Consider the following statements:Capital receipts create a liability or cause a reduction in the as

Question

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 GovernmentWhich of the statements given above is/are correct?

Accepted Answer

The government receives money by way of loans or from the sale of its assets. Loans will have to be returned to the agencies from which they have been borrowed. Thus they create liability. Sale of government assets, like sale of shares in Public Sector Undertakings (PSUs) which is referred to as PSU disinvestment, reduce the total amount of financial assets of the government. All those receipts of the government which create liability or reduce financial assets are termed as capital receipts. Hence statements I and II are correct. Non-tax revenue receipts of the central government mainly consist of interest receipts on account of loans by the central government, dividends and profits on investments made by the government, fees and other receipts for services rendered by the government. They do not create liability. Hence statement III is not correct.