India Budget: If all goes well, Union Finance Minister Nirmala Sitharaman is expected to present her ninth consecutive Union Budget on February 1, 2026. The Budget speech delivered by the finance minister not only gives hope to millions of Indians but also presents a clear picture of how the country’s economy is performing. Considering the current state of affairs, global headwinds and uncertainties, this year’s Budget will reflect how the Indian economy has withstood challenges and emerged as one of the fastest-growing emerging economies in the world.
However, there are several parts of the Budget that often don’t get much attention, despite being vital to understanding how the government functions and how funds are managed. Two of the most important components are the Expenditure Budget and the Revenue Budget.
Understanding the Expenditure Budget
As the name suggests, the Expenditure Budget deals with the expenses incurred by the government. It outlines the funds allocated to various ministries, departments and sectors. Every year, ministries submit their estimated fund requirements and proposed areas of spending. Based on this, the government makes allocations.
The Expenditure Budget is further divided into two categories: Revenue Expenditure and Capital Expenditure.
1. Revenue Expenditure: Revenue expenditure refers to spending on items that do not create assets or do not reduce government liabilities. This type of expenditure is recurring in nature.
For example, government offices need staff to function, and staff must be paid salaries. Therefore, the government sets aside funds for salaries, pensions & administrative costs. Revenue expenditure also includes spending on:
These expenses do not create new assets, but they are critical for the functioning of the government and for ensuring public welfare and security of the country.
2. Capital Expenditure
Capital expenditure, on the other hand, is used to create long-term assets and reduce liabilities. These investments may not show immediate benefits but boost productivity and infrastructure over time.
Capital expenditure is used for:
Capital expenditure is not recurring like revenue expenditure. It focuses on strengthening the country’s infrastructure and creating strategic assets that yield long-term benefits.
Understanding the Revenue Budget
So, where does the government get the money to fund administration and development projects? This is where the Revenue Budget comes in. The Revenue Budget records the government’s revenue receipts and revenue expenditures. Revenue receipts are divided into tax and non-tax revenue.
Tax Revenue: The government earns tax revenue from: Income tax, corporate tax, customs duties, excise duties & other direct & indirect taxes.
Non-tax revenue: Non-tax revenue comes from, returns on government investments, fees and charges for government services & interest income from loans & investments.
These receipts indicate the financial strength of the government’s earnings.
What is revenue deficit?
Sometimes, the government’s revenue receipts fall short of its revenue expenditure. This gap is called a revenue deficit. A revenue deficit occurs when the government spends more than it earns from its regular revenue sources.
This can happen due to external factors such as geopolitical tensions, wars or rising global oil prices and also because of internal challenges, such as economic slowdown or policy constraints.
A persistent revenue deficit signals financial strain. In such cases, the government must take corrective policy measures to rebalance its earnings and spending. If the government fails to do so then it can create long-term economic challenges.
However, there are several parts of the Budget that often don’t get much attention, despite being vital to understanding how the government functions and how funds are managed. Two of the most important components are the Expenditure Budget and the Revenue Budget.
Understanding the Expenditure Budget
As the name suggests, the Expenditure Budget deals with the expenses incurred by the government. It outlines the funds allocated to various ministries, departments and sectors. Every year, ministries submit their estimated fund requirements and proposed areas of spending. Based on this, the government makes allocations.
The Expenditure Budget is further divided into two categories: Revenue Expenditure and Capital Expenditure.
1. Revenue Expenditure: Revenue expenditure refers to spending on items that do not create assets or do not reduce government liabilities. This type of expenditure is recurring in nature.
For example, government offices need staff to function, and staff must be paid salaries. Therefore, the government sets aside funds for salaries, pensions & administrative costs. Revenue expenditure also includes spending on:
- Defence services (such as day-to-day needs and equipment maintenance)
- Health services
- Administrative services
- Various public welfare services
These expenses do not create new assets, but they are critical for the functioning of the government and for ensuring public welfare and security of the country.
2. Capital Expenditure
Capital expenditure, on the other hand, is used to create long-term assets and reduce liabilities. These investments may not show immediate benefits but boost productivity and infrastructure over time.
Capital expenditure is used for:
- Building roads, railways, bridges, and dams
- Funding long-term infrastructure projects
- Providing loans to states and Union Territories
- Repaying past loans and borrowings
Capital expenditure is not recurring like revenue expenditure. It focuses on strengthening the country’s infrastructure and creating strategic assets that yield long-term benefits.
Understanding the Revenue Budget
So, where does the government get the money to fund administration and development projects? This is where the Revenue Budget comes in. The Revenue Budget records the government’s revenue receipts and revenue expenditures. Revenue receipts are divided into tax and non-tax revenue.
Tax Revenue: The government earns tax revenue from: Income tax, corporate tax, customs duties, excise duties & other direct & indirect taxes.
Non-tax revenue: Non-tax revenue comes from, returns on government investments, fees and charges for government services & interest income from loans & investments.
These receipts indicate the financial strength of the government’s earnings.
What is revenue deficit?
Sometimes, the government’s revenue receipts fall short of its revenue expenditure. This gap is called a revenue deficit. A revenue deficit occurs when the government spends more than it earns from its regular revenue sources.
This can happen due to external factors such as geopolitical tensions, wars or rising global oil prices and also because of internal challenges, such as economic slowdown or policy constraints.
A persistent revenue deficit signals financial strain. In such cases, the government must take corrective policy measures to rebalance its earnings and spending. If the government fails to do so then it can create long-term economic challenges.
