18-10-2025 Mains Question Answer
Differentiate between capital budget and revenue budget. Give a list of important items under each category.
The Union Budget of India is divided into Revenue Budget and Capital Budget, which together reflect the government’s financial operations. While the Revenue Budget deals with regular income and expenditure, the Capital Budget relates to the creation of assets and management of liabilities. Understanding the distinction between the two is crucial for analyzing fiscal policy.
Difference between capital budget and revenue budget
| Basis | Revenue Budget | Capital Budget |
| Meaning | Statement of government’s revenue receipts and revenue expenditure. | Statement of government’s capital receipts and capital expenditure. |
| Nature of transactions | Deals with routine income and expenditure. | Deals with asset-creating and liability-reducing transactions. |
| Impact on assets & liabilities | Does not create assets or reduce liabilities. | Leads to creation of assets or reduction of liabilities. |
| Deficit concept | Imbalance shown as Revenue Deficit. | Imbalance reflected in Fiscal Deficit. |
| Examples of receipts | Tax revenue (income tax, GST, excise) and Non-tax revenue (interest, dividends, fees). | Borrowings (market loans, external loans), recovery of loans, disinvestment proceeds. |
| Examples of expenditure | Salaries, pensions, subsidies, grants to states, interest payments. | Infrastructure projects, defence capital expenditure, loans to states/PSUs, asset creation. |
Important Items Under Each Category:
- Revenue Budget:
- Revenue Receipts: These are the receipts which neither create any liability nor cause reduction in the assets of the government. They are regular and recurring in nature.
- Tax Revenue: The taxes in India mainly consists of 2 types:
- Direct Taxes: Like Income Tax and Corporate Tax
- Indirect Taxes: Like Goods and Services Tax (GST).
- Non Tax Revenue: Revenue received from sources other than taxes. For example: Interest receipts, Dividend and profit receipts, Grants-in-aid, fee, fines and penalties, etc.
- Tax Revenue: The taxes in India mainly consists of 2 types:
- Revenue Expenditure: These are current or consumption expenditures which are recurring in nature.
- It includes interest payments, major subsidies, grants by the centre to the state, salaries and pensions to central government employees, etc.
- Revenue Receipts: These are the receipts which neither create any liability nor cause reduction in the assets of the government. They are regular and recurring in nature.
- Capital Budget
- Capital Receipts: Capital receipts are those receipts of the government which either create a liability or reduce an asset.
- Debt Creating Capital Receipts: Includes loans taken by central government, borrowings and National Small Savings Fund (NSSF).
- Non-debt creating capital receipts: Includes recovery of loans and advances and disinvestment.
- Capital Expenditure: It refers to the government’s expenditure that either creates assets (like roads, schools, hospitals, defence equipment) or reduces liabilities (like repayment of loans).
- It includes repayment of loans, loans to public enterprises, expenses on irrigation projects, etc.
- Capital Receipts: Capital receipts are those receipts of the government which either create a liability or reduce an asset.
Therefore, the Revenue Budget represents the government’s operational income-expenditure cycle, while the Capital Budget represents long-term financial planning involving asset creation and liability management. Together, they provide a comprehensive picture of fiscal health and are key to ensuring sustainable economic growth.