Capital receipts

Topic: Government Budget, Fiscal Policy and FRBM · NCERT: Class 12, Ch 5 "Government Budget and the Economy"

Meaning

Capital receipts are money the government receives that either creates a liability (it must repay the money later) or reduces its assets (it sells or gives up something it owns).

• The two-question test: Does the receipt create a liability? Does it reduce an asset? If the answer to either is yes, it is a capital receipt. If both answers are no, it is a revenue receipt.
• Why it matters: capital receipts link the Budget to the fiscal deficit (the total amount the government must borrow in a year).
• Non-debt capital receipts lower the fiscal deficit.
• Debt capital receipts are the way the fiscal deficit is paid for.
• Formula: Fiscal deficit = Total expenditure − (Revenue receipts + Non-debt capital receipts)

Explanation

How the test works

• The Budget (the Annual Financial Statement, Art. 112) has two parts:
• Revenue budget: regular, recurring receipts and spending. These do not change what the government owns or owes.

• Capital budget: receipts and spending that change the government's assets or liabilities.

• Assets are things the government owns, such as roads, loans it has given, and PSU shares. Liabilities are debts it owes.

• Revenue receipts are non-redeemable. The government never repays them. Capital receipts are the opposite: the government either owes the money back or has given up an asset, together with the future income that asset would have earned.

Receipt	Liability created?	Asset reduced?	Type
Income tax collected	No	No	Revenue (tax)
Dividend from a PSU	No	No	Revenue (non-tax)
Interest on a loan given to a state	No	No	Revenue (non-tax)
Repayment of that loan's principal by the state	No	Yes (the loan asset shrinks)	Capital (non-debt)
Money raised by selling G-secs	Yes	No	Capital (debt)
Sale of PSU shares	No	Yes	Capital (non-debt)

• Trap: interest on a loan is revenue. Recovery of the principal (the original amount lent) is capital.

Types: debt-creating and non-debt-creating

• Debt-creating capital receipts (the government must repay these, with interest):
• Market borrowings:
  • G-secs (dated government securities, i.e. long-term government bonds).
  • T-bills (Treasury Bills, i.e. short-term borrowing for up to one year).
• Small savings: money people put into schemes such as Post Office deposits and PPF. It reaches the Centre through the NSSF (National Small Savings Fund).

• External loans: from foreign governments and multilateral bodies such as international banks.

• Non-debt-creating capital receipts (nothing has to be repaid, but an asset is given up):

• Recovery of loans: principal repaid to the Centre by states, PSUs and others.
• Disinvestment: the government sells some or all of its shares in PSUs (public sector undertakings).
• Other receipts: for example, money from asset monetisation. This means leasing out public assets that are already built and running, such as roads and pipelines, for a fixed period. Ownership does not pass to the private player.

What makes them rise or fall

• Borrowings rise when spending grows faster than revenue receipts and non-debt receipts.
• Non-debt receipts depend on the market and on policy.
• A weak share market or a delayed sale → less disinvestment money → more borrowing.

• They are one-time receipts. An asset can only be sold once.

• Worked example: the fiscal deficit link (2026-27 BE) [2]

• Total expenditure: ₹53,47,315 crore.
• Revenue receipts ₹35,33,150 crore + non-debt capital receipts ₹1,18,397 crore = ₹36,51,547 crore.
• Fiscal deficit = 53,47,315 − 36,51,547 = ₹16,95,768 crore. This equals the budgeted borrowing and is 4.3% of GDP [2].

• Total capital receipts = borrowings ₹16,95,768 crore + non-debt ₹1,18,397 crore = ₹18,14,165 crore. Almost all of it is borrowing.

• What-if: suppose disinvestment falls ₹20,000 crore short and spending stays the same.

• Non-debt receipts fall by ₹20,000 crore.
• Borrowing must rise by ₹20,000 crore.
• The fiscal deficit rises by the same ₹20,000 crore.

In India

• Legal basis: Art. 112 requires the Budget to be presented as the Annual Financial Statement, which keeps capital receipts separate from revenue receipts. The FRBM Act 2003 sets fiscal deficit targets, and those targets depend on how much the government borrows.
• Institutions:
• DIPAM (Department of Investment and Public Asset Management) handles disinvestment. It got this name in 2016.
• NITI Aayog prepared NMP 2.0, the National Monetisation Pipeline for FY2026–FY2030 [5].

• The NSSF routes small savings money to the Centre.

