Structure: Revenue and capital budgets

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.