Grant-in Aid, Donation, Gifts. Non Developmental : $(3)$ General service like Administrative services, Pension and retirement benefits, Financial services. Types of Expense.
  $(4)$ Other expenses includes grant given to local self government institution.
Capital Account
Income $(Credit)$ Expenditure $(Debit)$
$(1)$ Public Debt $A.$ State Government Internal Debt. $B.$ Loans and advance from the central government $C.$ Advances receives from Center for projects. $(1)$ Developmental : $A.$ Expense done behind capital investment for Social Service. $B.$ Capital Expense done behind Economic Services
$(2)$ Recovery of Loans and Advances of others. $(2)$ Non Development : $A. $Capital Expenditure on General Services and Administration. $B.$ Repayment of Public Debt. $C. $ Other expenditure, load and advance given to local self government institution.
$(3)$ Other Capital income E.g. Capital Income Earned from Disinvestment.  
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Question 45 Marks
Give details of the budgetary accounts of the central government of India.
Answer
  • Introduction :
  • Budget is Government's Financial At showing financial planning. It is a reflection showing the direction on which government wishes to go.
  • In short, budget is the planning of government’s revenue and capital expenditure and Revenue and capital income.
  • To understand the budget it is necessary to know the information regarding different accounts and the items included in it.
  • In terms of accounts budget has two sided :
      • Credit side where income of the state is recorded.
      • Debit side where expenditure of the state is recorded.
  • Budget can be grouped in two ways :
      • Receipt side in which revenue income and capital income are shown
      • Payment side in which revenue expenditure and capital expenditure arc shown.
  • This discussion can be done in respect to two account.
      • Revenue account in which revenue income and revenue expenditure is shown and
      • Capital account in which capital income and capital expenditure are shown.
      • Central government's budget is presented through revenue section and capital section. We will understand Budget with respect to this form.
  • Form of Budget :
  • Budget has mainly two sections :$(A)$ Revenue Account $(B)$ Capital Account
  1. Revenue Account (Revenue Budget) :
      • Revenue Accounts has Two parts : $(1)$ Revenue Income and $(2)$ Revenue expenditure. In revenue budget revenue income and revenue expenditure of the previous year which are changed and estimated budget is presented. On that basis next year's revenue income is presented.
  1. Revenue Income(current income): In revenue income of budget, two types or income are mentioned :
$A$. Tax revenue income, $B.$ Income other than tax revenue.
          1. Income from Tax : Revenue Income Tax, Property Tax, Company Tax, Excise duty, Custom etc. direct and indirect tax income are shown.
          2. Income other than tax : Income from bills and interest, Profit earned from Public Enterprise, Different types of fees or fines from Public Services, Education, Health, Income from collective and — social services like Housing (Aavas), Expected income from financial services, and other administrative income are shown. This type of income is earned from the current year's activities.
  1. Revenue Expenditure(current expenditure) : Revenue Expenditure of budget is also of two types : $A.$ Consumption Expenditure, $B.$ Transfer Payments.
          1. Consumption Expenditure : During the year, payment done in the form of wages and salary to the employees, administrative Expenditure in defense section, expense on tax collection, administrative expense etc. are Shown
          2. Transfer Payments : During the year, payments of interest, union territories, Local self government Institution etc. are provided grant-in-aid and financial assistance are included. In general the payment of revenue expenditure should be made from revenue income. If possible surplus revenue should be created and used in capital section.
  1. Capital Account : Capital Accounts also has two accounts (Parts) : $A.$ Capital Income $B.$ Capital Expenditure.
$1.$ Capital Income :
                • In this account, borrowed loan from country or foreign country by the state government, loan taken from central bank, sale of treasury bill and income from disinvestment, small saving, State or foreign countries recovery of loans etc. are recorded.
      2. Capital Expenditure :
                • In the payment side of capital account of budget, following expenditure are shown:-
                  • Payment of government debt.
                  • Loan given by state government or any other loan.
                  • Capital expenditure for society as well as defense sector.
