Distinguish between revenue expenditure and capital expenditure.
Revenue Expenditure is the expenditure incurred for purposes other than the creation of physical or financial assets. It relates to expenses for the normal functioning of government departments and various services, including interest payments on debt and grants given to state governments.
On the other hand, Capital Expenditure results in the creation of physical or financial assets or reduction in financial liabilities. This includes expenditure on the acquisition of land, building, machinery, equipment, investment in shares, and loans and advances by the central government to state and union territory governments, PSUs, and other parties.
Thus, the main distinction lies in the fact that Revenue Expenditure does not create assets, whereas Capital Expenditure leads to asset creation or liability reduction.
Explanation
The answer distinguishes between the two concepts based on their nature and components as defined in the textbook. Revenue expenditure focuses on operational costs like functioning of departments and interest payments, whereas capital expenditure focuses on asset creation (land, machinery) or liability reduction (loans).