The proceeds from disinvestment are included as

Correct — C, capital receipts. Government receipts are classified by what they do to the balance sheet. A revenue receipt neither creates a liability nor reduces an asset — taxes and dividends are of that kind. A capital receipt does one of the two: borrowing creates a liability, and selling something the government owns reduces an asset. When the government disinvests, it sells part of its shareholding in a public sector enterprise, so its assets fall by exactly what it collects. That places the proceeds among capital receipts, and specifically among non-debt capital receipts, the branch that also holds recoveries of loans. The Union Budget prints them there.

• (a)non-tax revenue — Non-tax revenue covers what the government earns from what it owns without giving any of it up — dividends and profits from public sector enterprises, interest receipts, fees and spectrum charges. A dividend from a company is non-tax revenue; the sale of shares in that company is not.
• (b)revenue receipts — Revenue receipts are those that leave the government's assets and liabilities untouched. Disinvestment shrinks its equity holding, so it fails the test by definition.
• (d)tax revenue — Tax revenue arises from a compulsory levy under the authority of law. Selling shares in a company is a voluntary market transaction, not a tax.

The budget divides receipts into revenue and capital, and the test is the effect on the government's assets and liabilities rather than whether the money is one-off or recurring. Capital receipts split further into debt receipts, chiefly market borrowing and small savings, and non-debt capital receipts, chiefly recovery of loans and disinvestment. The distinction matters for the deficit numbers: the fiscal deficit is total expenditure less revenue receipts and non-debt capital receipts, so disinvestment proceeds reduce the measured fiscal deficit while fresh borrowing does not.

The single sentence to carry into the examination hall is that a capital receipt either creates a liability or reduces an asset. Every option here can then be settled without recalling any budget table. Disinvestment reduces an asset, so it is capital. Borrowing creates a liability, so it is capital too, but of the debt variety. Tax collections and dividends do neither, so they are revenue. The trap in this item is the closeness of options (a) and (c), because dividends from the same public sector enterprises really are non-tax revenue, and a candidate who remembers the enterprise rather than the transaction will drift to (a).

• A capital receipt is one that creates a liability or causes a reduction in the assets of the government.
• Disinvestment proceeds are non-debt capital receipts, alongside recoveries of loans.
• Dividends and profits from public sector enterprises are non-tax revenue receipts, not capital receipts.
• The fiscal deficit is computed after counting non-debt capital receipts, so disinvestment reduces it.
• Disinvestment proceeds were routed to the National Investment Fund created in 2005; the arrangement has been restructured several times since.

• Classifying disinvestment as non-tax revenue because dividends from the same enterprises are. The dividend is revenue; the sale is capital.
• Assuming every one-off receipt is capital. The test is the effect on assets and liabilities, not the frequency.
• Forgetting that disinvestment proceeds count towards closing the fiscal deficit while fresh borrowing does not.

As a straight classification of a named receipt, as a statement set on capital receipts, or through the effect of disinvestment on the fiscal deficit.

• practice — not a real PYQ

  Which one of the following is a non-debt capital receipt of the Government of India?

  • (a)Corporation tax
  • (b)Recovery of loans
  • (c)Market borrowing
  • (d)Interest receipts

  Answer(b) Recovery of loans — it reduces an asset without creating a liability, the same category disinvestment proceeds fall into.

• practice — not a real PYQ

  Dividend received by the Government of India from a public sector enterprise is classified as

  • (a)tax revenue
  • (b)non-tax revenue
  • (c)debt capital receipt
  • (d)non-debt capital receipt

  Answer(b) non-tax revenue — the government keeps its shareholding and takes only the yield, so no asset is given up.