Which of the following is an example of "Non-debt creating capital receipts"?

Recovery of a loan given to Sri Lanka by Indian government

The correct answer is option 3: Recovery of a loan given to Sri Lanka by Indian government

• Borrowings from foreign bank: This creates new debt and increases the government’s debt burden. It is a debt-creating capital receipt.

• Extension of borrowings: This refers to rolling over existing debt or extending the period for which loans are borrowed. It is also a debt-creating capital receipt.

• Recovery of a loan given to Sri Lanka by Indian government: This involves the return of a previously made loan and does not create new debt. It is considered a non-debt creating capital receipt.

Capital receipts like money received in the form of loans or by selling of assets result in creation of liabilities of reduction in assets. They can be further classified into 2 types:

1. Debt creating capital receipt: Borrowings from foreign banks, public etc.
2. Non-debt creating receipt: Sale of shares, Recovery of loans etc.