Revenue Expenditure
Meaning
- Government expenditure that does not create assets or reduce liabilities
- Incurred for day-to-day functioning of the government
- Recurring in nature
Key Characteristics
- Short-term impact
- Benefits are exhausted within the same financial year
- Necessary for administration and maintenance
Major Components
- Salaries and wages of government employees
- Pensions
- Interest payments on public debt
- Subsidies such as food, fertiliser, fuel
- Defence revenue expenditure like pay and maintenance
- Grants to states for revenue purposes
Examples
- Payment of interest on loans
- Subsidies to farmers
- Administrative expenses of ministries
Impact
- Ensures continuity of government services
- Does not directly enhance productive capacity
- Excessive revenue expenditure increases fiscal deficit
Capital Expenditure
Meaning
- Government expenditure that creates assets or reduces liabilities
- Has long-term economic impact
- Development-oriented in nature
Key Characteristics
- Non-recurring
- Leads to capacity building
- Benefits accrue over several years
Major Components
- Infrastructure creation such as roads, railways, ports
- Construction of schools, hospitals, irrigation projects
- Defence capital expenditure like weapons and aircraft
- Loans and advances by the government
- Equity investment in public sector enterprises
- Repayment of government borrowings
Examples
- Construction of highways
- Purchase of defence equipment
- Investment in power plants
- Loans to state governments
Impact
- Promotes economic growth
- Generates employment
- Improves productivity
- Strengthens long-term fiscal sustainability
Difference Between Revenue and Capital Expenditure
- Revenue expenditure is recurring; capital expenditure is non-recurring
- Revenue expenditure does not create assets; capital expenditure creates assets
- Revenue expenditure impacts current consumption; capital expenditure impacts future growth
- Revenue expenditure increases fiscal stress if excessive; capital expenditure is growth-oriented
