UPSC Prelims 2016 · Question 37 of 98
UPSC Prelims 2016 question on Capital Budget Items
- ExamUPSC CSE
- Year2016
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicPublic Finance
- DifficultyMedium
- TypeStatement
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.
Show answer
Answer: D. 1, 2 and 3
Verdict
The answer is 1, 2 and 3. Asset acquisition, loans received from foreign governments and loans granted to States all sit in the capital budget.
Analysis
The capital budget records receipts and expenditure that change the assets or liabilities of the government. Statement 1 is CORRECT because spending on roads, buildings and machinery creates assets. Statement 2 is CORRECT because loans received from foreign governments are borrowings and therefore capital receipts creating a liability. Statement 3 is CORRECT because loans and advances granted to States and Union Territories are capital expenditure creating a financial asset for the Union, and their recovery is a capital receipt.
Source
NCERT Class XII Economics, Macroeconomics, Chapter 5, page 63.
How to crack it
Apply one test to every item, does this transaction change the government's assets or liabilities. If yes it is capital, if it merely finances current operations it is revenue. Building a road creates an asset, borrowing creates a liability, and lending creates a claim, so all three qualify. Contrast with salaries, interest payments and subsidies, which change nothing on the balance sheet and are therefore revenue. One test replaces the entire memorised classification.