CBSE Book Class 12 Economics Capital receipts

UNIT 9

Capital receipts and revenue receipts

Capital receipts are receipts that either create a liability (for example - borrowings) or reduce asset (for example disinvestment of PSU).

Revenue receipts are receipts that neither create any liability nor reduce any asset. Tax revenue or non tax revenue are revenue receipts as they neither create any liability nor reduce any asset. Capital expenditure and Revenue expenditure

Any expenditure by the government that either creates an asset (for example construction of school building etc) or reduces a liability (for example repayment of loan) is categorised as capital expenditure

Any expenditure by the government that neither creates an asset nor reduces a liability is catagorised as revenue expenditure, (for example interest payment, subsidies, grants given to states even if some of these may be for creation of assets).

Developmental and Non-developmental expenditure

Expenditure of the government on essential general services like defence, administration etc, is treated as non-developmental expenditure. Expenditure of the government on agricultural, industrial development, on economic and social infrastructure, scientific research etc, is treated as developmental expenditure.

Balanced Budget : It is a budget in which estimated receipts equal estimated expenditure

Surplus Budget : It is a budget in which estimated receipts exceed estimated expenditure,

Deficit Budget: It is a budget in which estimated receipts fall short of estimated expenditure,

Note : Estimated receipts are net of borrowings.

Implications of fiscal deficit.

The extent of fiscal deficit is an indication of how far the government is liviing beyond its means. Fiscal deficit is the amount of borrowings the government has to resort to meet its expenses. A large fiscal deficit means large amount of borrowings. This creates a large burden of interest payment and repayment of loans in the future. A large fiscal deficit may also be inflationary.

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