Q. With reference to the classification of government expenditure in India, consider the following statements:
1.Revenue Expenditure does not lead to the creation of physical or financial assets and includes interest payments, subsidies, and salaries.
2.Capital Expenditure includes spending that results in the acquisition of assets or reduction of liabilities, such as investments in shares or construction of infrastructure.
3.According to the Fiscal Responsibility and Budget Management Act (FRBMA), revenue expenditure must always be financed through capital receipts and borrowings.
Which of the statements given above is/are correct?
Answer: A
Notes:
Explanation:
- Revenue Expenditure includes expenses that do not create assets or reduce liabilities. This includes interest payments, defence, subsidies, salaries, and pensions.
- Capital Expenditure includes outlays that create assets (e.g., buildings, roads, investments) or reduce liabilities (e.g., loan repayments). This type of expenditure enhances the productive capacity of the economy.
The FRBMA encourages sustainable financing of revenue expenditure through revenue receipts, not capital receipts or borrowings. It seeks to avoid using borrowed money for regular (revenue) expenses.
Source: Indian Economy (NCERT)
