Question

Answer the following question

What are the main components of budget?

Answer 1

Components of the budget can be divided into two broad categories:
1. Revenue budget
2. Capital budget

i. Revenue budget - It consists of those items that lead neither to a change in the assets nor a change in the liabilities of the government. This can further be classified into two categories, namely:
a. Revenue receipts - These are those receipts of the government which neither create any liability nor any reduction in the assets of the government. These comprise of tax and non-tax receipts, duties and fines, interest and dividends receipts on government investments and assets.

b. Revenue expenditure - This refers to the government expenditure which does not cause any reduction in government liabilities nor create any assets for the government. For example- expenditure on salaries, pensions, subsidies, interest payments etc.

ii. Capital Budget - It consists of items that lead either to a change in the assets or a change in the liabilities of the government. This can further be classified into two categories, namely:
a. Capital receipts - These are those receipts of the government, which cause a reduction in the government assets and also create a liability. For example - recovery of loans, borrowings etc.

b. Capital expenditure - This refers to that government expenditure which causes reduction in the government liabilities as well as creates assets for the government. For example - expenditure on purchasing shares, bonds etc.