Q. Distinguish between Capital Budget and Revenue Budget. Explain the components of both these Budgets. (150 words, 10 Marks)
Why the Question?
UPSC PYQ – CSE Mains – 2021
Keywords of the Question
- Capital Budget and Revenue Budget
- Components
Directive Word
Distinguish between – Identify and explain the differences between two or more concepts, ideas, or phenomena. Highlight the key distinctions clearly and concisely. Provide relevant examples or evidence to support your points.
Explain – Clarify a topic by giving a detailed account as to how and why it occurs, or what is meant by the use of this term in a particular context. Your writing should have clarity so that complex procedures or sequences of events can be understood; defining key terms where appropriate, and be substantiated with relevant research.
How to approach this Question?
Introduction
- Briefly define Capital Budget and Revenue Budget.
- Mention their significance in government financial planning.
Body
- Distinguish between Capital Budget and Revenue Budget:
- Point out the key differences.
- Use bullet points for clarity.
- Explain the Components:
- List and briefly describe the components of the Capital Budget.
- List and briefly describe the components of the Revenue Budget.
Conclusion
- Summarize the importance of understanding both budgets.
- Highlight their roles in achieving fiscal responsibility and economic stability.
Note: Please note that the following ‘answers’ are not ‘model answers’ nor are they synopses in the strictest sense. Instead, they are content designed to meet the demands of the question while providing comprehensive coverage of the topic.
Answer Key
Introduction
The Capital Budget and Revenue Budget are crucial components of a government’s financial plan. The Capital Budget focuses on long-term investments and asset creation, while the Revenue Budget deals with the day-to-day operational expenses and income.
Body
| Aspect | Capital Budget | Revenue Budget |
| Definition | Accounts for the government’s capital receipts and expenditures. | Accounts for the government’s revenue receipts and expenditures. |
| Purpose | Used for acquiring assets and making long-term investments. | Used for covering operational and maintenance expenses. |
| Components | Capital Receipts: Borrowings, disinvestment proceeds. | Revenue Receipts: Taxes, dividends, profits. |
| Capital Expenditure: Infrastructure projects, machinery, land acquisition. | Revenue Expenditure: Salaries, subsidies, interest payments, administrative costs. | |
| Impact on Assets/Liabilities | Creates assets or reduces liabilities. | Does not create assets or reduce liabilities. |
Conclusion
Understanding the distinction between the Capital Budget and Revenue Budget is essential for ensuring fiscal responsibility and economic stability. The Capital Budget supports long-term growth, while the Revenue Budget ensures the smooth functioning of government operations.
Mind Map
