UPSC 2021 Mains GS3 Model Answer -Distinguish between Capital Budget and Revenue Budget. Explain the components of both these Budgets
SuperKalam
Feb, 2025
•1 min read
Q.2 Distinguish between Capital Budget and Revenue Budget. Explain the components of both these Budgets.
Model Answer
Difference between capital and revenue budget
|
ASPECT |
CAPITAL BUDGET |
REVENUE BUDGET |
|
Definition |
A plan for long-term investments in assets that will benefit the organization for multiple years |
A plan for day-to-day operations, including income and expenses for a specific period (usually one year) |
|
Purpose |
To fund major projects, acquisitions, or improvements that will provide long-term benefits |
To manage regular, recurring financial activities and ensure short-term financial stability |
|
Timeframe |
Long-term |
Short-term |
|
Financial Impact |
Affects the balance sheet by increasing assets and long-term liabilities |
Affects the income statement by recording revenues and expenses |
|
Examples |
Infrastructure development, defense purchases, public enterprises |
Salaries, subsidies, interest payments, grants |
Components Of Revenue and Capital Budget
Components of Capital Budget
Capital Receipts:
- Loans from the Public: Borrowings from the public through the issuance of government bonds.
- Loans from Foreign Governments and International Organizations: Borrowings from entities like the World Bank, IMF, etc.
- Disinvestment: Proceeds from the sale of government stakes in public sector enterprises.
- Recovery of Loans: Repayments received from states and union territories.
Capital Expenditure:
- Infrastructure Development: Investments in roads, bridges, railways, airports, etc.
- Health and Education: Building hospitals, schools, and universities.
- Defense: Purchase of military equipment and construction of defense infrastructure.
- Public Enterprises: Investments in public sector companies.
Components of Revenue Budget
Revenue Receipts
- Tax Revenue: Income from taxes like income tax, corporate tax, GST, customs duties, etc.
- Non-Tax Revenue: Income from sources other than taxes, such as interest receipts, dividends from public sector enterprises, fees, and fines.
Revenue Expenditure
- Salaries and Pensions: Payments to government employees and pensioners.
- Subsidies: Financial support for food, fertilizers, and fuel.
- Interest Payments: Payments on the interest of loans taken by the government.
- Grants: Financial assistance to states and other entities.
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