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. Also, note that revenue expenses are incurred by the government for its operational needs.
What is Revenue Expenditure in simple words?
Modern governments collect huge sums of money. Expenditure of these large amounts has become an extremely complex task. Apart from spending on salaries and pensions, the government also spends on the construction of schools, colleges, hospitals, roads, bridges, railways, airports and seaports. It also incurs expenses on securing the country from internal and external enemies.
While some of these tasks are related to the operational needs of the government, some others result in the creation of physical assets like dams and school buildings.
Therefore, government expenditure is divided into two broad categories – capital and revenue expenditure.
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.