Budget Expenditure

After looking at how the government earns money in Chapter 2, let's now see how it spends that money. This spending is called Budget Expenditure, and it shows where the government uses its funds to take care of the country. Let’s explore the two types of expenses the government makes.

Budget Expenditure refers to the estimated expenditure of the government during the fiscal year. Just like budget receipts, budget expenditure of the government is broadly classified as:

(i) Revenue Expenditure

(ii) Capital Expenditure

Revenue Expenditure

Revenue Expenditure of the government is that expenditure which shows the following two characteristics:

(i) It does not create any asset for the government. For example, expenditures by the government on old age pensions, salaries and scholarships are to be treated as revenue expenditures. Because this does not lead to any type of asset formation.

(ii) It does not cause any reduction in liability of the government. For example, expenditure by way of grants to the state government to cope with natural calamities (like floods and earthquakes) does not reduce the financial liability of the central government in any manner.

Important items of revenue expenditure in the Indian Government Budget are:

• Wage bill of the government.
  
• Interest payments
  
• Expenditure on subsidies
  
• Defence purchase
  

Capital Expenditure

Capital expenditure of the government is that expenditure which shows the following two characteristics:

(i) It creates assets for the government. For example, equity of the domestic or multinational corporations purchased by the government

(ii) It caused a reduction in liabilities of the government. For example, repayment of loans certainly reduces the liabilities of the government.

Important items of Capital expenditure in the Indian Government Budget are:

• Expenditure on land and building
  
• Expenditure on machinery and equipment
  
• Purchases of shares (Equity)
  
• Loans by the central government to the state government or state corporations.
  

In conclusion, Budget Expenditure is a key part of how the government manages its finances. By dividing its spending into Revenue Expenditure and Capital Expenditure, the government ensures it can meet immediate needs, like paying wages and subsidies, and long-term investments, such as building infrastructure and reducing liabilities. Understanding these expenditures helps us see how the government balances its spending to support the country’s development and well-being.