Previous Year Question
Which of the following is/are included in the Capital Budget of the Government of India?
Expenditure on the acquisition of assets like roads, buildings and machinery
Loans received from foreign governments
Loans and advances granted to the States and Union Territories
Select the correct answer using the code given below:
1 only
2 and 3 only
1 and 3 only
1, 2 and 3
Correct Answer: D
Detailed Solution
The Government Budget is broadly divided into:
Revenue Budget
Capital Budget
The Capital Budget contains both Capital Receipts and Capital Expenditure.
Statement 1 is correct
Expenditure incurred on creating or acquiring assets such as roads, buildings, bridges, railway lines, machinery and equipment constitutes Capital Expenditure.
Such expenditure:
Increases the Government’s physical assets.
Generally provides benefits beyond one financial year.
Can increase infrastructure and the economy’s productive capacity.
For example, rent paid for a government office is Revenue Expenditure, whereas constructing a new government building is Capital Expenditure.
Hence, Statement 1 is included in the Capital Budget.
Statement 2 is correct
Loans received from foreign governments constitute Capital Receipts of the Government of India.
A loan:
Provides funds to the Government in the present; and
Simultaneously creates a future repayment liability.
Receipts that either create a liability or reduce an asset of the Government are classified as Capital Receipts.
Other examples include:
Market loans
Treasury Bills
Securities issued against Small Savings
Recovery of loans
Disinvestment receipts
Therefore, loans received from foreign governments form part of the Capital Budget.
Statement 3 is correct
Loans and advances granted to States and Union Territories constitute Capital Expenditure for the Central Government.
This is because:
Funds are disbursed by the Central Government; and
A financial asset—the right to recover the loan—is created in favour of the Centre.
When a State subsequently repays the principal, the amount is recorded as recovery of loans, which is a Non-debt Capital Receipt for the Centre.
Therefore, all three items are included in the Capital Budget.