The Union Budget of India is important financial document presented annually. The next budget, for 2025, will be revealed in February 2025. About its components is essential for grasping the government’s fiscal strategy. Two primary elements are the Expenditure Budget and the Revenue Budget.
Expenditure Budget Overview
The Expenditure Budget outlines fund allocation across various government sectors. It shows how much the government plans to spend and where. The budget is divided into two categories – Revenue Expenditure and Capital Expenditure.
Revenue Expenditure
Revenue Expenditure refers to spending that does not create assets. It is recurring and includes essential payments. Key components are salaries, pension payments, defence expenditure, administrative costs, health services, and other public service expenses. These expenditures support the day-to-day functioning of the government without contributing to long-term asset creation.
Capital Expenditure
Capital Expenditure focuses on creating assets and reducing liabilities. It involves long-term investments that enhance productivity and infrastructure. Examples include the construction of highways, metro rail projects, bridges, loans to Union Territories, and repayment of borrowings. This spending is non-recurring and aims for sustainable economic growth.
Revenue Budget Overview
The Revenue Budget records the government’s revenue receipts and related expenses. It consists of two main components – Revenue Receipts and Revenue Expenditure. Revenue Receipts include tax and non-tax revenues.
About Revenue Receipts
Revenue Receipts are crucial for funding government activities. Tax Revenue comes from income tax, corporate tax, customs duties, and excise duties. Non-Tax Revenue includes dividends from government investments, fees for services, and interest income. The Revenue Budget provides insight into the government’s income and expenditure plans for short-term obligations.
What is a Revenue Deficit?
A revenue deficit occurs when revenue receipts are less than revenue expenditure. This indicates the government spends more than it earns from taxes and other sources. Revenue deficits signal financial strain and necessitate corrective measures to balance spending and income.
Funding Regular Expenses
Regular expenses are funded through Revenue Expenditure. These costs are typically consumed within a financial year. Examples include rent payments, property taxes, utility bills, and employee salaries. These recurring expenses are vital for the smooth operation of government services and public welfare schemes.
Importance of Budget About
About the Expenditure and Revenue Budgets is crucial for citizens. It helps in grasping the government’s financial health and priorities. Engaging with this knowledge encourages informed discussions about economic policies and governance.
Questions for UPSC:
- Critically analyse the implications of revenue deficits on a country’s economic stability.
- Estimate the impact of capital expenditure on long-term economic growth and infrastructure development.
- What are the key differences between revenue and capital expenditure? Provide suitable examples.
- Point out the significance of tax revenues in supporting government initiatives and public welfare schemes.
Answer Hints:
1. Critically analyse the implications of revenue deficits on a country’s economic stability.
- Revenue deficits indicate that government spending exceeds income, leading to potential borrowing and increased debt.
- They can result in reduced public investment and services as funds are diverted to cover deficits.
- Long-term revenue deficits may undermine investor confidence, affecting foreign investment and economic growth.
- Persistent deficits can lead to inflationary pressures, as governments may print money to finance shortfalls.
- Corrective measures are often required, such as tax reforms or expenditure cuts, which can have social and economic repercussions.
2. Estimate the impact of capital expenditure on long-term economic growth and infrastructure development.
- Capital expenditure promotes infrastructure development, which is essential for economic productivity and efficiency.
- It creates jobs during the construction phase and stimulates demand in related sectors.
- Long-term assets, such as highways and bridges, enhance connectivity and reduce transportation costs, boosting trade.
- Strategic investments in sectors like energy and technology can encourage innovation and sustainable growth.
- Effective capital spending can lead to improved living standards and economic resilience over time.
3. What are the key differences between revenue and capital expenditure? Provide suitable examples.
- Revenue expenditure is recurring and does not create assets, while capital expenditure is non-recurring and focused on asset creation.
- Examples of revenue expenditure include salaries, pensions, and administrative costs.
- Examples of capital expenditure include building infrastructure like highways, metro systems, and bridges.
- Revenue expenditure is essential for day-to-day operations, whereas capital expenditure supports long-term economic growth.
- Revenue expenditure impacts short-term fiscal health, while capital expenditure influences future economic capabilities.
4. Point out the significance of tax revenues in supporting government initiatives and public welfare schemes.
- Tax revenues are a primary source of funding for government operations and public services.
- They enable the government to invest in infrastructure, education, and healthcare, enhancing public welfare.
- Stable tax revenues contribute to fiscal stability and reduce reliance on debt financing.
- Tax revenues allow for targeted welfare schemes, addressing poverty and inequality effectively.
- Effective tax collection can improve governance and accountability, encouraging trust in public institutions.
