Question 31 from UPSC CSE 2025 - Economics

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?

IASCODEX · Accepted Answer

Correct Option: A. I and II only

Strategy: Assess each statement: Statement I correctly defines capital receipts through the keywords 'create a liability or reduce assets'. Statement II gives typical examples of capital receipts: both borrowings (create liability) and disinvestment (reduce assets), ensuring its correctness. Statement III is incorrect because interest received on loans is an income, not a borrowing—so it neither creates a liability nor reduces assets, but increases revenue. Eliminating statement III narrows the answer to option A.

Key Info: Capital receipts in government finances are those that either create a liability or result in the reduction of government assets. They include:
- Borrowings: Funds raised by the government through loans from internal or external sources. These borrowings must be repaid, thus creating a future liability.
- Disinvestment: Sale of government assets, typically in public sector undertakings (PSUs), which directly reduces the government's financial assets without creating new liabilities.

Interest received on loans, along with dividends, profits, and fees, constitutes non-tax revenue receipts. These are revenue receipts, as they do not increase the liabilities or reduce the assets of the government; rather, they are income accruals from existing assets or activities. Capital receipts and revenue receipts together make up the receipts side of the union budget. Understanding these distinctions is key to public finance and budgeting as per the Union Budget documents.

IASCODEX · Answer

Option B: II and III only

IASCODEX · Answer

Option C: I and III only

IASCODEX · Answer

Option D: I, II, and III