Components of the Government Budget

The budget of the Government has two components namely A) Revenue Account and B) Capital Account.

A)   Revenue Account comprises I. Revenue receipts and II.  Revenue expenditure.

I.                    Revenue receipts refer to the revenue earned by the government from

1.   Tax and 2.  Non-tax sources.

In India, the sources of tax revenues comprises of

a)    Income tax,

b)    Corporation tax

c)     Customs duties

d)   Central excise duty

e)    Wealth tax

f)      Service tax etc.

  2.  The non-tax revenue comprises of

a)    Interest earned by the government on loans and advances to the local governments

b)    Dividend and profits of public sector

c)     Income from currency and mint

d)   Fees, fines and penalties.

e)    Grants-in-aid from foreign countries and international organizations.

II.                 Revenue Expenditure is incurred by the government out of its current revenue receipts.  It is classified into

1.      Plan revenue expenditure and

2.     Non-plan revenue expenditure.

1.      Plan expenditure refers to the expenditure incurred on

a) Implementation of economic plans.

b) The government provisions to assist the plans of local governments etc.

2.  Non-plan revenue expenditure relates to expenditure incurred on

a)  Defence services

b)  Law and order

c)  Interest payments

d) Subsidies, salaries, pensions

e)  Tax collection, administration etc.

B. Capital Account:  Capital account includes I) Capital receipts and II) capital expenditure of the Government.

I)  Capital receipts includes the following

a)  Raising loans from the market, central bank, foreign governments and international institutions.

b)  Loans from public by issuing bonds, unit certificates etc.

c)  Recoveries of loans granted to local governments,

d)  Small savings, Public provident fund

e)  Receipts obtained from disinvestment of public sector undertakings etc.

II)  Capital Expenditure:  Capital expenditure refers to the expenditure incurred on the acquisition of assets.  It includes

 1.   Plan capital expenditure.

 2.  Non-plan capital expenditure.

1.  Plan capital expenditure relates to expenditure incurred for creating permanent revenue yielding assets.  It includes

a)  Developmental expenditure on economic and social services such as Agriculture, Industries, transport, communication, power , science and technology etc.

b)  Investment on shares, loans and advances

c)  Education, Public health, Housing, welfare programmes etc.

2.)  Non –Plan capital expenditure relates to expenditure on

a)  Compensation, rehabilitation facilities during natural calamities.

c)  Repayment of loans.