budget deficit creates disequlibrime in every econoy but in developing countries like india why does government depends on buget deficit ? expalin
We know that budget deficit is the excess of total expenditure of the government over the total receipts of the government.Thus, it is said to create a disequilibrium in an economy if the expenditures are in excess of the receipts. However, in developing countries like India, the government is not able to control this situation of budget deficit. This is because of the fact that in such countries,the government cannot cut down on its development expenditure such as expenditure on health, education, etc. as they are important from the economic development point of view.
On the other hand the receipts of the government can not be increased much. This is because direct taxes such as income tax have little scope of increment as only a small fraction of population pays income tax in such countries (and majority of population falls in low-income group). Similarly, the receipts from indirect taxes also cannot be increased much as they are regressive in nature (the burden has to be borne equally by the rich and the poor). Thus, both the indirect taxes and the direct taxes has little scope of increment in the developing countries.
Hence, despite of the fact that budget deficit creates a disequilibrium in an economy, in developing countries like India, the government has to depend on the budget deficit.
since india is in developing stage it is very much important to make more expenditure from the government's side in order to raise the standard of living of all citizens this also intends in reducing the income received by the government therefore in a developing country it is favourable for the nation to undergo through budget defit for the gradual development of the country