                  • Capital expenditure in Public enterprise.
                  • Investments done in physical assets.
                  • In budget $1987-88$ of Central Government two sections were shown :
$(1)$ Planned Expenditure $(2)$ Unplanned Expenditure.
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Question 55 Marks
Give the meaning and objectives of budget.
Answer
  • Introduction :
  • Budget is known as the mirror of economy. Budget provided the information about what type of economic policy government wants to adopt, In short budget is not the only proposal for income and expenditure of the state but it is the mirror of government's economic policy.
  • Meaning of Budget :
  • In general, budget is a financial statement of the expected income and expenditure.
  • In other words, to be done in the next financial year.
  • It presents the revenue and expenditure of the coming year.
  • "A government budget is an annual accounting statement of the item-wise estimates of expected revenue and anticipated expenditure of government for a new fiscal year.
  • "The statement presented by the central government (municipal corporation, Nagar Panchayat) about the proposal of expected income and expenditure for the next financial year is called budget."
  • Characteristics of Budget :
  • Budget shows the amount of income and expenditure.
  • Budget is presented for the next coming financial year.
  • The main objective of budget is to increase economic development and public welfare.
  • This expectation is exactly for one year.
  • State government presents the budget in legislative assembly (Vidhan Sabha) and Central Government presents the budget in parliament to get the consent of $MLA's$ and $MP's.$
  • After this the proposal of Budget is discussed in lok sabha and Rajya sabha and with the changes and after getting majority the budget is approved.
  • In general, budget is presented by central and state finance minister.
  • In India budget is presented for the year $1st$ April to $31"$ March).
  • Central Government in general presents at the and of February in lok sabha.
  • Budget is presented according to the article$-112(1)$ of the constitution. This budget is presented in two types -. $A.$ Railway Budget. $B.$ General Budget.
  • In common terms budget is financial planning of government.
  • It gives introduction of government activities. It is the mirror which shows which path is followed by government.
  • Objectives of Budget :
  • Following are the main objectives of presenting budget by Central Government, State Government and Local Self Government.
  • To obtain approval of the body of elected representatives:
      • India is a democratic country so it is necessary to get the permission from the public authority for the income & expenditure expected for the next year by the central, state or local government.
  • To get an idea regarding available resources and areas requiring Expenses :
      • The purpose of presenting budget is to know the responsibility for the next year and to fulfill the responsible the possible available sources is to be searched.
  • To give direction for allocation of Resources :
      • One of the purpose of presenting budget is resource allocation.
      • If proper allocation of money is not done to achieve the different goals, then there is a possibility of spending more money for some projects while less money in some projects which are important.
      • This results in non achievement of the aim or goal to avoid this situation it is essential to allocated the money and do planning beforehand.
      • Planning of the expense are to be done by respective departments.
      • For example To achieve fixed goals of education field, fixed amount is allocated for education.
      • Apart from this planning for different educational development and amount required are pre-decided so the finance allocated for one objective does not go away in other.
      • Thus gives proper direction to resource allocation.
  • For knowledge of the public :
      • One of the purposes of budget is to give information to of the public about government, type of economic development, economic stability and public welfare.
      • Budget is the part of economic planning.
      • It is said that budget is not only the presentation of state revenue and expenditure but the objective is to provide the reflection of the economic policy of '1' Government the proposal of budget affects all the class of the society like Consumers, Producers, s Distributers etc.
      • Budget gives an idea about which commodities will become costly and which commodities will become cheap.
      • Budget gives the opportunity to make the plans to the goal oriented society.
      • Consumers plan their Expenditure accordingly.
      • While jobbers plan their taxation according to the declaration in the budget.
      • It helps the producers to take the decisions regarding production because budget gives the information related to government's Toll Tax, Subsidy and Investment Policies.
      • It is also an important objective to inform the public about the distribution of income-expenditure for the public welfare done in the budget.
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Question 65 Marks
Explain the budget of local $($self$)$ government institution with the details of income and expense.
