Revenue Expenditure and Capital Expenditure

Revenue Expenditure and Capital Expenditure

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The operational expenses (OPEX), recurring or short-term expenses that governments use to smoothly conduct their day-to-day operations within a year is known as revenue expenditure. The classification of revenue expenditure can be done in two categories, i.e., Plan and Non-Plan Expenditure. Plan Expenditures are evaluated by individual ministries with support from the Planning Commission by discussing the requirements. Non-Plan Expenditures are revenue expenditures of the government yet they also comprise capital spending. It includes all out-of-pocket expenditures that are not included in the Plan Expenditure and may consist of subsidies, debt servicing and interest payments, defence spending, etc.

Thus, a good grasp of capital expenditure and revenue expenditure can help in understanding how a government conducts its finances. It is because, unlike revenue expenditure, capital expenditure (CAPEX) leads to the creation of assets or helps in reducing the liabilities of the government. This type of expenditure is done for long-term development programmes, financial assets and real capital assets to improve the financial stock of the economy. Capital Expenditure helps in raising the capacity of an economy so that it can produce more in the future. Typical examples are expenditures on buildings, land, machinery, etc. It also includes the acquisition of valuables, cash in hand, loan by government companies, loans by the central government to state government, etc.

Thus, while comparing capital expenditure vs revenue expenditure ,it can be seen that revenue expenditure is incurred for maintenance and normal running of government departments whereas capital expenditure results in the acquisition of capital assets. Thus, capital expenditure results in the creation of assets whereas it is not so in the case of revenue expenditure. Also, revenue expenditure is recurring, incurred regularly and is a short-period expenditure while capital expenditure is non-recurring and is usually for a long period.

Thus, to calculate revenue expenditure of a government, many aspects have to be taken into account. They include all money that is spent on running the elaborate machinery, and grants to the union territories and state governments, even though some of them may be used for capital assets creation. Further, subsidy payments under food, fuel and fertiliser have to be accounted for in the revenue expenditure. Moreover, borrowing and providing loans, repayment of interest and debt is also an integral functioning part of many governments and must be accounted for while calculating revenue expenditure.