Demerits of Balanced Budget

Not Applicable to the Modern Welfare State

Balanced budget is not applicable to the modern welfare state. After depression and war, the govt. of different countries have come to play an active role in. maintaining economic stability and growth. Again public expenditure is rapidly increasing due to various social obligations of the govt. Under these circumstances, balanced budget has lost its beauty and significance.

Cannot Tackle Inflation and Deflation

Balanced budget cannot cure inflation or deflation. During inflation surplus budget and during deflation deficit budget should be followed to bring the economy back on the rails.

Not Applicable to Developing Countries

Balanced budget is not applicable to the developing countries like India. These countries are poor and backward. For effective utilization of labour and natural resources, public expenditure will have to be increased. Without govt. intervention, proverty and unemployment can not be removed. Hence balanced budget cannot solve the problem in these countries.

Not Effective During War and Emergency

Balanced budget is not effective during war & emergency. During these periods public expenditure will have to be increased to face the emergency situations. Hence deficit budget becomes the need of the hour.

Cannot Secure Full Employment

When the economy operates at the underemployment equilibrium level of income, increase in public investment is necessary to raise aggregate demand to the level of full employment. This can not be achieved if the policy of balanced budget is followed.