Answer
  • Introduction :
  • In India the ministry of financial body's power is distributed at three levels Like central and state government. Some responsibilities are given to the local government institution also.
  • In our country there are Nagar Palika, Nagar Panchayat, Gram Panchayat, Taluka Panchayat Jilla Panchayat, $($District Panchayat$)$ etc. self government organization.
  • These institutions should also prepare their budget of income and expenditure and get it approved by majority of the elected representative of the assembly.
  • Our constitution provides basic services like Water, Drainage, Clean lines of road, Public health, street light on public road etc.
  • According to the suggestions of financial body grant is distributed to local $($self$)$ government institution.
  • Budget of local $($self$)$ Government Institution :
Revenue Account
Receipts / Income $($Credit$)$ Expenditure / Payment $($Debit$)$
  1. State gives income to local Government Institute in two Forms :
A. Grant-Subsidy formB. Grant Acquired by state government for Government projects.
  1. For gritting grant or subsidy, donation to be given to the government.
  1. Octroi $($It is cancelled in Gujarat$)$
  1. Expense incurred for taking advance.
  1. Property Tax
  1. General Tax
  2. Water Tax
  3. Vacant Land tax
  1. Establishment Expense. E.g. Salary, pension related expense.
  1. Other Tax
  1. Vehicle Tax
  2. Entertainment Tax
  3. Education Cess
  1. Administrative Expense, Stationery expense. Etc.
  1. Income other than Tax
  1. Income earned on the basis of law
  2. Fee from the use of municipal owned property
  3. Fee collected from Public places
  4. Fee collected in terms of Public Services.
  1. Electricity, Energy expense
 
  1. Renovation, Agreement Expense
 
  1. Programmed Organized by Local government incurs expense.
Capital Account
Income $($Credit$)$ Expenditure $($Debit$)$
  1. State government grant
  1. Capital Expense
  1. Capital gains from property owned by corporation
  1. Internal facilities expense
  1. Debt $($Borrowed Money$)$
  1. Transportation Expense
  1. Other capital incomes
  1. Purchase of Tools, Machinery, Equipments etc.
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Question 75 Marks
Explain the form of central government budget.
Answer
  • Introduction :
  • Representative of the central government i.e. finance minster on regular base present the estimated income and expenditure of the next financial year in the Ink sabha.
  • In India budget is present for the period of $1st$ April to $31st$ March. In general, central government’s budget is declared in the end of February.
  • During March this proposal is discussed in lok sabha and after necessary changes final budget is accepted.
  • This budget is implemented from $1st$ April.
  • In India according to article $– 112$ of the constitution budget is presented.
  • In union budget there are mainly two parts :
$(1)$ Revenue Account
$(2)$ Capital Account.
  • Expenditure of revenue account is divided into two parts :
$A.$ Unplanned Expenditures
$B.$ Planned Expenditure.
  • While revenue income is also divided into two :
$A.$ Tax income
$B.$ Income other than tax.
  • In this budget total income, total Expenditure and different deficits (Revenue, Fiscal, Primary, Budgetary) are shown.
  • Previous year's corrected Budget and next year's estimated Budget are compared and presented.
  • For example:
  • Financial minister Arun Jaitley presenting $2016-17$ Budget at that time changes budget of $2015-16 $ and $2016-17$ expected is presented. Its implementation period is $1st$ April $2016$ to $31st$ March $2017.$
  • Union Budget :
  • Following are the items shown in Central Government’s Budget :
Revenue Account
Income (Credit) Expenditure (Debit)
  1. Tax Income
  1. Unplanned Expenditure
  1. Revenue from Direct Taxes
  2. Revenue from Indirect taxes
 $(1)$ Interest paid during the year. Interest of the borrowings of the previous year $(2)$ Social Services like education, health, public utilizes and administration and general services. $(3)$ Economic services like Agriculture, Industry, Electricity, Transportation, Technology etc. $(4)$ Grant In Aid given to State Government and Union Territory $(5)$ Expenses on defense $(6)$ Subsidies $(7)$ Salaries, pension etc
  1. Income other than tax
 $B.$ Planned Expenditure
  1. Income from the interest out of the landings given by Government.
  2. Income from profit and dividend from Public sector Unit.
  3. Fees and fine income from public services
  4. Assistance received from abroad
  1. Planned expenditure mention in the revenue expenditure account according to Centre’s Plans. (grants and assistance given to states)
  2. Planned expenditure behind Agriculture, Industries, Irrigation, Energy, Production, Transportation Information and Technology etc.
