Revenue Expenditure

Broadly speaking, revenue expenditure consists of all those expenditures of the government which do not result in creation of physical or financial assets. It relates to those expenses incurred for the normal functioning of the government departments and various services, interest payments on debt incurred by the government, and grants given to state governments and other parties (even though some of the grants may be meant for creation of assets).
Budget documents classify total revenue expenditure into plan and non-plan expenditure. Plan revenue expenditure relates to central Plans (the Five-Year Plans) and central assistance for State and Union Territory Plans. Non-plan expenditure, the more important component of revenue expenditure, covers a vast range of general, economic and social services of the government.
The main items of non-plan expenditure are interest payments, defence services, subsidies, salaries and pensions. Interest payments on market loans, external loans and from various reserve funds constitute the single largest component of non-plan revenue expenditure. They used up 41.5 per cent of revenue receipts in 2004-05. Defence expenditure, the second largest component of non-plan expenditure, is committed expenditure in the sense that given the national security concerns, there exists little scope for drastic reduction. Subsidies are an important policy instrument which aim at increasing welfare. Apart from providing implicit subsidies through under-pricing of public goods and services like education and health, the government also extends subsidies explicitly on items such as exports, interest on loans, food and fertilisers. The amount of subsidies as a per cent of GDP has been falling from 1.7 per cent in 1990-91 to 1.66 per cent in 2002-03 to 1.45 per cent in 2004-05.

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