• Latest figures:

• Non-debt capital receipts were ₹41,818 crore (2024-25 actuals). Of this, recoveries of loans were ₹24,617 crore and disinvestment ₹17,202 crore [2].
• They were budgeted at ₹76,000 crore (2025-26 BE) [3]. At the revised stage they came in about 15.7% lower (2025-26 RE), mainly because disinvestment fell short [2].
• They are budgeted at ₹1,18,397 crore (2026-27 BE), up 85%. This includes disinvestment of ₹80,000 crore and recoveries of loans of ₹38,397 crore [2].

• Borrowings are budgeted at ₹16,95,768 crore (2026-27 BE) [2].

• Disinvestment record:

• 1991-92: target ₹2,500 crore; about ₹3,040 crore raised, which was above the target.
• 2025-26: target ₹47,000 crore, but only about 71.9% was expected to be met (RE, ≈₹33,837 crore) [2].
• 2026-27: target ₹80,000 crore. This is the first increase after five years of downward revisions and shortfalls [2].

• Milestones: New PSE Policy 2021 (the government keeps only a minimum presence in strategic sectors); Air India sold to the Tata group (January 2022); LIC IPO (2022).

• Asset monetisation:

• The NMP was launched in August 2021, with a target of ₹6 lakh crore for FY22-25. About ₹3.85 lakh crore was monetised in its first 3 years [6].
• NMP 2.0 has a total potential of ₹16.72 lakh crore for FY2026–FY2030 and aims to plough back ₹10 lakh crore into new projects [5].

Don't confuse with

• Revenue receipts: these create no liability and reduce no asset. They are non-redeemable, e.g. taxes, dividends and interest received. Capital receipts do one or both.
• Capital expenditure: this is government spending that creates assets or reduces liabilities, such as building roads or repaying loans. A capital receipt is money coming in.
• Interest received vs loan recovery: interest on a loan given by the Centre is non-tax revenue. Repayment of the principal is a non-debt capital receipt.
• Disinvestment vs asset monetisation: both are non-debt capital receipts. Disinvestment sells ownership (shares). Monetisation leases only the right to use the asset for a fixed period, and the asset then returns to the government.

Prelims Hooks

• A receipt is capital if it creates a liability or reduces an asset. Otherwise it is revenue.
• Small savings (NSSF), T-bills, G-secs and external loans are debt-creating capital receipts.
• Recovery of loans, disinvestment and asset monetisation are non-debt capital receipts. All three lower the fiscal deficit.
• Fiscal deficit = Total expenditure − (Revenue receipts + Non-debt capital receipts). It also equals borrowing and other liabilities.
• Trap: the RBI's surplus transfer is not a capital receipt. It is non-tax revenue, paid under Section 47, RBI Act 1934 [4].
• The 2026-27 disinvestment target is ₹80,000 crore, the first increase after five years of cuts [2].

Mains Points

• Quality of receipts: non-debt capital receipts are one-time and unpredictable. Disinvestment met only about 71.9% of its target in 2025-26 [2], and every rupee of shortfall adds a rupee to borrowing.

• Fiscal targets that depend on asset sales are fragile. A wider tax base, meaning more people and activities paying tax, is the lasting fix.

• Disinvestment for what? NCERT criticises two things: PSU assets were undervalued (sold for less than they were worth), and the money was used to fill revenue gaps.

• Chain: the asset is sold → one-time cash comes in → it is spent on salaries and subsidies → both the asset and its future income are gone.

• Money from selling a capital asset should fund new capital assets. Monetisation (NMP 2.0, with a ₹10 lakh crore plough-back [5]) is a middle path: cash is raised but ownership is kept.

• Debt vs non-debt financing: borrowed money has to be serviced. Interest payments take about 40% of revenue receipts (2026-27 BE) [2].

• Relying less on debt receipts and more on non-debt receipts and tax buoyancy (tax revenue growing faster than GDP) supports FRBM-style fiscal consolidation, i.e. steadily cutting the deficit.
• The 16th Finance Commission recommends a Centre fiscal deficit of 3.5% of GDP by 2030-31 [2].

Related concepts

• Revenue budget
• Capital budget
• Revenue receipts
• Tax revenue
• Non-tax revenue
• Debt-creating capital receipts
• Non-debt creating capital receipts
• Asset monetisation

Read more

• Budget receipts: revenue vs capital, tax vs non-tax, debt vs non-debt