Budget Expenditure of the government: Revenue Expenditure and Capital Expenditure!
Budget Expenditure of the government refers to the estimated expenditure of the government during a given fiscal year.
Budget Expenditure of the government can be broadly categorized as:
(i) Revenue Expenditure
(ii) Capital Expenditure.
(i) Revenue Expenditure:
Revenue expenditure refers to the expenditure which neither creates any asset nor causes reduction in any liability of the government.
i. It is recurring in nature.
ii. It is incurred on normal functioning of the government and the provisions for various services.
iii. Examples: Payment of salaries, pensions, interests, expenditure on administrative sendees, defence services, health services, grants to state, etc.
An expenditure is a revenue expenditure, if it satisfies the following two essential conditions:
(i) The expenditure must not create an asset of the government. For example, payment of salaries or pension is revenue expenditure as it does not create any asset. However, the amount spent on construction of Metro is not revenue expenditure as it leads to creation of an asset.
(ii) The expenditure must not cause decrease in any liability. For example, repayment of borrowings is not revenue expenditure as it leads to reduction in liability of the government.
It must be noted that Union Grants to states are treated as revenue expenditure, even though some of the grants may be used for creation of assets.
(ii) Capital Expenditure:
Capital expenditure refers to the expenditure which either creates an asset or causes a reduction in the liabilities of the government.
1. It is non-recurring in nature
2. It adds to capital stock of the economy and increases its productivity through expenditure on long period development programmers, like Metro or Flyover.
3. Examples: Loan to states and Union Territories, expenditure on building roads, flyovers. Factories, purchase of machinery etc., repayment of borrowings, etc.
Expenditure is a capital expenditure, if it satisfies any one of the following two conditions:
(i) The expenditure must create an asset for the government. For example, Construction of Metro is a capital expenditure as it leads to creation of an asset. However, any amount paid as salaries is not a capital expenditure as there is no increase in the assets.
(ii) The expenditure must cause a decrease in the liabilities. For example, repayment of borrowings is a capital expenditure as it leads to a reduction in the liabilities of the government.
