Revision summary
Revenue Budget covers tax and non-tax receipts and spending that does not create assets. Capital Budget covers borrowings, disinvestment, loan recoveries, and asset-creating outlays. Salaries, interest, and subsidies sit on the revenue side; roads, equity, and loans sit on the capital side. A revenue deficit means borrowing to consume, not only to invest. FRBM reading needs both splits, not a single deficit number.
Model answer
Introduction
The Union Budget’s Annual Financial Statement splits government accounts into a Revenue Budget and a Capital Budget. The first is the cost of running the year. The second is borrowing, assets, and loans that change the government’s balance sheet.
Body
The distinction
- The Revenue Budget records receipts that do not create a liability or reduce an asset, and spending that does not create an asset or reduce a liability.
- The Capital Budget records receipts that create a liability or reduce an asset, and spending that creates an asset or reduces a liability.
- A salary or subsidy is revenue expenditure. A highway, a defence capital store, or a loan to a State is capital expenditure.
- Tax collected is a revenue receipt. A market borrowing or a disinvestment receipt is a capital receipt.
Revenue Budget components
- Revenue receipts are tax revenue (income tax, corporation tax, GST, Union excise, customs) and non-tax revenue (dividends, interest, fees, spectrum in some years, external grants).
- Revenue expenditure is interest, salaries, pensions, subsidies, grants to States that are not for capital assets, and the running cost of schemes such as food and fertiliser support.
- A revenue deficit means the government is borrowing to run the household, not only to build assets.
Capital Budget components
- Capital receipts include market borrowings, other debt, recovery of loans, and non-debt receipts such as disinvestment.
- Capital expenditure includes creation of infrastructure and defence capital, equity in public firms, and loans and advances to States, Union Territories, and public enterprises.
- The Fiscal Responsibility and Budget Management debate watches whether capital spending is protected when revenue spending is sticky.
Why the split matters
- Mixing the two hides whether the deficit is buying a road or paying yesterday’s interest.
- FRBM and Budget papers therefore print revenue deficit, fiscal deficit, and capital outlay as separate tests.
Flow diagram
flowchart TD B[Annual Financial Statement] --> R[Revenue Budget] B --> C[Capital Budget] R --> RR[Tax and non-tax receipts] R --> RE[Salaries interest subsidies] C --> CR[Borrowing disinvestment loan recovery] C --> CE[Assets and loans given]
Conclusion
The Revenue Budget is recurring income and running cost. The Capital Budget is debt, disinvestment, assets, and loans. Good public finance keeps the first from eating the second.
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