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Capital Receipts: Meaning, Conditions and Sources!

Capital receipts refer to those receipts which either create a liability or cause a reduction in the assets of the government. They are non-recurring and non-routine in nature.

A receipt is a capital receipt if it satisfies any one of the two conditions:

(i) The receipts must create a liability for the government. For example, Borrowings are capital receipts as they lead to an increase in the liability of the government. However, tax received is not a capital receipt as it does not result in creation of any liability.

(ii) The receipts must cause a decrease in the assets. For example, receipts from sale of shares of public enterprise is a capital receipt as it leads to reduction in assets of the government.

Sources of Capital Receipts:

Capital receipts are broadly classified into three groups:

1. Borrowings:

Borrowings are the funds raised by government to meet excess expenditure.

Governments borrow funds from:

(i) Open Market (Public);

(ii) Reserve Bank of India (RBI);

(iii) Foreign governments (like loans from USA, England etc.);

(iv) International institutions (like World Bank, International Monetary Fund).

Borrowings are capital receipts as they create a liability for the government.

2. Recovery of Loans:

Government grants various loans to state governments or union territories. Recovery of such loans is a capital receipt as it reduces the assets of the government.

3. Other Receipts:

These include:

(a) Disinvestment:

Disinvestment refers to the act of selling a part or the whole of shares of selected public sector undertakings (PSU) held by the government. They are termed as capital receipts as they reduce the assets of the government. Government holds ownership in various PSU’s in the form of equity shares. When the government sells a part or whole of its shares, it leads to transfer of ownership of PSU’s to the private enterprises.

(b) Small Savings:

Small savings refer to funds raised from the public in the form of Post Office deposits, National Saving Certificates, Kisan Vikas Patras etc. They are treated as capital receipts as they lead to an increase in liability.

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