Finance Minister said India’s long-term growth prospects were embedded in public capital expenditure programs.

What is the news?

• FM has raised capital expenditure (capex) by 35.4% for the financial year 2022-23 to ₹7.5 lakh crore to continue the public investment-led recovery of the pandemic-battered economy.
• The capex last year was ₹5.5 lakh crore.

What is Capital Expenditure (Capex)?

• The government’s expenditure is categorized into two:

1. The one which results in asset development or acquisition known as CAPEX,
2. Another is utilized to cover operating costs and obligations but does not result in asset creation known as Revenue expenditure.

• Capex is defined the as money spent on the acquisition of assets such as land, buildings, machinery, and equipment, as well as stock investments.

What attributes to capex?

• The portion of government payments that goes toward the construction of assets such as schools, colleges, hospitals, roads, bridges, dams, railway lines, airports, and seaports amounts to capex.
• The acquisition of new weaponry and weapon systems, such as missiles, tanks, fighter planes, and submarines, necessitates a significant financial outlay.
• The defense sector receives over a third of the central government’s capital spending, primarily for armament acquisitions.
• Despite the fact that defense spending is classified as a capital expenditure, it does not result in the development of infrastructure to support economic growth.
• Also includes investments that will produce earnings or dividends in the future.

Significance of Capex

• Economic recovery: This action is crucial in light of the economic slowdown induced by the Covid-19 epidemic, as well as a dip in the employment ratio.
• Value creation: Capital asset formation provides future cash flows for the economy and contributes to value creation.
• Multiplier Effect: Capex is expected to have a Multiplier Effect (a change in rupee value of output with respect to a change in rupee value of expenditure).
• Increased employment: Capital spending creates jobs and improves labor productivity as a result of the multiplier effect.
• Macroeconomic Stabilizer: Capital Expenditure serves as a macroeconomic stabilizer and is an excellent instrument for countercyclical fiscal policy.

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