Mainly there are two types of measures to correct budget deficits :
By reducing (containing ) the deficit
By financing the deficit
I . Reducing or Containing the Deficit in Budget . The deficit in budget can be reduced or contained through :
(i) Raising Government Receipts : Government should make plans to increase its receipts
Government should impose new taxes and increase the rate of existing taxes .
Taxation should be progressive in nature .
Increase in taxation should not hit the inducement to invest .
Apart from taxes , non tax revenue should also be increased e.g. , licence fee , escheat , special assessment etc.
(ii) Reduction in Government Expenditure :
It can be done through better planning and administration .
Government should take steps to reduce non-developmental expenditure .
Government should invite private sector to develop the economy.
II. By Financing the Deficits. If government is not able to bridge the gap between its estimated expenditure and receipts then the deficit may be financed by the following ways :
(i) Monetary Expansion . It is deficit financing which is done by printing currency notes to the extent of the deficit . It refers to borrowings by the government from RBI against required securities . It needs to be carefully done , otherwise it may lead to inflation , if more than required money comes into circulation .
(ii) Borrowing from the Public . To finance its deficit , the government borrows from the general public by issuing various securities .
(iii) Disinvestment . It refers to financing the deficit by selling government assets to the private sectors . Here the government sells its existing shares in public sector to the private sector .
