Union Budget Architecture

There are two components of expenditure - plan and non-plan. Of these, plan expenditures are estimated after discussions between each of the ministries concerned and the Planning Commission. Non-plan revenue expenditure is accounted for by - interest payments, - subsidies (mainly on food and fertilisers), - wage and salary payments to government employees, - grants to States and Union Territories governments, - pensions, - police, - economic services in various sectors, - other general services such as tax collection, - social services, and - grants to foreign governments. Non-plan capital expenditure mainly includes defence , loans to public enterprises,and loans to States, Union Territories and foreign governments. The Plan and Non-Plan classification was done away with from fiscal 2017-18. Now emphasis is on Revenue and Capital expenditure.

**Statement 1 is correct:** This is a classic example of Capital Expenditure. This type of spending creates physical assets for the country and is long-term in nature. Therefore, it is included in the capital budget. **Statement 2 is correct:** This is a Capital Receipt. When the government receives a loan, it creates a liability (it has to be repaid in the future). Since it affects the government's liabilities, it is part of the capital budget. **Statement 3 is correct:** This is also a form of Capital Expenditure. When the central government grants a loan, it creates a financial asset for itself (the loan is an asset that will earn interest and be repaid). As this spending creates an asset, it is included in the capital budget. Since all three items are either capital expenditures or capital receipts, they are all part of the Capital Budget of the Government of India.

**Statement 1 is correct.** Acquiring new technology - This is a capital expenditure. When a company acquires new technology (like software, machinery, or equipment), it's considered an investment that will benefit the organization for several years. The cost is added to the company's asset base and depreciated over its useful life. **Statement 2 is incorrect.** Debt vs. Equity Financing - The way a company finances its expenditures (debt or equity) doesn't determine whether it's a capital or revenue expenditure. The nature of the expense itself matters more. |**Aspect**|**Capital Expenditure**| **Revenue Expenditure** | |--|--|--| |**Definition** |Expenditure incurred for acquiring or improving fixed assets, which provide long-term benefits.|Expenditure that is incurred for routine operations and maintenance, providing short-term benefits.| | **Purpose**|To acquire, enhance, or extend the life of assets such as buildings, machinery, or equipment.| To meet day-to-day operational needs, like salaries, utilities, and maintenance.| |**Impact on Assets** | Increases the value of assets or creates new assets. |Does not increase the value of assets.| |**Accounting Treatment** |Recorded as an asset on the balance sheet and depreciated over time. |Recorded as an expense in the profit and loss statement for the current period.| |**Time Horizon** |Long-term benefit, typically spread over several years. |Short-term benefit, usually within the current year.| |**Examples** | Purchase of machinery, construction of buildings, land acquisition. |Salaries, wages, rent, repairs, and maintenance costs.|

Capital receipts involve transactions that either increase liabilities or reduce assets for the government. Revenue receipts, on the other hand, are routine incomes like interest or taxes that don’t affect assets or liabilities. ✅ **Statement I: Correct** * Capital receipts **create liabilities** (like borrowings) or **reduce assets** (like disinvestment). ✅ **Statement II: Correct** * **Borrowings and disinvestment** are both **capital receipts**. ❌ **Statement III: Incorrect** * **Interest received** is a **revenue receipt**, not a capital receipt—it’s income, not a liability.