Consider the following statements:
I. Capital receipts create a liability or cause a reduction in the assets of the Government.
II. Borrowings and disinvestment are capital receipts.
III. Interest received on loans creates a liability of the Government.
Which of the statements given above are correct?
Detailed Explanation:
Correct Answer: ✅ Option 1 (I and II only)
Government receipts are classified into Revenue Receipts and Capital Receipts. Capital receipts either increase the government's liabilities or reduce its assets, whereas revenue receipts are regular incomes that do not create liabilities or reduce assets.
✅ Statement I is Correct: Capital receipts either create a liability (such as borrowings) or reduce government assets (such as disinvestment).
✅ Statement II is Correct: Both borrowings and disinvestment proceeds are classified as capital receipts.
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Borrowings increase liabilities.
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Disinvestment reduces government ownership in assets.
❌ Statement III is Incorrect: Interest received on loans is a Revenue Receipt, not a liability. It is income earned by the government and does not create any liability.
Short Notes: Capital Receipts and Revenue Receipts
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Government receipts are classified into Capital Receipts and Revenue Receipts.
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Capital Receipts create liabilities or reduce assets.
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Examples of Capital Receipts: Borrowings, Recovery of Loans, Disinvestment.
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Revenue Receipts neither create liabilities nor reduce assets.
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Examples of Revenue Receipts: Taxes, Fees, Dividends, Interest Receipts.
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Borrowings increase the public debt of the government.
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Disinvestment involves the sale of government stakes in public sector enterprises.
Question 1 of 5 Fiscal Policy
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With reference to the expenditure made by an organisation or a company, which of the...