economics medium True/False

In the Union Budget, 'Grants-in-Aid' provided by the Central Government to State Governments or Union Territories are classified as Capital Expenditure because they are used to fund large infrastructure projects.

  1. True
  2. False

Answer: False

Even if the receiving state uses the funds to build a highway, from the perspective of the Central Government's accounting, Grants-in-Aid are classified as 'Revenue Expenditure.' This is because these grants do not result in the creation of any physical or financial *assets* for the Centre, nor do they reduce any of the Centre's liabilities; they are simply unconditional or conditional transfers of current income.

Topic Public Finance - Budgeting
Exam Relevance UPSC Prelims, SSC CGL
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