Classification of Capital Expenditure of India


In India, public expenditure is classified into revenue and capital expenditure. Classification of Public Expenditure helps to understand the relationship between the government and the rest of the economy and the amount of money spent on different government programs. Under the Constitution of India, revenue and capital expenditures are to be shown separately in the budget.
The central government expenditure consists of revenue and capital expenditure. Revenue expenditure is expenditure incurred for purposes other than creation of assets of the central
government. Any expenditure made by the Government leading to reduction in recurring financial liabilities fall under the category of capital expenditure. Such expenditures pertain to payments on acquisition of assets and loans and advances given. The Central Government adopted a new classification of public expenditure from the budget of 1987-88. Accordingly, public expenditure is classified into Plan Expenditure and Non-plan expenditure.
Plan expenditure is composed of Central plans on agriculture, rural development, irrigation and flood control, energy, industry and minerals, transport, communications, science and
technology and environment, social services etc. It includes Central assistance for plans of the States and Union Territories.
Non-Plan expenditure is a generic term, which is used to cover all expenditure of Government not included in the Plan. It may either be revenue expenditure or capital expenditure. Part of the expenditure is obligatory in nature e.g. interest payments, pension
charges and statutory transfers to State and Union Territory Governments. A part of the expenditure relates to essential functions of the State, e.g. defense, internal security, external affairs and revenue collection.
Both plan and non-plan expenditures are incurred by the Central government on revenue and capital account. Revenue expenditure is financed from revenue receipts.
Revenue expenditure consists of the following:
a) Interest payments, defense revenue expenditure, major subsidies (food, fertilizers and export promotion) other subsidies, debt relief to farmers, postal deficit, police, pension,
other general services (organs of State, tax collection, external affairs etc),
b) Social services (education, health, broadcasting etc),
c) Economic services (agriculture, industry, power, transport, communications, science and technology etc) and,
d) Grants to States and Union territories and grants to foreign countries.
Non-plan capital expenditure includes defense capital expenditure, loans to public enterprises, loans to States and Union territories and loans to foreign governments.
Capital expenditure of the Central Government consists of plan and non-plan expenditure and is financed from capital receipts. It consists of the following:
a) Loans to States & UTs for financing Plan projects and loans to foreign governments.
b) Capital expenditure one economic development.
c) Capital expenditure on social and community development.
d) Capital expenditure on defense and
e) Capital expenditure on general services.

Friday, 18th Mar 2016, 12:19:27 PM

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