Capital Receipts

Capital receipts, on the other hand constituted those sources of money for a government which involve either of the following two:

• A liability of prepayment is created for the government.
• An asset owned by the government is to be sold.

For example, when a government receives money by way of loans and borrowings, a liability of repayment of loans arises.

Similarly, when a government raises money by way of disinvestment of equity of government-owned enterprises, assets gets sold out to private Enterprises.

The major sources of capital receipts of a government can be conveniently presented as shown:

(a) Recoveries of Loans:

A government extends loan to the households, business unit and also in other countries. These loans constitute asset of the government. When these loans are paid back to the government, it gets its money back. Government’s receipts increase and its assets fall. Hence, these are known as capital receipts.

(b) Loans and borrowings:

A government can borrow from different sources. By way of loans a government gets money. But every loan is to be paid back. Till the loan is paid back the government carries the liability of repayment.

(c) Disinvestment:

The government establishes a number of Industrial and business units which are the assets of the government. The government may sell a unit or more units in part of whole, to private sector enterprises. This sale is known as disinvestment. By this method money flows to the government. But in the process the role of government gets reduced.