Distinguish between Capital Budget and Revenue Budget. Explain the components of both these Budgets.

Answer

Approach:IntroductionMention that these terms are part of the Union BudgetBodyMention the differences between Capital and Revenue Budget along with explanation of the components.ConclusionConclude suitably.

Introduction

The Union Budget is referred to as the Annual Financial Statement (AFS) under the Constitution. It is a statement of the estimated receipts and expenditure of the Government in a financial year.

Body

Components of government budgets:

Capital Budget · Revenue Budget

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Capital budget is a statement of the government’s estimated capital receipts and capital expenditure. · Revenue budget is a statement of the government’s estimated revenue receipts and revenue expenditure for a period of one financial year.

Capital budget covers capital items which are of non-recurring nature.  It is usually a one-time expenditure for a long period of time. · Revenue budget covers revenue items which are of recurring nature (on a yearly basis)

Capital receipts are receipts of the government which create liabilities or reduce financial assets, e.g., market borrowing, recovery of loan, disinvestment, etc. · The revenue receipts include both tax revenue like income tax, excise duty and non-tax revenue like interest receipts, dividends, profits, etc.

Capital expenditure is the expenditure of the government which either creates assets or reduces liability like creation of an asset, investment, repayment of loan, etc. · Revenue expenditure is expenditure for normal running of the government department and various services, interest payments, subsidies, etc.