18.10            ndian     onom
     expenditures than the receipts, then it is a surplus               make it come out of the red (i.e., doing away with
     budget.12                                                          the losses).
           In practice, governments the world over
     usually do not present a surplus budget as it                      neeD of Deficit finAncing
     symbolises government’s lower concerns towards                     It was in the late 1920s that the idea and need of
     development. But at times as a political weapon a                  deficit financing was felt. It is when government
     government might come out with such a budget                       needs to spend more money than it was expected
     (for example the Uttaranchal Budget for 2006–07                    to earn or generate in a particular period, to go for
     was a surplus budget). How can a government                        a desired level of growth and development. Had
     propose for a surplus budget in a developing                       there been some means to go for more expenditure
     state when even developed countries still need                     with less income and receipts, socio-political goals
     development and are going for deficit budgets?                     could have been realised as per the aspirations of
     The Union Budget in India had never been                           the public policy. And once the growth had taken
     presented as a surplus budget.                                     place, the extra money spent above the income
                                                                        would have been reimbursed or repaid. This was a
        defIcIt fInancIng                                               good public/government wish which was fulfilled
                                                                        by the evolution of the idea of deficit financing.
     The act/process of financing/supporting a deficit                       It was by the early 1930s that the US first tried
     budget by a government is deficit financing. In this               its hand at deficit financing soon to be followed
     process, the government knows well in advance                      by the whole Euro-American governments.14
     that its total expenditures are going to turn out to               Through this route the developed world was able
     be more than its total receipts and enacts/follows                 to come out of the menace of the Great Depression
     such financial policies so that it can sustain the                 (1929).15 The idea became popular around
     burden of the deficits proposed by it.                             the world by the 1960s. India tried its hand at
          First used in the area of public finance in the               deficit financing in 1969 and since the 1970s it
     early 1930s in USA,13 today the term is being used                 became a routine phenomenon, till it became wild
     by the corporate sector, too and such a financial                  and illogical, demanding immediate redressal.
     management of a firm might be followed by it                       The fiscal deficits in India did not only peak to
     as part of its business strategy. Again, a sick firm               unsustainable levels but its composition was also
     might need to follow deficit financing route for                     14.   For a detailed discussion on the topic one may refer to
     many years to come as required by the firm to                              Joseph. E. stiglitz, Economics of the Public Sector,
                                                                                (New York: w.w. Norton, 2000).
       12.   In the Us economy if tax revenue falls short of              15.   It should be noted here that although the governments had
             government expenditures, the government has a fiscal               run deficits i.e., udget deficit even efore the eynesian
             deficit, and it means that the government needs to                 idea of the deficit, the pre eynesian thin ing was that
             borrow in the capital market to cover the difference.              in peacetime the budget should generally be balanced
             Opposite to it, if the government runs a fiscal surplus            (i.e., neither deficit nor surplus), or even in surplus
             (i.e., its tax revenues exceed its expenditure) then the           so that the government debt created by wartime
             government, like the household sector, will be a net               deficits could be paid off. For further reference on
             saver and will represent a source of saving for the                the topic and its constraints, stanley Fischer and
             economy (see stiglitz and walsh, Economics, 549).                  william Easterly, Economics of the Government
       13.   J. K. Galbraith, A History of Economics, (London:                  Budget Constraints, world Bank Research
             Penguin Books, 1987) p. 226. ( he hole hapter II                   Observer, Vol. 5, No. 2, July 1990, pp. 127–42;
             on M e nes (pp                  is interesting to refer on         also reproduced in Amaresh Bagchi (ed.), Readings in
             the topic.)                                                        Public Finance, pp. 301–19.