Capital Receipts: Explanation of Option B

Capital receipts are the inflow of funds that are received by the government in the form of capital or non-recurring receipts. These receipts are not a part of regular revenue receipts of the government. Capital receipts can be in the form of loans, borrowings, sale of assets like land, buildings, machinery, etc.

Liabilities are the obligations or debts that are owed by an individual or an organization. When the government receives capital receipts, it creates a liability for itself. This is because the government has to repay the loans and borrowings in the future. The sale of assets also creates a liability for the government as it has to provide compensation for the assets sold.

Hence, the correct answer to the given question is option B – Capital receipts create liability for the government.

Advantages of Capital Receipts

Capital receipts have the following advantages for the government:

1. Capital receipts help the government to raise funds for long-term investment projects like infrastructure, education, health, etc.

2. Capital receipts provide a source of funds to the government without affecting the revenue position of the government.

3. Capital receipts can help the government to reduce the fiscal deficit by reducing the reliance on revenue receipts.

4. Capital receipts can also help the government to reduce the burden of interest payment on the revenue account.

Conclusion

Capital receipts are an important source of funds for the government. They can help the government to finance long-term investment projects without affecting its revenue position. However, the government should be cautious while raising capital receipts as they create a liability for the government. The government should ensure that the funds raised through capital receipts are utilized for productive purposes and repayment obligations are met on time.