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
2. B. II and III only
3. C. I and III only
4. D. I, II and III

Answer: A

Explanation

Statement I is correct. Capital receipts are those government receipts that either create a liability (like borrowings) or lead to a reduction in the government’s assets (like disinvestment). Statement II is correct. Borrowings create a future repayment liability for the government, and disinvestment (selling government assets like shares in PSUs) reduces the government’s financial assets. Both are therefore classified as capital receipts. Statement III is incorrect. Interest received on loans given by the government is a revenue receipt, not a capital receipt. It is a regular income for the government and does not create a liability for the government; rather, it is income from an asset (the loan given). Understanding the components of the government budget, particularly the distinction between revenue and capital receipts, is fundamental for UPSC Economy.