Recovery of loans and disinvestment proceeds
Explanation
Government receipts are broadly classified into Revenue Receipts and Capital Receipts based on their impact on the government's assets and liabilities.
- Revenue Receipts: These neither create a liability nor reduce an asset (e.g., taxes, dividends).
- Capital Receipts: These either create a liability (e.g., borrowings) or reduce an asset (e.g., sale of shares, recovery of loans).
Capital Receipts are further categorized into:
- Debt Capital Receipts: Receipts that create a repayment obligation (liability).
- Non-debt Capital Receipts: Receipts that do not create a liability but arise from the disposal or reduction of assets.
Option Analysis
- Income Tax Income Tax: Incorrect. This is a Revenue Receipt. It is a direct tax collected by the government that does not create any liability for repayment, nor does it reduce government assets.
- Goods and Services Tax (GST) Goods and Services Tax (GST): Incorrect. This is also a Revenue Receipt (Indirect Tax). Like income tax, it is a recurring income source that creates no liability or asset reduction.
- Recovery of loans and disinvestment proceeds Recovery of loans and disinvestment proceeds: Correct.
- Recovery of loans: When the central government recovers loans granted to states or other entities, its financial assets (the loans) are reduced. Since it reduces an asset but creates no new debt, it is a Non-debt Capital Receipt.
- Disinvestment: Selling government stakes in Public Sector Undertakings (PSUs) reduces the government's equity assets. It generates capital without creating a debt liability.
- Borrowings from the market Borrowings from the market: Incorrect. While this is a Capital Receipt, it creates a financial liability (the government must repay the principal with interest). Therefore, it is classified as a Debt Capital Receipt.
Key Takeaway
Non-debt Capital Receipts are inflows that reduce government assets (like recovering past loans or selling PSU equity) without increasing the government's debt burden, whereas Debt Capital Receipts (borrowings) directly increase the public debt.