Capital budget

Also called: Capital account of the budget · Topic: Government Budget, Fiscal Policy and FRBM · NCERT: Class 12, Ch 5 "Government Budget and the Economy"

Meaning

The capital budget (also called the capital account of the Budget) is the part of the Union Budget that records capital receipts and capital expenditure. These are the government's money flows that change its assets (what it owns) or its liabilities (what it owes).

It matters for two reasons. It shows how the government pays for the gap between what it spends and what it earns: mostly through borrowing, and partly by selling or recovering assets. It also shows whether the government is building assets for the future. The capital budget is directly linked to the fiscal deficit:

Fiscal deficit = Total expenditure − (Revenue receipts + Non-debt capital receipts)

Explanation

How the capital budget fits into the Budget

• Annual Financial Statement (Art. 112): this is the Constitution's name for the Budget. It lists expected receipts and spending for one financial year (April–March).
• The Budget has two parts:
• Revenue budget: regular, recurring receipts and spending. These do not change what the government owns or owes.

• Capital budget: receipts and spending that do change the government's assets or liabilities.

• Assets are things the government owns, such as roads, loans it has given, or shares in PSUs (public sector undertakings). Liabilities are debts it must repay.

Capital receipts: the two-question test

• To classify any receipt, ask two questions: 1. Does it create a liability? (Will the government have to repay it later?) 2. Does it reduce an asset? (Is the government giving up something it owns?)

• If the answer to either question is yes, it is a capital receipt. If both answers are no, it is a revenue receipt.

• Debt-creating capital receipts (these create a liability):
• Market borrowings: G-secs (dated government securities, which are long-term bonds) and T-bills (Treasury Bills, which are short-term borrowing for up to one year).
• Small savings: money people put into Post Office deposits, PPF and similar schemes. It reaches the Centre through the NSSF (National Small Savings Fund).

• External loans: from foreign governments and multilateral bodies.

• Non-debt capital receipts (these reduce an asset):

• Recovery of loans: the principal that states, PSUs and others repay to the Centre.
• Disinvestment: the sale of the government's shares in PSUs.
• Other receipts, such as money from asset monetisation.

Capital expenditure: the spending side

• Capital expenditure is spending that either:
• creates an asset, such as land, buildings, machinery, roads, or shares bought in companies, or

• reduces a liability, such as repaying the principal of a loan the government took earlier.

• Loans and advances given by the Centre to states and PSUs are also capital expenditure, because the government gets a loan asset in return.

• Spending on salaries, subsidies and interest is not capital expenditure. It creates no asset, so it belongs to the revenue budget.

What makes the capital budget rise or fall, with a worked example

• Borrowing rises when revenue receipts and non-debt receipts fall short of spending.
• Non-debt receipts rise or fall mainly with disinvestment, because loan recoveries are fairly small and steady.
• Chain when disinvestment misses its target:
• Less money from share sales
• → the gap stays open, so the government must borrow more

• → the fiscal deficit rises by the same amount. For example, a shortfall of ₹20,000 crore with no change in spending means ₹20,000 crore more borrowing.

• Worked example (2026-27 BE) [2]:

• Total expenditure: ₹53,47,315 crore.
• Revenue receipts ₹35,33,150 crore + non-debt capital receipts ₹1,18,397 crore = ₹36,51,547 crore.
• Fiscal deficit = 53,47,315 − 36,51,547 = ₹16,95,768 crore. This is exactly the budgeted borrowing, and it equals 4.3% of GDP [2].
• So the capital receipts side is borrowings ₹16,95,768 crore + non-debt ₹1,18,397 crore = ₹18,14,165 crore.

In India

• Legal basis: the Budget is presented as the Annual Financial Statement under Art. 112. The capital budget is one of its two parts. Borrowing through the capital budget is kept in check by FRBM-style fiscal targets.
• Who manages what:
• DIPAM (Department of Investment and Public Asset Management) handles disinvestment. It got this name in 2016, replacing the Department of Disinvestment.
• NITI Aayog prepared NMP 2.0 under the Asset Monetisation Plan 2025-30, which was announced in Budget 2025-26 [4].

• Small savings reach the Centre through the NSSF.

