Model Answer
0 min readIntroduction
The Union Budget of India is broadly divided into two categories: the Revenue Budget and the Capital Budget. This classification is crucial for understanding the government’s financial health and its impact on the economy. While the Revenue Budget deals with the government’s day-to-day income and expenditure, the Capital Budget focuses on long-term investments and asset creation. Understanding this distinction is vital for assessing the effectiveness of fiscal policy and its contribution to sustainable economic growth. The budgetary process is governed by constitutional provisions, primarily Articles 112-114, and is presented annually to Parliament.
Distinguishing between Capital Budget and Revenue Budget
The fundamental difference lies in the nature of transactions. The Revenue Budget relates to the current income of the government and the expenditure met from that income. It focuses on short-term needs. Conversely, the Capital Budget deals with the government’s investments in long-term assets and liabilities, impacting the country’s future productive capacity.
Components of the Revenue Budget
- Revenue Receipts: These are the income of the government from all sources.
- Tax Revenue: Includes taxes like Income Tax, Corporation Tax, Central Excise Duty, Customs Duty, Goods and Services Tax (GST).
- Non-Tax Revenue: Includes interest receipts, dividends from public sector undertakings, fees, licenses, and profits from government enterprises.
- Revenue Expenditure: This is the expenditure incurred by the government for running its day-to-day operations.
- Interest Payments: On public debt.
- Subsidies: To various sectors like agriculture, industry, and consumers.
- Salaries: Of government employees.
- Pension Payments: To retired government employees.
- Administrative Expenses: Running of government departments.
Components of the Capital Budget
- Capital Receipts: These relate to the raising of funds by the government.
- Market Borrowings: Loans taken from the public, banks, and financial institutions.
- Small Savings: Funds collected through post office savings schemes.
- Disinvestment: Sale of equity in Public Sector Undertakings (PSUs).
- Recovery of Loans: Loans given to states and other parties.
- Capital Expenditure: This is expenditure incurred on acquiring assets or creating long-term benefits.
- Investment in Public Sector Enterprises: Equity investments in PSUs.
- Infrastructure Development: Expenditure on roads, railways, ports, and airports.
- Defense Expenditure: Purchase of military equipment.
- Grants to States: For creation of capital assets.
Comparative Table
| Feature | Revenue Budget | Capital Budget |
|---|---|---|
| Nature of Transactions | Day-to-day income and expenditure | Long-term investments and liabilities |
| Impact | Short-term | Long-term |
| Examples of Receipts | Tax revenue, interest receipts | Borrowings, disinvestment |
| Examples of Expenditure | Salaries, subsidies, interest payments | Infrastructure, defense, investments in PSUs |
Conclusion
In conclusion, the Revenue Budget focuses on maintaining the government’s current operations, while the Capital Budget aims to enhance the nation’s future productive capacity. A balanced approach to both budgets is crucial for achieving sustainable economic growth and fiscal stability. Effective management of both revenue and capital expenditure is essential for ensuring that public funds are utilized efficiently and contribute to the overall well-being of the nation. The distinction between the two is fundamental to understanding the government’s financial strategy.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.