We can hear a lot of terms like
revenue receipts, capital receipts, plan expenditures and non-plan expenditures
etc. in any budget. This article is for those who does not have any prior
knowledge in this field (like meJ)
to get a basic idea about these terms.
Any entity let it be individuals,
corporates or government, will have various sources of income as well as various
heads of expenditures. For a government
income can be generated from various sources at the same time expenditures can
also be used for various purposes.
First let’s discuss about income
part.
Income or receipts a government
receives can be subdivided into 2 parts.
1.
Revenue receipts
2.
Capital receipts
What is revenue receipts? Revenue
receipts is a particular type of government receipts which neither reduce
assets nor create liabilities. Confused? Ok I will explain it with the help of
an example. Consider the Tax revenues (Corporation Tax, Taxes on Income, Wealth
Tax, Customs, Union Excise Duties, Service tax etc.) or the non-tax revenues (such
as interest income or dividends and profits from various entities) a government
receives. These revenues are not creating any additional liability for the
government at the same time it is not reducing any assets also. So these types
of government receipts are called revenue receipts. We can divide revenue
receipts into mainly 2 categories. They are
- Tax revenues (Corporation Tax, Taxes on Income, Wealth Tax, Customs, Union Excise Duties, Service Tax, and Taxes of Union Territories)
- Non tax revenues (Interest receipts, Dividend and Profits, External Grants, Other Non-Tax Revenue, Receipts of Union Territories)
Next is capital receipts.
What is capital receipts? Just
opposite of revenue receipts. It is a particular type of government receipt
which either create liabilities or reduce assets.
How capital receipts will create liabilities
for the government? Well usually government will borrow money from various
sources such as pension funds, individuals, foreign institutions etc. These
borrowings are creating liability for the government because government has to
repay the principal at a later point of time at the same time it has to provide
periodic interest also. So this is definitely going to create a liability for
the government.
OK dude, I understood how capital
receipts are creating liabilities for the government. But I'm little bit
confused about the latter part ‘reducing assets’. Can you explain me on that?
Well, we have a lot of public
sector undertakings in which government has very large stakes. So government
can raise capital by divesting some of its stake. Thus it fetches money for government
at the same time reduces the assets of government also.
So we can divide capital receipts
into mainly two categories. They are
- Non-debt receipts (it includes Miscellaneous Capital Receipts such as divestment thereby reducing the assets owned by government)
- Debt receipts (it includes Market Loans, Short term borrowings, Securities issued against Small Savings etc. thereby creating liabilities for the government)
As of now we have discussed about
income part. Now let’s focus on expenditures.
In the expenditure front we have
- Plan expenditures
- Non-plan expenditures
What is meant by plan
expenditures? Plan expenditures are the expenditures those are productive in nature
means it helps to increase the productive capacity of the economy. For example building
roads, rails, infrastructure, factories etc.
Non plan expenditures include
various heads such as interest payments on government debts, subsidies, social
services, salaries and pension to government employees etc.
Also we have
- Revenue expenditures
- Capital expenditures
Revenue expenditure neither
creates asset nor reduces liability of the government. This type of expenditure
is incurred every year as a result it is recurring in nature. Revenue
expenditures include interest payments on loans taken by the government,
salaries, pension, subsidies etc.
Capital expenditure either
creates asset or reduces liability of the government. Investment on infrastructure,
communication, factories etc. are the part of capital expenditure because it
creates asset for the government and repayment of loans taken by the government
also is an example for capital expenditure because it reduces the liability of
the government.
Hope this article help you to get
a very basic understanding about the above mentioned terms. J
Comments/suggestions always
welcome J
Regards,
Harikrishnan
Views are personal :)
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