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types-of-budgets

Budgets are primarily classified based on the balance between revenue and expenditure, as well as the specific management techniques used.

I. Classification Based on Balance (Receipts vs. Expenditure)

  1. Balanced Budget:

    • A budget is balanced when the expected expenditure equals the anticipated receipts for a financial year.
    • Conventional View: Traditional economists consider this the “ideal” budget as it signifies that the government is spending within its means.

  2. Surplus Budget:

    • A budget is in surplus when the expected revenues surpass the estimated expenditure.
    • Economic Impact: It indicates “financial soundness” and is particularly useful during periods of high inflation.
    • Logic: By imposing higher taxes and spending less, the government withdraws money from the economy. This reduces aggregate demand, which helps cool down prices and lower inflation.

  3. Deficit Budget:

    • A deficit budget occurs when expenditure surpasses revenue for a particular year.
    • Conventional View: Traditional economists argue it shows the government is spending beyond its means, which may damage financial health and burden future generations who must pay back the borrowed money.
    • Modern View: Modern economists believe deficit budgets can fasten economic growth if used creatively to create assets.

II. Modern Budgeting Techniques

Governments use various methodologies to manage and justify public spending:

  • Zero-Based Budgeting (ZBB):

    • Introduced in India in 1983, this method requires all expenses to be evaluated and justified for each new period, starting from a “zero base”
    • Example: A poverty alleviation scheme would not have a fixed annual amount; instead, its past performance and future targets are evaluated every year before deciding on a new outlay

  • Outcome Budget:

    • This technique analyzes the progress of each ministry and department against their budget outlays.
    • Key Feature: It measures outcomes in physical units (e.g., the number of kilometers of highway constructed in a year) rather than just the amount of money spent

  • Performance Budgeting:

    • Introduced in India in 1969, it spells out specific goals and performance targets.
    • Logic: Every unit of input (money) is measured against the corresponding effect produced on the ground, helping the government prioritize its expenditure to increase efficiency.

  • Gender Budgeting:

    • Introduced in 2005-06, it assesses the budget from a gender perspective to promote equality.
    • Structure: It consists of two parts: Part A (100% allocation for women-specific schemes like widow pensions or maternity benefits) and Part B (schemes where at least 30% of the allocation is for women, such as the Mid-day Meal programme).

III. Recent Structural Changes in Indian Budgeting

Historically, India had other classifications that have recently been merged or eliminated:

  • Union Budget (Merged): Since 2017, the separate Railway Budget was merged into the General Budget to form a single “Union Budget”
  • Elimination of Plan and Non-Plan: The government removed the distinction between “Plan” (developmental) and “Non-Plan” (recurring/administrative) expenditures to create a clearer link between earnings and outcomes