📘 IAS Prelims 2025 — GS-I Q.10 | Classroom Explanation

📌 Question

Q.10) Consider the following statements:

Statement I: Capital receipts create a liability or cause a reduction in the assets of the Government.
Statement II: Borrowings and disinvestment are capital receipts.
Statement III: Interest received on loans creates a liability of the Government.

Which of the statements given above are correct?

(a) I and II only
(b) II and III only
(c) I and III only
(d) I, II and III

✅ Correct Answer: (a)

🧑‍🏫 Classroom Explanation

This question tests classification of government receipts, a high-frequency UPSC theme in Public Finance.

🔍 Key Concept: Capital vs Revenue Receipts

Government receipts are broadly classified into:

• Revenue Receipts

• Do not create liability
• Do not reduce government assets

• Capital Receipts

• Create liabilities (e.g., loans)
• Reduce assets (e.g., disinvestment)

This distinction is foundational to budget analysis.

🔍 Statement-wise Analysis

✅ Statement I: Correct

• Capital receipts are defined as those receipts which:

• Create a future obligation (liability)
  OR
• Lead to a reduction in government assets

• Examples:

• Borrowings → liability
• Sale of PSU shares → asset reduction

➡️ Hence, Statement I is correct.

✅ Statement II: Correct

• Borrowings

• Must be repaid
• Create government liability

• Disinvestment

• Sale of shares in PSUs
• Reduces government’s financial assets

• Since both either create liabilities or reduce assets:

• They are classified as capital receipts

➡️ Hence, Statement II is correct.

❌ Statement III: Incorrect

• Interest received on loans is:

• Income earned by the government
• Classified as Non-Tax Revenue Receipt

• It does not create:

• Any repayment obligation
• Any future liability

• Liability is created when government borrows, not when it earns interest

➡️ Hence, Statement III is incorrect.

🧮 Logical Elimination (UPSC Style)

• Statement I → True
• Statement II → True
• Statement III → False

➡️ Correct option: (a) I and II only

🎯 Final Answer

✅ Correct Answer: (a)

🔗 Bridge Points (Future Questions)

• UPSC often tests:

• Capital receipts vs capital expenditure
• Fiscal deficit components
• Disinvestment vs privatization
• Borrowings and debt sustainability

• Expect linkage with:

• Union Budget
• FRBM Act
• Primary deficit and revenue deficit

📍 GS Mapping

• GS Paper III
• Subject: Indian Economy
• Theme: Public Finance, Budgetary Concepts
• Nature: Conceptual + definitional