UPSC Mains 2021 GS Paper 3 Q2: model answer
Distinguish between Capital Budget and Revenue Budget. Explain the components of both these Budgets.
What the question wants
Distinguish between the capital and revenue budgets and explain the components of each.
How to structure it
Definition, components, distinction.
- Basis
- Revenue budget
- Capital budget
- Distinction
- Why it matters
How to think it through
Article 112 requires revenue spending to be shown separately. The revenue budget covers revenue receipts (tax and non-tax) and revenue expenditure (no asset created). The capital budget covers capital receipts (borrowing, recoveries, disinvestment) and capital expenditure (assets, loans given).
Model answer
Article 112 requires the Annual Financial Statement to separate revenue spending from other spending. That split gives two budgets: one for the day-to-day running of government, and one for what it owns and owes.
Revenue budget
- Revenue receipts: tax revenue (income tax, corporate tax, GST, customs) and non-tax revenue (dividends, interest, fees, spectrum charges).
- Revenue expenditure: interest, salaries, pensions, subsidies, grants to states. It creates no asset and reduces no liability.
Capital budget
- Capital receipts: market borrowing, small savings, recovery of loans, disinvestment. These create a liability or reduce an asset.
- Capital expenditure: roads, railways, defence equipment, loans to states and PSUs, equity investment.
The distinction
- Revenue items are recurring and leave nothing behind; capital items change what the government owns or owes.
- Revenue deficit = revenue expenditure minus revenue receipts.
- Fiscal deficit = total expenditure minus revenue receipts and non-debt capital receipts.
Why it matters
Borrowing to fund revenue spending is borrowing for consumption. Capital spending has a higher multiplier, which is why recent Budgets push capex above 3% of GDP.
Draw: A 2×2 grid: revenue/capital × receipts/expenditure.
Keywords, cases and data to drop in
Article 112, Annual Financial Statement, revenue receipts, non-tax revenue, capital receipts, disinvestment, capex, revenue deficit, fiscal deficit, multiplier.
Where most answers lose marks
- Calling grants to states for building assets 'capital expenditure'. In the Union accounts they are revenue spending.
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Question text as printed in the official UPSC Civil Services (Main) question paper. The model answer is original Battle IAS work; use it to learn structure, not to memorise.
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