• Latest figures (non-debt capital receipts):

• 2024-25 actuals: ₹41,818 crore. Of this, recoveries of loans were ₹24,617 crore and disinvestment ₹17,202 crore [2].
• 2025-26: budgeted at ₹76,000 crore [3]. At the revised stage it came in about 15.7% lower, mainly because disinvestment fell short [2].
• 2026-27 BE: ₹1,18,397 crore, up 85%. Of this, disinvestment is ₹80,000 crore and recoveries of loans ₹38,397 crore [2].

• Borrowings (2026-27 BE): ₹16,95,768 crore [2].

• Disinvestment record:

• The 2025-26 target was ₹47,000 crore, but only about 71.9% was expected to be met (RE, ≈₹33,837 crore) [2].
• The 2026-27 target of ₹80,000 crore is the first increase after five years of downward revisions and shortfalls [2].

• Milestones: the New PSE Policy 2021 (divides sectors into strategic and non-strategic), the sale of Air India to the Tata group (January 2022), and the LIC IPO (2022).

• Asset monetisation:

• The National Monetisation Pipeline (NMP) was launched in August 2021 with a target of ₹6 lakh crore for FY22-25. About ₹3.85 lakh crore of assets were monetised in its first 3 years [5].
• NMP 2.0 has a potential of ₹16.72 lakh crore for FY2026–FY2030 and aims to put ₹10 lakh crore back into new projects [4].

Don't confuse with

• Revenue budget: it covers recurring receipts and spending that change neither assets nor liabilities. The capital budget covers only flows that do change them.
• Interest received vs recovery of loan principal: interest on a loan given to a state is revenue (non-tax). Repayment of the principal is a capital receipt (non-debt), because the loan asset shrinks.
• Debt vs non-debt capital receipts: both are in the capital budget. Only non-debt receipts (loan recovery, disinvestment, monetisation) reduce the fiscal deficit. Debt receipts (G-secs, T-bills, small savings, external loans) are the way the deficit is financed.
• Disinvestment vs asset monetisation: disinvestment sells ownership (shares). Monetisation only leases brownfield assets (assets already built and running) for a fixed period, and ownership stays with the government.

Prelims Hooks

• A receipt is a capital receipt if it creates a liability or reduces an asset. Otherwise it is a revenue receipt.
• Small savings (NSSF), T-bills and external loans are debt-creating capital receipts. Recovery of loans, disinvestment and asset monetisation are non-debt capital receipts.
• Trap: a PSU dividend and interest on loans given are revenue receipts, not capital receipts, even though they come from assets.
• Fiscal deficit = Total expenditure − (Revenue receipts + Non-debt capital receipts). In 2026-27 BE it equals borrowing of ₹16,95,768 crore, or 4.3% of GDP [2].
• The Budget is called the Annual Financial Statement under Art. 112.
• Asset monetisation does not transfer ownership. NMP 2.0 is prepared by NITI Aayog and covers ₹16.72 lakh crore for FY2026–FY2030 [4].

Mains Points

• Disinvestment for what?
• NCERT criticises two things: PSE assets were undervalued (sold for less than they were worth), and the money was used to fill revenue gaps such as salaries and subsidies.
• This breaks the logic of the capital budget: sell an asset → one-time cash → spent on day-to-day needs → the asset and its future income are both gone.

• Money from selling capital assets should pay for new capital assets. Monetisation, with NMP 2.0's ₹10 lakh crore plough-back [4], is a middle path: it raises cash but keeps ownership.

• Fragile targets from volatile non-debt receipts:

• Disinvestment keeps missing its targets, for example only 71.9% achievement in 2025-26 [2].
• Every shortfall pushes up borrowing one-for-one, which makes fiscal deficit targets uncertain.

• Reliable fiscal consolidation (steadily reducing the deficit) needs a wider tax base, not one-time asset sales.

• Cost of debt-financed capital receipts:

• Borrowing carries interest costs, and interest takes about 40% of revenue receipts (2026-27 BE) [2]. This leaves less room for development spending.
• Lower borrowing and more non-debt receipts are needed to reach the 16th Finance Commission's recommended Centre fiscal deficit of 3.5% of GDP by 2030-31 [2]. This links to FRBM and GS-III on fiscal policy.

Related concepts

• Revenue budget
• Revenue receipts
• Tax revenue
• Non-tax revenue
• Capital receipts
• Debt-creating capital receipts
• Non-debt creating capital receipts
• Asset monetisation

Read more

• Budget receipts: revenue vs capital, tax vs non-tax, debt vs non-debt