Correct Option
The correct option is 2 only
Explanation
Government receipts are classified into two categories: Revenue Receipts and Capital Receipts. This classification is based on whether the receipt impacts the asset-liability status of the government. Capital receipts are those that alter the government's financial position by either creating a liability or reducing an asset.
Statement-wise Analysis
- Statement 1 is Incorrect: By definition, Capital Receipts are receipts that satisfy one of two conditions:
- They create a liability for the government (e.g., borrowings).
- They cause a reduction in the assets of the government (e.g., disinvestment or recovery of loans).
- Statement 2 is Correct: Recovery of loans is classified as a Capital Receipt, not a Revenue Receipt. When the government grants a loan, it is an asset. When that loan is recovered, the asset value is reduced. Revenue receipts (like taxes or interest earnings) are those that neither create a liability nor reduce an asset.
- Statement 3 is Incorrect: Market borrowings are the primary component of Debt Creating Capital Receipts because they create a future repayment obligation (liability). Non-debt creating capital receipts are those that do not incur a future liability, such as the recovery of loans and proceeds from disinvestment.
Key Takeaway
Capital Receipts must pass the "Asset-Liability Test": they must either create a liability (borrowing) or reduce an asset (disinvestment/recovery of loans). Receipts that do neither are Revenue Receipts.