Economics · Ch 10 — Budget
Capital Budget: Capital Receipts and Capital Expenditure
Capital Budget: Capital Receipts and Capital Expenditure
The other half of the budget is the Capital Budget, covering transactions that affect the government's assets and liabilities.
Capital Receipts are receipts that either (a) create a liability for the government, or (b) cause a reduction in the government's assets. They are further split into two kinds:
| Category | Meaning | Examples |
|---|---|---|
| Debt-creating capital receipts | Money borrowed, which must eventually be repaid — creates a liability | Market borrowings (loans raised from the public), loans from foreign governments/institutions (e.g. the World Bank), loans from the Reserve Bank of India (ways-and-means advances) |
| Non-debt-creating capital receipts | Money received without creating any future liability, usually by reducing an asset already held | Recovery of loans previously given by the government (an asset — the loan — is reduced), disinvestment (sale of the government's shares in a public sector undertaking, reducing its ownership asset), and proceeds from the sale of government land or buildings |
Capital Expenditure is expenditure that either (a) creates an asset for the government, or (b) causes a reduction in the government's liabilities. Two broad kinds again:
- Asset-creating capital expenditure — spending on building physical or financial assets: construction of roads, bridges, dams, schools, and hospitals; purchase of machinery and equipment; and investment made in shares of a public undertaking.
- Liability-reducing capital expenditure — repayment of a loan the government had earlier taken. Even though no new asset is created, repaying a loan reduces an existing liability, which is exactly why the definition of capital expenditure includes it. …
Government receipts that either create a liability (borrowing) or reduce an asset (recovery of loan …
Government spending that either creates an asset (construction, machinery) or reduces a liability …
The sale, in part or full, of the government's shareholding in a public sector undertaking — a non-debt-creat …