Income (Credit) Expenditure (Debit)
  1. Recovery of loan
  2. Borrowings
  3. Other capital income like those from disinvestment, small savings schemes etc.
 $(1)$ Repayment of loans $(2)$ Expenditure done on landings. $(3)$ capital expense on society and economic sector. $(4)$ Capital Expenditure incurred in Defense Sector.
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Question 85 Marks
State and explain the types of budget.
Answer
  • Introduction :
  • In general, there are two types of Budget :
      • Balanced budget
      • Unbalanced Budget
      • In Unbalanced Budget two sub types are made :
        • Deficit Budget
        • Surplus Budget.
      • Apart from these different concepts like performance budget of present, zero budget are also discussed.
  • types of budget :
  • Balanced Budget :
  • Meaning :
      • According to the vision of calculation all the budget are balanced because the receipts and payments both the side of the Budget's financial values are shown same.
      • But it is divided into Balanced and Unbalanced budget to mention the real estimation of income and expense.
      • In simple word, a type of budget in which the government's estimated total expenditure is just equal to the estimated total income
      • Balance budget is ideal.
      • The budget in which the government's estimated income is equal to the estimated expenditure means Estimated Expenditure = Estimated Income then it is Balanced Budget.
      • In other words, A budget in which Current Expenditure and Current Income are same is called Balanced Budget.
      • It means all the government expenditure of the year are met by the tax income of that year is called Balanced Budget.
      • In this type of budget the provision of expenditure is made keeping in mind the income of taxes,
      • So there are no ups and down in the total expenditure.
      • In short, Balanced Budget accepts the economic situation in the form of present scenario and does not allow to affect the budget and remain stable.
      • If the budget is balanced then there is no change in the expenditure of society.
      • In short, there will be no efforts to change the total expenditure in balanced budget.
      • The budget in which the Government's Total Expenditure (Revenue + Capital) is made equivalent with the revenue income is a Balanced Budget.
      • The conclusion behind this type of budget is that Government should cut down its expenses if the income is reduced.
  • Benefits of Balanced Budget :
      • Government has to cut down its expense if government's, tax revenue is reduced. This type of balanced budget is useful critically for finance ministry.
      • The objective behind the balanced budget is that we decrease in the income of tax revenue, Govt. has to cut down unnecessary expense. Budget remains neutral instead of tin affecting the economic situation, so economic stability is maintained in the economy. burden
      • In this type, of budget expense is done according to the income so there is no tax on the public
      • In this type expenditure is to be done in the limits of the income so government cut downs the unnecessary expense because government is responsible to do competent administration.
      • Economy can be saved from inflation of depression by this type of budget.
  • Limitations of Balanced Budget:
      • Balanced budget is not desirable for developing countries.
      • Those countries need more investment for development in infrastructure so it is not possible in the limited income. So deficit budget is inevitable.
      • To maintain the balanced budget, government has to make efforts to reduce expenses on welfare.
      • Thus, public welfare decreases and has to face public.
      • For example Due to the economic crisis, so many developed countries has to stop the public welfare scheme which were started before so many years. This leads to facing of the public opposition.
      • To maintain the balanced budget, government takes the step of increasing the tax revenue to meet the expenses.
      • Which leads to extra tax burden on public, resulting opposition of the public as well as barriers to economic development.
      • It is a difficult task to maintain balanced budget. It is not easy for the government to cut down the expenditure when tax revenue is reduced during depression. Especially it is difficult to cut down the long terms big project expense.
