Consider the following statements about capital expenditure of the central government:
(A) Loans and advances given to PSUs are capital expenditure.
(B) Investment in shares is capital expenditure.
(C) Repayment of a loan is capital expenditure, as it reduces the financial liabilities of the government.
(D) Grants given to state governments for creating assets are capital expenditure of the central government.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (B) and (C) only
Capital expenditure creates physical or financial assets, or reduces financial liabilities.
(A) Loans and advances given to PSUs are capital expenditure. — Correct. A loan given is a financial asset of the government.
(B) Investment in shares is capital expenditure. — Correct. Shares are a financial asset.
(C) Repayment of a loan is capital expenditure, as it reduces the financial liabilities of the government. — Correct. It reduces a liability.
(D) Grants given to state governments for creating assets are capital expenditure of the central government. — Incorrect. Grants to states are revenue expenditure, even when some are meant for creating assets. The asset does not belong to the centre.
NCERT (2026-27): “Revenue Expenditure Revenue Expenditure is expenditure incurred for purposes other than the creation of physical or financial assets of the central government. It relates to those expenses incurred for the normal functioning of the government departments and various services, interest payments on debt incurred by the government, and grants given to state governments and other parties (even though some of the grants may be meant for creation of assets). …” “Capital Expenditure There are expenditures of the government which result in creation of physical or financial assets or reduction in financial liabilities. This includes expenditure on the acquisition of land, building, machinery, equipment, investment in shares, and loans and advances by the central government to state and union territory governments, PSUs and other parties. …” |