Capital Account

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Capital Account

  • The part of the Budget which deals with the receipts and expenditures of the capital by the government.
  • This shows the means by which the capital is managed and the areas where capital is spent.
  • They are account of all assets and liabilities of government
Capital Receipts
  • All non-revenue reciepts of a government are known as capital receipts. Such receipts are for investment purposes and supposed to be spent on plan-development by a government.
  • But the receipts might need their diversion to meet other needs to take care of the rising revenue expenditure of a government as the case had been with India.
The capital receipts in India include the following capital kind of accruals to the government:
1. Loan Recovery
    • This is one source of the capital receipts. The money the government had lent out in the past in India (states, UTs, PSUs, etc.) and abroad their capital comes back to the government when the borrowers repay them as capital receipts. The interests which come to the government on such loans are part of the revenue receipts.
2. Borrowings by the Government
    • This includes all long-term loans raised by the government inside the country (i.e., internal borrowings) and outside the country (i.e., external borrowings). Internal borrowings might include the borrowings from the RBI, Indian banks, financial institutions, etc.
    • Similarly, external borrowings might include the loans from the World Bank, the IMF, foreign banks, foreign governments, foreign financial institutions, etc.
  1. Other Receipts by the Government
    • This includes many long-term capital accruals to the government through the Provident Fund (PF), Postal Deposits, various small saving schemes (SSSs) and the government bonds sold to the public (as Indira Vikas Patra, Kisan Vikas Patra, Market Stabilisation Bond, etc.).
    • Such receipts are nothing but a kind of loan on which the government needs to pay interests on their maturities. But they play a role in capital raising process by the government.
  2. Disinvestments of PSUs or sale of assets of Government
Capital Expenditure
All the areas which get capital from the government are part of the capital expenditure. It includes so many heads in India
  1. Loan Disbursals by the Government
    • The loans forwarded by the government might be internal (i.e., to the states, UTs, PSUs, FIs, etc.) or external (i.e., to foreign countries, foreign banks, purchase of foreign bonds, loans to IMF and WB, etc.).
  2. Loan Repayments by the Government
    • Again loan payments might be internal as well as external. This consists of only the capital part of the loan repayment as the element of interest on loans are shown as a part of the revenue expenditure.
  3. Plan Expenditure of the Government
    • This consists of all the expenditures incurred by the government to finance the planned development of India as well as the central government financial supports to the states for their plan requirements. past.
  4. Capital Expenditures on Defence by the Government
    • This consists of all kinds of capital expenses to maintain the defence forces, the equipment purchased for them as well as the modernisation expenditures.
    • It should be kept in mind that defence is a non-plan expenditure which has capital as well as revenue expenditures in its maintenance.
    • The revenue part of expenditure in the defence is counted in the revenue expenditures by the government.
  5. General Services
    • These also need huge capital expenditure by the government—the railways, postal department, water supply, education, rural extension, etc.
  6. Other Liabilities of the Government
    • Basically, this includes all the repayment liabilities of the government on the items of the Other Receipts. The level of liabilities depends on the fact as to how much such receipts were made by the governments in the

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