Which of the following is/are included in the capital budget of the Government of India?

1. Expenditure on acquisition of assets like roads, buildings, machinery, etc.

2. Loans received from foreign governments.

3. Loans and advances granted to the States and Union Territories.

Select the correct answer using the code given below:

The correct answer is 1, 2 and 3 — all three statements are included in the Capital Budget of the Government of India.

To understand why, we must first grasp what the Capital Budget is and how it differs from the Revenue Budget.

The Union Budget of India is divided into two parts:

1. Revenue Budget — deals with day-to-day income and expenditure that are of a recurring nature and do not create or reduce assets/liabilities (e.g., salaries, interest payments, subsidies, taxes like income tax and GST).
2. Capital Budget — deals with transactions that create or reduce assets and liabilities of the government. It has two components: Capital Receipts and Capital Expenditure.

Let us now analyse each statement individually:

Statement 1: Expenditure on acquisition of assets like roads, buildings, machinery, etc.

This falls under Capital Expenditure. When the government spends money to create long-term physical assets — such as building roads, constructing government buildings, or purchasing machinery — this spending increases the productive capacity of the economy and creates durable assets. Because this type of spending results in the creation of assets, it is classified under the Capital Budget, not the Revenue Budget. Therefore, Statement 1 is correctly included in the Capital Budget.

Statement 2: Loans received from foreign governments.

This falls under Capital Receipts. Loans received by the Government of India from foreign governments (bilateral loans) represent a liability for India — the government is legally obligated to repay them in the future. Since these receipts create a future financial obligation (a liability), they are included in the Capital Budget under Capital Receipts. Other examples in the same category include borrowings from the RBI, market borrowings, and recovery of loans given earlier. Therefore, Statement 2 is correctly included in the Capital Budget.

Statement 3: Loans and advances granted to the States and Union Territories.

This also falls under Capital Expenditure. When the Central Government lends money to State Governments or Union Territories, it creates a financial asset for the Centre — a claim (receivable) that the states are expected to repay. Since this transaction results in the creation of a financial asset for the Central Government, it is classified as Capital Expenditure in the Capital Budget. Therefore, Statement 3 is correctly included in the Capital Budget.

The Key Principle to Remember:

The defining feature of Capital Budget transactions is their impact on the government's asset and liability position:
- Capital Receipts = Receipts that create a liability (borrowings) or reduce an asset (disinvestment, recovery of loans).
- Capital Expenditure = Spending that creates an asset (infrastructure) or reduces a liability (repayment of loans). Loans given to states also create a financial asset for the Centre.

Since all three statements — capital expenditure on physical assets, loans received from foreign governments (a capital receipt), and loans granted to states (a capital expenditure) — involve creation or reduction of assets/liabilities, all three are rightfully part of the Capital Budget.

Hence, the correct answer is "1, 2 and 3".