Context: Punjab Govt. decided to cut revenue expenditure by 20%.

About revenue expenditure

• Revenue Expenditure is that part of government expenditure that does not result in the creation of assets.
• Payment of salaries, wages, pensions, subsidies and interest fall in this category as revenue expenditure examples.
• Revenue expenses are incurred by the government for its operational needs.

What is included in revenue expenditure?

• The Union government’s revenue expenditure comprises money spent on revenue account — the amount spent on running its elaborate machinery.
• All grants given to state governments and Union territories are also treated as revenue expenditure, even if some of these grants may be used for the creation of capital assets.
• In India, the payment of subsidies is also included in revenue expenditure.
• The central government pays subsidy under three major heads – food subsidy, fertiliser subsidy and fuel subsidy.
• Giving and taking loans also have become an integral part of the functions of a modern government.
• Borrowing of money and repayment of debt and interest are also divided into two categories – revenue account and capital account.

What is the difference between revenue and capital expenditure?

• In India, both the Union government and state governments are criticised for incurring very high revenue expenditures that leave little money for developmental spending.
• In the case of Union budgets, 85-90% of the money spent goes into revenue expenditure. Note that high revenue expenditure impedes developmental efforts.
• High revenue expenditure means that the government machinery is spending too much money on sustaining itself, rather than creating assets required to achieve high economic growth.
• In India, up to a fourth of the Union budget goes into interest payment. It means that the government borrows Rs 6-7 lakh crore every year just to meet its interest payment liabilities, leaving very little for creation of assets.

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