Government’s budget includes numerous types of expenditure and receipts. Expenditures extend from supporting welfare schemes to defence as well as expenditure for research and development.
Hence a proper classification system is needed to elaborate the various expenditure and receipts in the budget.
In India, the budget classification or what we call the segregation of expenditure and receipts into various heads are based upon a classicization format known as economic and functional classification.
According to this classification, the budget is divided into two parts- revenue budget and capital budget.
The Revenue Budget
Revenue budget involves revenue receipts and revenue expenditure. These expenditures and receipts are related to the day to day functioning of the government.
Expenditure is needed to finance government functions like defense, social services, administration etc and these are the main revenue expenditures.
Similarly when the government is performing its day today functions, lot of revenue will be accrued to it. Tax revenues and non tax revenues are the two types of revenue receipts.
Really, revenue expenditure is considered as unproductive expenditure because it is mainly used for the running of the government machinery. Unlike in the case of capital expenditure, revenue expenditure will not give any revenue to the government in future.
In India, there is revenue deficit since 1978. This situation means government’s revenue receipts like tax revenues are not enough to meet its revenue expenditure. Hence the government is borrowing to finance its revenue deficit.