Consider the following statements : Capital receipts create a liability or cause a reduction in the assets of the Government. Borrowings and disinvestment are capital receipts. Interest received on loans creates a liability of the Government. Which of the statements given above are correct?

Q 1 / 5

UPSC CSE Prelims 2025

Consider the following statements :

Capital receipts create a liability or cause a reduction in the assets of the Government.
Borrowings and disinvestment are capital receipts.
Interest received on loans creates a liability of the Government.

Which of the statements given above are correct?

EXPLANATION

Correct Option (A):

Statement 1 is correct. Capital receipts are government receipts that either create a liability for the government (e.g., borrowings) or lead to a reduction in its financial assets (e.g., proceeds from disinvestment).

Statement 2 is correct. Borrowings increase the government's liabilities as they represent funds that must be repaid. Disinvestment involves the sale of government-owned assets, thereby reducing the government's asset base. Both these transactions align with the definition of capital receipts.

Incorrect Options:

Statement 3 is incorrect. Interest received on loans is classified as a non-tax revenue receipt. It represents income earned by the government from an existing asset (the loan provided) and does not create any new liability for the government. Instead, it contributes to the government's current income.

Since Statement 3 is incorrect, options B (II and III only), C (I and III only), and D (I, II and III) are eliminated, making A the only correct choice.

SOURCENCERT Class 12 Macroeconomics, Chapter 5: Government Budget and the Economy