BOOM Glossary #2: What Is The Revenue Budget and Capital Budget?

While the Annual Financial Statement presents actual expenses incurred and income of the Government of India in a financial year, the budgeted and revised estimates of current financial year and the budgeted estimates of the upcoming financial year; the records are broken down into two heads:

• The Revenue Budget
• The Capital Budget
  

The Revenue Budget consists of all revenue receipts of the government, which can be from tax and non-tax sources, and the expenditure incurred from these sources. The tax income consists of all receipts from all duties, direct and indirect taxes and levies imposed by the Union. Sources of non-tax revenue are dividends earned from public-sector undertakings, interest earned on investments made by the Centre, and fees earned by the government on services that it provides, and any other receipts. Revenue expenditure is what the government spends on its functioning, for the granting of its social programs, for the funding of subsidies, what the government grants in aid, and the interest the government pays on debt.

The Capital Budget deals with the governmental creation of assets, or the proceeds it receives from the sale of assets. The capital receipts includes loans it has raised from the public, or from foreign governments or institutions. It also includes loan recoveries from states, and the disinvestment proceeding the government has obtained from public sector undertakings. All capital expenditure by the government leads to the creation or of assets - all payments towards land, buildings, machinery and equipment acquisition falls under this category. This heading also includes when the government invests in shares, and loans granted to states or union territories or to corporations or government companies.

Generally, expenditure which does not create assets for the Government of India is treated as revenue expenditure. All grants (not loans) to states and union territories are also counted as revenue expenditure, even if it does lead towards creation of an asset.