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

Model Answer: 

Capital Budget

Capital Budget refers to the budget that deals with the government’s investment in long-term projects, infrastructure development, and asset creation. It focuses on the management of capital expenditure and revenue received from the sale of fixed assets.

Components of Capital Budget:

Capital Receipts:

• Borrowings: Internal (market loans, treasury bills) and external (from foreign governments and international institutions)
• Disinvestment: Revenue from the sale of government’s stake in public sector enterprises
• Recovery of loans: Loans provided by the central government to states, union territories, and other institutions.

Capital Expenditure:

• Infrastructure development: Construction and maintenance of roads, railways, ports, airports, etc.
• Social sector investment: Education, healthcare, housing, and other welfare schemes
• Defense expenditure: Purchase of weapons, equipment, and infrastructure for defense forces
• Loans provided: Loans given by the central government to states, union territories, and other institutions

Revenue Budget

Revenue Budget is a financial plan that deals with the government’s day-to-day operations, including income and expenses. It focuses on managing the government’s revenue expenditure and receipts.

Components of Revenue Budget:

Revenue Receipts:

• Tax revenue: Direct taxes (income tax, corporate tax) and indirect taxes (GST, customs duty, excise duty)
• Non-tax revenue: Interest receipts, dividends and profits, fees, fines, and royalties.

Revenue Expenditure:

• Administrative expenses: Salaries, pensions, and other expenses related to government operations
• Interest payments: Repayment of interest on loans taken by the government
• Subsidies: Financial assistance to various sectors (agriculture, food, fuel, etc.)
• Grants-in-aid: Financial assistance provided to states, union territories, and other institutions
• Social sector expenses: Funding for education, healthcare, and other welfare schemes

In India, the Union Budget presented by the Finance Minister comprises both the Capital Budget and Revenue Budget. The two budgets together determine the fiscal policy of the country and play a crucial role in promoting economic growth, social welfare, and financial stability.