Question 47 from UPSC CSE 2016 - Economy

Question

Which of the following is/are included in the capital budget of the Government of India?
1. Expenditure on acquisition of assets like roads, buildings, machinery, etc.
2. Loans received from foreign governments
3. Loans and advances granted to the States and Union Territories
Select the correct answer using the code given below.

Accepted Answer

Correct Option: D. 1, 2, and 3

Strategy: Identify whether each item contributes to the government's assets or liabilities, or leads to the creation of long-term productive capacity. The 'capital budget' comprises both capital receipts and capital expenditure. **Expenditure on acquisition of assets** directly creates physical assets. **Loans received from foreign governments** are a source of funds that create a liability for the government, used for long-term purposes. **Loans and advances granted to States and Union Territories** represent the creation of a financial asset for the central government and are often used for developmental projects, making them a capital expenditure.

Key Info: -   **Capital Budget:** This component of the annual financial statement (budget) accounts for the government's assets and liabilities. It consists of capital receipts and capital expenditure, reflecting changes in the capital stock of the government.
-   **Capital Receipts:** These are government receipts that either create a liability or reduce a financial asset. They are generally non-recurring in nature. Examples include:
    -   Loans raised by the government from the public (market borrowings).
    -   Borrowings from the Reserve Bank of India and commercial banks.
    -   Loans received from foreign governments and international organizations.
    -   Recoveries of loans granted by the central government to states, UTs, and other parties.
    -   Receipts from disinvestment of public sector undertakings (PSUs).
-   **Capital Expenditure:** These are government expenditures that result in the creation of physical or financial assets, or a reduction in financial liabilities. They are generally long-term in nature and aim at increasing the productive capacity of the economy. Examples include:
    -   Expenditure on the acquisition of land, buildings, machinery, equipment, and infrastructure (e.g., roads, bridges, railways).
    -   Investment in shares and debentures of public sector enterprises and other companies.
    -   Loans and advances granted by the central government to State and Union Territory governments, public sector undertakings, and other parties.
    -   Repayment of loans.
-   All three statements (Expenditure on acquisition of assets, Loans received from foreign governments, and Loans and advances granted to States and Union Territories) fall under the definitions of capital expenditure or capital receipts, and thus are included in the capital budget.

Answer

Option A: 1 only

Answer

Option B: 2 and 3 only

Answer

Option C: 1 and 3 only