21 October: capital and revenue budgets
Wednesday 21 October 2026
GS Paper 3 · 150 words · 10 marks
Distinguish between Capital Budget and Revenue Budget. Explain the components of both these Budgets.
(UPSC Mains 2021, GS Paper 3, Q2)
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How to approach this question
What the question asks.
| Part | What to write |
|---|---|
| Distinguish | The test that separates capital from revenue items |
| Explain the components | Receipts and expenditure, for each budget |
A shape that works in 150 words.
- One line on Article 112 and the two parts of the budget.
- The distinction, as one test.
- Components of each, as receipts and expenditure.
- One line on why the split matters.
What to avoid.
| Mistake | What to do instead |
|---|---|
| Defining "budget" at length | Start with Article 112 |
| Putting grants to states for building assets under capital | They are revenue expenditure for the Union |
| Calling borrowings revenue receipts | Borrowings create a liability, so they are capital receipts |
| No reason why the split matters | Link it to revenue deficit and the quality of spending |
A model answer
Article 112 requires an Annual Financial Statement that shows revenue expenditure separately from other expenditure. So the budget has two parts.
The distinction
A capital item creates or reduces an asset or a liability. A revenue item does neither. It covers the government's day-to-day income and spending.
Revenue budget
- Receipts: tax revenue, such as income tax and GST, and non-tax revenue, such as dividends, interest and fees.
- Expenditure: interest payments, salaries, pensions, subsidies and grants to states.
Capital budget
- Receipts: borrowings, recovery of loans, and disinvestment.
- Expenditure: roads, railways and other assets, loans to states, and investment in public sector enterprises.
Why it matters
When revenue spending exceeds revenue receipts, the government borrows to meet running costs. That is the revenue deficit. Capital spending builds future capacity. The Union Budget for 2024-25 set capital expenditure at Rs 11.11 lakh crore.
Word count: 140.
Why this answer works. It gives one clear test for the distinction. The components are sorted into receipts and expenditure for each budget. It links the split to the revenue deficit and gives one sourced figure.
Where it could be stronger. A small table for the distinction would save words for an example of each component.