How many of the following are revenue expenditure of the central government?
(A) Interest payments on debt incurred by the government
(B) Grants given to state governments for building schools
(C) Loans and advances given to Public Sector Undertakings
(D) Salaries and pensions of government employees
(E) Purchase of machinery by a government department
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Three
Revenue expenditure does not create physical or financial assets of the central government. Capital expenditure creates such assets or reduces financial liabilities.
(A) Interest payments on debt incurred by the government — Revenue expenditure. Interest is a running cost of past borrowing and creates no asset.
(B) Grants given to state governments for building schools — Revenue expenditure. Grants to states are revenue expenditure even though some of the grants may be meant for creation of assets.
(C) Loans and advances given to Public Sector Undertakings — Capital expenditure. A loan gives the Centre a financial asset, a claim to be repaid.
(D) Salaries and pensions of government employees — Revenue expenditure. They are part of the normal functioning of government departments.
(E) Purchase of machinery by a government department — Capital expenditure. Machinery is a physical asset.
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. …” |