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

Question

Ghissu Editorial · Accepted Answer

The revenue budget covers receipts and spending that neither create nor reduce assets or liabilities, such as taxes, salaries and interest, while the capital budget covers borrowing, disinvestment, asset creation and loans. Of ₹53.47 lakh crore spent in 2026-27 (BE), capital expenditure was ₹12.22 lakh crore.

**Introduction**

Article 112 requires the Budget to separate revenue spending from other spending. In 2026-27 (BE), only ₹12.22 lakh crore of ₹53.47 lakh crore of total expenditure is capital spending.

**Distinguishing the Revenue and Capital Budgets**

SKETCH: comparison | Revenue vs Capital Budget
a: Revenue Budget
b: Capital Budget
- No asset or liability :: Creates asset or liability
- Recurring, routine :: Lumpy, long-term
- Revenue deficit :: Fiscal deficit
- Salaries, interest :: Highways, loans to states

1. **Classification test**: An item is capital if it creates or reduces an asset or a liability; all other receipts and spending are revenue items.
2. **Deficits revealed**: The revenue deficit shows borrowing for consumption, the fiscal deficit total borrowing, and the golden rule says borrowing should fund only assets.
3. **Effective capex**: Grants to states for capital assets are shown separately, taking effective capital expenditure to ₹17.14 lakh crore in 2026-27 (BE).

**Components of Both Budgets**

1. **Revenue receipts**: Tax revenue (income tax, corporation tax, GST, customs and excise net of the states' share) and non-tax revenue such as interest, PSU dividends and the RBI surplus.
2. **Revenue expenditure**: Interest payments, the largest item, plus salaries, pensions, subsidies on food, fertiliser and fuel, and grants to states.
3. **Capital receipts**: Debt receipts such as market borrowings and small savings, and non-debt receipts such as loan recoveries, disinvestment and asset monetisation.
4. **Capital expenditure**: Roads, railways and defence assets, PSU equity and loans to states, including 50-year interest-free capex loans.

**Conclusion**

The revenue budget keeps the state running; the capital budget builds its future. Raising capex from 1.6% of GDP in 2018-19 to 3.1% in 2026-27 (BE) shows the shift that sustains growth and fiscal health toward Viksit Bharat 2047.

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

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