With valid reasons, classify the following into Capital receipts or Revenue receipts of the government : (i) Dividend received by the government from a Maharatan company. (ii) Receipts of the government from sale of shares of a Public Sector Undertaking (PSU) in open market. (iii) Debt cleared by Sri Lanka Government to the Indian Government. (i) 'Government Budget can be a useful instrument in reducing inequalities in the distribution of income and wealth in an economy.' Do you agree with the given statement ? Present valid arguments in favour of your answer. (ii) State the meaning and formula of Fiscal deficit.

Question

Accepted Answer

Classification of government receipts:

(i) Dividend from Maharatan company:
- Revenue Receipt
- It is income from government's investment
- Does not create liability
- Recurring in nature

(ii) Borrowings:
- Capital Receipt
- Creates liability
- Needs to be repaid
- Non-recurring

(iii) Recovery of loans:
- Capital Receipt
- Reduces asset
- Does not create liability
- Non-recurring

(iv) Disinvestment proceeds:
- Capital Receipt
- Reduces government's stake
- Does not create liability
- Non-recurring

Revenue receipts are regular income, while capital receipts affect government's assets or liabilities.