Distinguish between Capital Budget and Revenue Budget. Explain the components of both these Budgets. UPSC IAS Mains 2021 General Studies (Paper – 3)
According to Article 112 of the Indian Constitution, the Union Budget of a year is referred to as the Annual Financial Statement (AFS). It is a statement of the estimated receipts and expenditure of the Government in a financial year (which begins on 01 April of the current year and ends on 31 March of the following year).
Objectives of Budget:
- Reallocation of resources
- Reducing inequalities in income and wealth
- Contributing to economic growth
- Bringing economic stability
- Managing public enterprises
Components of government budgets:
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Capital Budget
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Revenue Budget
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- It includes the Capital Receipts and Capital Expenditure.
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- It consists of the Revenue Expenditure and Revenue Receipts.
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Capital Receipts indicate the receipts which lead to a decrease in assets or an increase in liabilities of the government.
It consists of:
- the money earned by selling assets (or disinvestment) such as shares of public enterprises, and
the money received in the form of borrowings or repayment of loans by states.
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Revenue Receipts are receipts which do not have a direct impact on the assets and liabilities of the government.
It consists of the money earned by the government through tax (such as excise duty, income tax) and non-tax sources (such as dividend income, profits, interest receipts).
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Capital Expenditure is used to create assets or to reduce liabilities. It consists of:
- the long-term investments by the government on creating assets such as roads and hospitals, and
the money given by the government in the form of loans to states or repayment of its borrowings.
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Revenue Expenditure is the expenditure by the government which does not impact its assets or liabilities.
For example, this includes laries, interest payments, pension, and administrative expenses.
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It is non-recurring in nature. It is usually a one-time expenditure for a long period of time.
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It is recurring in nature (on a yearly basis).
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