Introduction

  1. The Government Budget is a statement of estimated receipts and expenditures of the government over a financial year.
  2. It is divided into two main components: the Revenue Budget and the Capital Budget.
  3. The classification helps in understanding the sources of funds and the purpose of expenditures.

Revenue Budget

  1. The Revenue Budget deals with the government’s current receipts and current expenditures.
  2. Revenue Receipts: Include all earnings that do not lead to an increase in the government’s liabilities or a reduction in its assets.
  3. Revenue receipts are further classified as:
    • Tax Revenue: Includes direct taxes (e.g., income tax, corporate tax) and indirect taxes (e.g., GST, customs duty).
    • Non-Tax Revenue: Includes earnings from dividends, fees, fines, and interest on loans given by the government.
  4. Revenue Expenditure: Includes expenditures that do not create assets or reduce liabilities, such as salaries, subsidies, and interest payments.
  5. The key focus of the revenue budget is on managing day-to-day operations of the government.

Capital Budget

  1. The Capital Budget deals with long-term investments, asset creation, and liabilities.
  2. Capital Receipts: Include funds received by the government that lead to an increase in liabilities or a reduction in assets.
  3. Capital receipts are categorized as:
    • Borrowings: Includes loans from domestic or international sources.
    • Disinvestment: Proceeds from the sale of government-owned assets or stakes in public enterprises.
    • Other Receipts: Includes recovery of loans and advances granted by the government.
  4. Capital Expenditure: Involves spending on the creation of assets such as roads, buildings, machinery, or investments in public enterprises.
  5. It also includes payments for reducing existing liabilities, like loan repayments.

Key Differences Between Revenue and Capital Budgets

  1. Revenue Budget focuses on short-term, operational activities, while the Capital Budget emphasizes long-term investments and liabilities.
  2. Receipts in the Revenue Budget do not impact assets or liabilities, whereas receipts in the Capital Budget affect either liabilities or assets.
  3. Expenditures in the Revenue Budget do not lead to asset creation, unlike expenditures in the Capital Budget.

Significance of Revenue and Capital Budgets

  1. The Revenue Budget ensures efficient functioning of the government’s operational activities.
  2. The Capital Budget supports economic growth through infrastructure development and asset creation.
  3. A balanced structure of both budgets reflects fiscal discipline and sustainable economic planning.
  4. Helps in understanding the government’s focus areas, such as welfare schemes (revenue) and long-term projects (capital).

Challenges in Managing Revenue and Capital Budgets

  1. High revenue deficit due to excessive subsidies and interest payments.
  2. Limited funds for capital expenditure due to rising revenue expenditure.
  3. Inadequate recovery of loans and issues in disinvestment programs.
  4. Dependence on borrowings leading to an increase in the fiscal deficit.

Conclusion

  1. The classification of the government budget into revenue and capital components helps in clear financial planning and economic management.
  2. It is important to ensure a balance between short-term operational needs and long-term economic growth.

Category

Questions

  1. What is the primary focus of the revenue budget in a government budget?
  2. Which of the following is NOT a component of the revenue budget?
  3. What is included under revenue receipts in the budget?
  4. Which of the following is an example of a capital receipt?
  5. What is the primary purpose of the capital budget?
  6. Which of these is considered revenue expenditure?
  7. How is revenue deficit calculated?
  8. Which of the following is an example of non-tax revenue?
  9. What does capital expenditure primarily include?
  10. Which type of deficit indicates shortfall in government's daily functioning?
  11. Which of the following is NOT a part of revenue receipts?
  12. What is the difference between fiscal deficit and revenue deficit?
  13. Which of the following is an example of capital expenditure?
  14. What is a key difference between revenue and capital budgets?
  15. What is the impact of revenue deficit on the economy?
  16. Which type of receipts contribute to capital budget?
  17. Why is disinvestment included in the capital budget?
  18. What does the term "non-plan revenue expenditure" refer to?
  19. What is the significance of separating revenue and capital budgets?
  20. What does a balanced revenue budget imply?
  21. Which component of the budget is more focused on asset creation?
  22. How are capital receipts different from revenue receipts?
  23. What does the term "primary deficit" exclude compared to fiscal deficit?
  24. What is the main feature of revenue expenditure?
  25. Why is capital expenditure considered important for economic growth?
  26. What happens if revenue expenditure consistently exceeds revenue receipts?
  27. Which of the following is NOT a capital expenditure?
  28. What are tax revenues classified under in the budget?
  29. What does the term "non-debt capital receipts" refer to?
  30. What is the primary aim of the capital budget in a developing country?
  31. What is the relationship between fiscal deficit and revenue deficit?
  32. Which type of expenditure does NOT result in creation of assets?
  33. Why are grants-in-aid classified as revenue expenditure?
  34. What does "effective revenue deficit" account for?
  35. How are interest payments classified in the government budget?