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Difficulty: HardEconomic Developments, Union & State Budgets, and Economic Surveys

With reference to the public finance metrics and expenditure accounting conventions under the Union Budget of India, examine the following statements:

Statement I: Market borrowings raised through Treasury Bills and Sovereign Green Bonds are categorized as debt-creating Capital Receipts, as they incur future repayment obligations for the Union Government.
Statement II: Revenue Receipts comprise both tax revenues net of States' share and non-tax revenues (such as dividends from Central Public Sector Enterprises and interest receipts), while explicitly excluding disinvestment proceeds.
Statement III: The Effective Revenue Deficit is calculated by adding the Grants-in-Aid for creation of capital assets extended to States to the conventional Revenue Deficit.

Which of the statements given above are correct?

  1. Statements I and II onlyAnswer
  2. B
    Statements II and III only
  3. C
    Statements I and III only
  4. D
    Statements I, II, and III

Answer

Statements I and II only are correct.
Market borrowings like Sovereign Green Bonds and Treasury Bills increase liabilities and are debt capital receipts (Statement I). Revenue receipts exclude asset-sale proceeds like disinvestment, which are non-debt capital receipts (Statement II). Effective Revenue Deficit measures pure revenue consumption by subtracting capital asset grants from the Revenue Deficit; thus Statement III is incorrect.

Step-by-Step Solution

1
Evaluate Statement I regarding market borrowing classification
Statement I is correct
Market borrowings, including Treasury Bills, dated securities, and Sovereign Green Bonds, create future debt liabilities for the Central Government and are classified under Capital Receipts.
2
Evaluate Statement II regarding Revenue Receipts composition
Statement II is correct
Revenue Receipts include net tax revenues and non-tax revenues (dividends, profit transfers from RBI/CPSEs, fees). Disinvestment proceeds reduce government equity/assets, so they are non-debt Capital Receipts, not Revenue Receipts.
3
Evaluate Statement III regarding Effective Revenue Deficit calculation
Statement III is incorrect
Effective Revenue Deficit is defined as Revenue Deficit minus Grants-in-aid for the creation of capital assets. Subtracting these grants accounts for expenditure that is accounting-wise revenue but economically capital-forming.

Key Concept

Fiscal Accounting Framework, Receipts Classification, and Deficit Indicators in Union Budget
Estimated Time:2m 0s
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Topics

Economic Developments, Union & State Budgets, and Economic Surveys

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