Distinguish between Capital Budget and Revenue Budget. Explain the components of both these Budgets.
Approach · directive: “distinguish / explain”
What it asks · Distinguish the Revenue Budget from the Capital Budget on the basis of what each does to assets and liabilities, and explain the receipts and expenditure that make up each.
It asks 2 things — answer each
- Distinguish the Capital Budget from the Revenue Budget: the basis of the division (effect on assets and liabilities, recurrence) and the deficit it reveals
- Explain the components of each: revenue receipts and revenue expenditure; capital receipts and capital expenditure
Open with · Article 112 requires the Annual Financial Statement to show revenue expenditure separately from other expenditure; hence the Union Budget has a Revenue Budget and a Capital Budget, each with its own receipts and spending.
Cover
- Basis: revenue items recur and neither create assets nor reduce liabilities; capital items do. Article 112 requires revenue expenditure to be shown separately.
- Revenue deficit (revenue expenditure minus revenue receipts) shows borrowing used for consumption; BE 2021-22 put it at 5.1% of GDP.
- Revenue receipts: tax revenue (income tax, corporation tax, GST, customs, Union excise) and non-tax revenue (interest, dividends, fees, grants).
- Revenue expenditure: running of departments, interest, subsidies, salaries and pensions; all grants to States count here even when they create assets.
- Capital receipts: debt receipts (market loans, Treasury Bills, external loans) and non-debt receipts (recovery of loans, disinvestment).
- Capital expenditure: land, buildings, machinery, equipment, investment in shares, loans and advances to States and PSEs; BE 2021-22 raised it 34.5% to Rs 5.54 lakh crore.
Close with · Budget 2021-22 raised capital expenditure 34.5% to Rs 5.54 lakh crore 'to boost economic growth by investing in infrastructure': the split exists so that borrowing builds assets while the revenue account moves towards balance.
Add value (verified)
- The Key to Budget Documents defines the Revenue Budget as the government's revenue receipts (tax and non-tax) together with the expenditure met from them.Key to Budget Documents, Budget 2021-22, Ministry of Finance (para 3(iv)) ↗“The Revenue Budget consists of the revenue receipts of the Government (Tax revenues and other Non-Tax revenues) and the expenditure met from these revenues. Tax revenues comprise proceeds of taxes and other duties levied by the Union.”
- The same document defines the Capital Budget as capital receipts plus capital payments, and states that all grants to States are revenue expenditure even where they create capital assets.Key to Budget Documents, Budget 2021-22, Ministry of Finance (para 3(iv)-(v)) ↗“All grants given to the State Governments/Union Territories and other parties are also treated as revenue expenditure even though some of the grants may be used for creation of capital assets. (v) Capital receipts and capital payments together constitute the Capital Budget.”
- Budget at a Glance 2021-22 ties the 34.5% rise in capital expenditure to the government's commitment to growth through infrastructure.Budget at a Glance, Union Budget 2021-22, Ministry of Finance ↗“Budget 2021-22 reflects firm commitment of the Government to boost economic growth by investing in infrastructure development. This is substantiated by increase in capital expenditure by 34.5% (1,42,151 crore) over BE 2020-21.”
- Budget at a Glance 2021-22 puts the revenue deficit at Rs 11,40,576 crore (5.1% of GDP) and the fiscal deficit at 6.8% of GDP in BE 2021-22.Budget at a Glance, Union Budget 2021-22, Ministry of Finance (deficit statement) ↗“14. Revenue Deficit (10-1) 666545 609219 1455989 1140576 (3.3) (2.7) (7.5) (5.1) 15. Effective Revenue Deficit 480904 402719 1225613 921464 (14-12) (2.4) (1.8) (6.3) (4.1) 16. Fiscal Deficit 933651 796337 1848655 1506812 [9-(1+5+6)] (4.6) (3.5) (9.5) (6.8)”
- PIB's Budget 2021-22 summary records about Rs 5.5 lakh crore of capital expenditure in BE 2021-22, an increase of 34.5%.PIB: Summary of Union Budget 2021-22, 1 February 2021 ↗“Rs. 5.5 lakh crore as capital expenditure, an increase of 34.5% to give required push to economy”
Question: UPSC's CS (Main) 2021, GS Paper III — paper ↗. Approach: Minimalist IAS, checked 3 Oct 2026 (how we verify) — UPSC publishes no model answers. ·
Model answer· 222words · Minimalist IAS
Article 112 requires the Annual Financial Statement to show revenue expenditure separately from other expenditure; hence the Union Budget has a Revenue Budget and a Capital Budget, each with its own receipts and spending.
How the two Budgets differ
- Test of assets and liabilities: revenue items recur and neither create an asset nor reduce a liability; capital items change the government's assets or liabilities.
- Deficit signal: the revenue deficit shows borrowing spent on consumption; BE 2021-22 put it at 5.1% of GDP.
| Budget | Receipts | Expenditure |
|---|---|---|
| Revenue | Taxes, interest, dividends, fees | Salaries, pensions, interest, subsidies |
| Capital | Borrowings, loan recovery, disinvestment | Assets, equity, loans to States |
Components of the Revenue Budget
- Revenue receipts: tax revenue (income tax, corporation tax, GST, customs, Union excise) and non-tax revenue (interest, dividends and profits, fees, grants).
- Revenue expenditure: running of departments, interest payments, subsidies, salaries and pensions; all grants to States count here even when they create assets.
Components of the Capital Budget
- Capital receipts: debt receipts (market loans, Treasury Bills, external loans) and non-debt receipts (recovery of loans, disinvestment).
- Capital expenditure: land, buildings, machinery; investment in shares; loans to States and public enterprises.
Budget 2021-22 raised capital expenditure 34.5% to Rs 5.54 lakh crore 'to boost economic growth by investing in infrastructure': the split exists so that borrowing builds assets while the revenue account moves towards balance.
Prepared by Minimalist IAS to the answer standard of Shivam Singh (mentor, 7 years) · facts checked against official sources (how we verify) · updated 3 Oct 2026. UPSC publishes no model answers: compare your structure and coverage with this, then write your own.
