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Day 9 – Q 3. For economic growth, capital expenditure is a more prudent and sustainable strategy than demand stimulus, Do you agree? Substantiate your views. (15 Marks)

  • IASbaba
  • February 8, 2022
  • 0
Current Affairs, GS 3, Indian Economy, TLP-UPSC Mains Answer Writing
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3. For economic growth, capital expenditure is a more prudent and sustainable strategy than demand stimulus, Do you agree? Substantiate your views. (15 Marks)

आर्थिक विकास के लिए, पूंजीगत व्यय मांग प्रोत्साहन की तुलना में अधिक विवेकपूर्ण और टिकाऊ रणनीति है, क्या आप सहमत हैं? अपने विचारों की पुष्टि करें।

Approach-

Candidates need to write about how the capital expenditure is a more prudent and sustainable strategy than demand stimulus for economic growth.

Introduction:

The Union Budget 2022-23 proposed a big boost to capital expenditure and announced several infrastructure projects to pump-prime private investment and economic recovery. Overall, instead of propelling consumption, something that could have pushed demand and raised prices, the government continued its focus on trying to improve the supply side. 

Capital Expenditure Is a More Prudent and Sustainable Strategy Than Demand Stimulus 

  • Recognising that private investment has not revived, the FM has proposed a sharp jump in allocation for capital expenditure in 2022-23. 
  • The proposals to stimulate demand are designed to stimulate demand in a fiscally prudent way – some of them involve advancing of expenditure, with offsetting changes later – others are directly linked to increasing GDP.
  • Capital expenditure is money spent on infrastructure and asset creation. 
  • It has a multiplier effect on the economy, it not only improves current GDP but also future GDP, we want to give a new thrust to capital expenditure of both states and Centre.
  • Along with Grants-in-Aids to states for creation of capital assets, the effective capex of the government is estimated to be more than 4 per cent of GDP. 
  • This is good particularly for sectors such as steel, cement, road transport and highways, railways and defence. 
  • The government proposes to use capex spending on infrastructure through the PM Gati Shakti National Master Plan. 
  • The focus will be on improved connectivity through roads, railways, airports, mass transport, waterways and logistics that will propel faster movement of people and goods and ease the cost of doing business in India.

Conclusion:

Having given the push to a big boost to capital expenditure, public infrastructure and higher borrowing, the government now needs to ensure that private investors are able to access money at affordable rates. Easing the inflow of foreign capital and inclusion in global bond indices, financial sector reforms including banking and bond market reforms should follow the budget to ensure that higher private capex follows the FM’s push for public investment. 

 

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