Question : Loans offered by the central government to the state government are to be treated as
Option 1: Capital expenditure by central government
Option 2: Capital receipts by by central government
Option 3: Capital expenditure by state government
Option 4: Revenue receipts by state government
Correct Answer: Capital expenditure by central government
Solution : The correct answer is (a) Capital expenditure by the central government.
When the central government provides loans to the state government, it is considered as a capital expenditure because it represents an outflow of funds from the central government's budget. The central government is allocating capital resources to the state government for their various capital expenditure requirements.
The state government, on the other hand, treats these loans as capital receipts because it is receiving capital funds from the central government. For the state government, these loans are a source of capital inflow.
