The correct option is 1 and 3 only.
Explanation
Government expenditure in the budget is classified into Revenue Expenditure and Capital Expenditure. The primary distinction lies in whether the expenditure results in the creation of assets or the reduction of financial liabilities.
Statement-wise Analysis:
- Statement 1 is Correct: Revenue Expenditure is defined as expenditure that neither creates assets nor reduces liabilities. It is incurred for the normal running of government departments and the provision of various services. Examples include salaries, pensions, and administrative costs.
- Statement 2 is Incorrect: Interest payments on public debt are classified as Revenue Expenditure. This is because interest payments are a recurring obligation for servicing debt and do not reduce the principal liability or create any physical or financial asset. In contrast, the repayment of the principal loan amount is classified as Capital Expenditure.
- Statement 3 is Correct: Grants-in-aid given by the Central Government to State Governments and Union Territories are recorded as Revenue Expenditure in the Union Budget. This classification applies even if the grants are utilized by the States for the creation of capital assets (such as roads or buildings). The concept of "Effective Revenue Deficit" is used to account for such grants that result in asset creation.
Key Takeaway:
Revenue Expenditure is consumption-oriented (e.g., salaries, subsidies, interest payments), while Capital Expenditure is investment-oriented (e.g., infrastructure construction, loan repayment).