The money that the Government of India spends on the development of infrastructure in the country can come from which of the following sources? I. Loans from institutions such as the World Bank or Asian Development Bank (ADB) II. Taxes collected from the people III. Loans from the Reserve Bank of India (RBI)

Introduction / Context:
This question explores the possible sources of funds that the Government of India can use to finance infrastructure development. Infrastructure projects are typically capital intensive and require large sums of money over long periods. Understanding the range of financing options available to the government is crucial for exams on public finance, Indian economy, and banking. The question lists three potential sources and asks you to determine which of them can legitimately contribute to infrastructure spending.

Given Data / Assumptions:

• Source I: Loans from international financial institutions such as the World Bank and the Asian Development Bank.
• Source II: Tax revenues collected from individuals and firms in the domestic economy.
• Source III: Loans from the Reserve Bank of India, which can include ways and means advances or other forms of borrowing by issuing government securities.
• We assume that the government can use both domestic and external sources of finance for capital expenditure.

Concept / Approach:
Government expenditure on infrastructure is typically part of capital expenditure in the budget. The government can finance this expenditure through current tax revenues, borrowing from domestic sources (including the central bank and commercial banks), and borrowing from external sources such as multilateral institutions and foreign governments. Loans from the World Bank and ADB are a recognised form of external assistance for infrastructure. Taxes collected from citizens constitute a major component of government revenue used to fund both current and capital spending. Borrowing from the RBI through the sale of government securities or temporary advances also provides funds when tax revenue is insufficient or the government wants to spread the cost of projects over time.

Step-by-Step Solution:
Step 1: Evaluate Source I. Multilateral institutions such as the World Bank and ADB routinely extend loans for infrastructure projects in transport, energy, and water, so this is a valid source.Step 2: Evaluate Source II. Taxes collected from the public form the core of government revenue and are used to finance many types of expenditure, including infrastructure, so this is also valid.Step 3: Evaluate Source III. The government can borrow from the RBI by issuing government securities or through temporary advances; these borrowed funds can be allocated to infrastructure projects.Step 4: Since all three sources are credible and commonly used in practice, none can be excluded.Step 5: Therefore, the correct option is that all I, II and III are sources of funds for infrastructure spending.

Verification / Alternative check:
If you look at government budget documents, you will see sections on tax revenue, non tax revenue, market borrowings, and external assistance. Infrastructure outlays are often financed through dedicated schemes supported by external loans and through budgetary allocations funded by taxes and borrowing. In addition, the RBI acts as a banker to the government and facilitates borrowing operations. These facts show that all three listed sources play roles in financing infrastructure, confirming that the answer includes all of them.

Why Other Options Are Wrong:
Only I: This ignores the fundamental importance of tax revenue and domestic borrowing in infrastructure finance.

Only II: This would suggest that the government cannot or does not borrow for infrastructure, which contradicts actual practice.

Only III: This would exclude taxes and external loans, which are significant and widely used sources.

Common Pitfalls:
Some candidates think in very narrow terms and assume that infrastructure must be financed only from taxes or only through foreign loans. Others may believe that borrowing from the RBI is always inflationary and therefore never used, which is not accurate. The correct perspective is that governments typically use a mix of revenue and borrowing to fund large long term projects. Recognising this mix helps you select the inclusive option when all listed sources are in fact valid.

Final Answer:
The Government of India can finance infrastructure development from all three sources: multilateral loans, tax revenues, and borrowing from the RBI.