Consider the following statements I. Capital receipts create a liability or cause a reduction in the assets of the Government.

Question

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?

1. A. I and II only (Correct answer)
2. B. II and III only
3. C. I and III only
4. D. I, II and III

Correct Answer

Option A — I and II only

Detailed Solution & Explanation

The correct answer is I and II only.

Key Points

• Government receipts are classified as revenue receipts (which neither create a liability nor reduce assets) and capital receipts (which either create a liability or reduce assets).
• Explanation: Statement I is correct — that is precisely the definition of a capital receipt.
• Statement II is correct — borrowings create a liability for the Government, and disinvestment reduces the Government's assets by lowering its shareholding in public sector enterprises; both are therefore capital receipts.
• Why Statement III is wrong: Interest received on loans given by the Government is income.
• It neither creates a liability nor reduces an asset, so it is a revenue receipt, not a capital receipt.
• (Interest paid by the Government, by contrast, is revenue expenditure.)

Additional Information

• Other capital receipts include recovery of loans (which reduces assets) and small savings and provident funds (which create liabilities).
• The distinction matters because the fiscal deficit is financed largely through borrowings — a capital receipt.