      • In the most of the developing countries planning is implemented, so it is difficult to remain neutral in the so called changes of economy. According to Prof. J. M. Keynes Deficit budget is more advisable than balanced budget especially in the country where there are questions regarding unemployment and recession.
  • Unbalanced Budget
  • In unbalanced budget there is difference in expected incomes and expected expenditure according to this difference there are two sub parts :
  • Deficit Budget :
      • Meaning :
        • A Budget in which government’s estimated expenditure is more than the estimate total income then it is called deficit budget.
        • In the form of formula, Deficit budget = Anticipated expenditure > Anticipated Income. In other words, A budget in which current expenditure are shown more than current income is deficit budget.
        • To meet such deficit government has to borrow loan from Public, Bank of Financial institution.
        • Thus supply of money increases effective demand.
        • Most of the developing countries frame deficit budget to solve the problems of development and stability.
      • Benefits of deficit budget :
        • It is inevitable for the developing countries for it economic development.
        • These countries have natural wealth and suffers from lack of capital .
        • Due to poverty, it is difficult to get speedy economic development with the help of domestic savings.
        • In this situation development is possible with the help of natural wealth through deficit budget.
        • Deficit Budget is necessary to create employment opportunities when economy is facing crisis.
        • The burden of tax reduces in deficit budget because to meet the increase expected expenditure if deficit is not supplemented then tax needs to be increased.
        • In developing countries, necessary finance required to fulfill education, health etc. basic services is acquired by such budget
        • It is also helpful to reduce economic instability.
      • Limitation of Deficit Budget :
        • There is freedom in framing deficit budget so government many a times increase unnecessary expenditure and does not economize it administrative expense.
        • It means Government's expenditure is not in control.
        • In deficit budget the additional expenditure increased by the government can be met by increasing tax burden on public but due to the fear involved in public opposition government takes the help of public debt.
        • Thus future generation has to face the burden of debt.
        • Government gets the opportunity to use the money earned from tax non-competently. "there ere is a situation of inflation as money supply increases in the economy due to deficit budget.
        • The use of deficit budget is made to meet government's non-productive expenditure instead of development oriented work. Thus, country's development hinders.
  • Surplus Budget :
      • Meaning :
        • A Budget in which expected income is more than Expected expenditure is surplus budget.
        • In other words, a type of unbalanced budget in which the governments estimated total expenditure is less than the estimated total income.
        • In the form of formula: Surplus Budget Anticipated Income > Anticipated Expense.
        • A budget in which governments expenditure of current year is less than current expected income is surplus budget.
        • This type of budget is mostly found in developed countries.
        • When the economy is facing extreme inflation situation then surplus budget is framed to make the economic situation normal.
      • Benefits of Surplus Budget :
        • If the inflation is at an extreme level in any country then surplus budget becomes helpful to control the situation of the economy and makes it normal.
        • Government collects money from the public in the form of tax.
        • So the purchasing power reduces and controls the inflation.
        • If the government expenditure increases in the surplus Budget, government does not require to take help of public debt.
        • In this type of budget, current expenditure is satisfied by current tax revenue. So government need not to borrow loan. So in future to repay the loan there is no burden of increasing tax. Thus, future generation do not suffer from tax burden.
        • Economic stability is maintained in surplus budget.
      • Limitations of Surplus Budget :
        • In this type of budget, on one side government has to increase tax revenue so people do not have money for investments. Thus, economic development is hindered.
        • In such budget second option is to reduce expenditure and thus there is cut down in public expenditure.
        • So social development and welfare programmer is not met properly which leads to negative effects on welfare and development.
        • It is also difficult to cut down the public expenditure.
        • In that situation government rolls back the financial aid or subsidy given which is very difficult according to political vision.
        • If the reduction in expenditure is not desirable then tax revenue needs to be increased which is also difficult situation where opposition from public is faced.
        • In the times of depression, surplus budget holds the money so it negatively affects investment, employment and production.
        • It is also a question to what extent the surplus be increased.
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