Budget 2025: Exploring the Various Types of Budgets in India

Posted on Friday, January 31st, 2025 | By IndusInd Bank

In a developing country like India, the government budget plays an important role. It is through the budget that a government announces the economic decisions it will make to achieve the nation’s objectives. The Union Budget of India is the main budget of the nation, where it outlines the revenues and expenses it has predicted and planned for the coming year. For instance, if the government declares a decrease in LTCG (Long-Term Capital Gains) tax, it can be a good time to make mutual fund and stock investments. 

As a citizen, it is your responsibility to be aware of the government budget in India. This will not only help to become a better citizen, but it will also assist you in optimising your financial decisions. 

There are various types of budgets in India, depending on what the government has predicted in terms of revenues and expenses in the upcoming year. Here’s a detailed guide on this. 

Types of Budgets in India

Broadly, there are three types of budgets in India: balanced, surplus, and deficit. 

1. Balanced Budget

If the government anticipates that the revenue for the upcoming year will be equal to the expenses they have estimated, the budget will be a balanced one. These types of budgets are ideal for maintaining fiscal discipline and reaching a state of a balanced economy. This is the main reason that classical economists prefer this type of budget. 

Pros of a Balanced Budget:

• If done correctly, there could be economic stability. 
• Helps the government withhold unnecessary expenses. 

Cons of a Balanced Budget:

• May not be ideal in periods of deflation or economic crisis (this is because achieving the balance between projected costs and revenues can come with its set of challenges).
• Can limit the scope of growth in developing countries.

2. Surplus Budget

A surplus budget is another of the three types of budgets in India. If the expected revenues for the upcoming year are higher than the forecasted expenses, the government declares a surplus budget.

A surplus budget implies that the government is earning more than it is spending. It is receiving more money by collecting taxes than the money it is spending on the public for the country’s development. 

Pros of a Surplus Budget:

• Can help in reducing aggregate demand in times of inflation.
• Shows that funds are available for managing debt and making investments. 

Cons of a Surplus Budget:

• May lead to a higher tax burden for citizens.
• Increased tax levels may slow down consumption and impact economic activity. 

3. Deficit Budget

Amongst the various types of budgets in India, this is one where the government projects the expenses to be more than the year’s revenues. A deficit budget is ideal for developing countries like India, especially in times of economic slowdown. This is because higher expenditure on public welfare can raise economic activity and boost morale. It will also generate employment, which can ultimately result in increased demand for goods and services.

To carry out these expenses, the government may rely on its existing reserves or borrow from the public in the form of government securities, such as bonds. 

Pros of a Deficit Budget:

• Can help generate employment and thereby lead to better economic activity. 
• Increases the funds for public welfare, which allows for infrastructure development and improves public morale. 

Cons of a Deficit Budget:

• Allocation of funds may not be executed as planned, and the government may end up spending more than necessary. 
• May lead to higher debt on a national level, which, if not taken care of, may make things worse. 

What is an Interim Budget?

2024 saw the announcements of 2 budgets. The first one was the interim budget. 

An interim budget is a type of budget that is declared before a general election is to take place in the country. It is a temporary government budget in India, whose policies are valid only till the election results are declared. 

In case another party (different from the one that declared the interim budget) is elected, they may have separate economic motives. The elected party will get to declare the full Union Budget after they come into power.

Also Read: What is the Cash Reserve Ratio and its Impact on the Economy?

Conclusion

As the Union Budget 2025 approaches, one should be aware of the various aspects the budget might have. For financially savvy citizens, the budget can hold the key to making important monetary decisions.

Hang tight and keep an eye on the latest updates and expert analyses to navigate the financial landscape in the coming days.

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.