Consider the following statements Statement I Revenue expenditures are recurring expenses that are d...........

Economic Affairs Planning in India

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Consider the following statements

Statement I: Revenue expenditures are recurring expenses that are different from capital expenditures, which are one-off expenses for acquiring or improving assets.
Statement II: Fiscal Deficit is the difference between revenue expenditure and revenue receipts.

Which one of the following is correct in respect of the above statements?

Both Statement-I and Statement-II are correct, and Statement-II is the correct explanation for Statement-I

Both Statement-I and Statement-II are correct, and Statement-II is not the correct explanation for Statement-I

Statement-I is correct, but Statement-II is incorrect

Statement-I is incorrect, but Statement-II is correct

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Explanation:

The financial relationship between the Union government and the States in India is asymmetrical, as in many other countries with a federal constitutional framework. As the 15th Finance Commission noted, States incur 61% of the revenue expenditure but collect only 38% of the revenue receipts.

Statement 1 is correct: The money a business spends to run its day-to-day operations, including expenses for employee salaries, utilities, rent, and selling costs. Revenue expenditures are recurring expenses that are different from capital expenditures, which are one-off expenses for acquiring or improving assets.
Statement 2 is incorrect: The Budgetary deficit is the difference between all the receipts and all the expenses in both terms, that is revenue and capital account of the government.

Revenue Receipts and Revenue Expenditure

Revenue Receipts: Income earned through taxes (direct and indirect) and non-tax resources (profits, interest, dividends).
Revenue Expenditure: Expenditure on interest payments, defense, subsidies, public administration, and financial grants to states.
Revenue receipts are generated from regular business operations and contribute to the entity’s operational income, while capital receipts are derived from non-operational activities such as asset sales or borrowings. Revenue receipts are recurring and vital for sustaining ongoing operations, whereas capital receipts are often one-time inflows that impact the entity’s long-term financial structure.

Hence option 3rd is correct.