Trend in Investments

In News: A sharp 61.2% sequential rise in capital spending by the Central and State governments lifted fresh investment plans announced in the third quarter (Q3) of 2022-23 to ₹7.1 lakh crore, even though private sector investments dropped 41% from ₹6.31 lakh crore in Q2 to ₹3.71 lakh crore between October and December 2022.

• Rising input costs, hardening interest rates and the slowdown expected in developed economies are the headwinds making mid-size Indian companies go slow on their investment plans
• However, all other major sectors posted positive growth in terms of fresh investments during the first nine months of 2022-23.

Capital Expenditure:

• Capital expenditure is the money spent by the government on the development of long term assets such as machinery, equipment, building, health facilities, education, etc.
• It also includes the expenditure incurred on acquiring fixed assets like land and investment by the government that gives profits or dividend in future.
• Capital spending is associated with investment or development spending, where expenditure has benefits extending years into the future.
• It includes –  Acquiring fixed and intangible assets, Upgrading an existing asset, Repairing an existing asset, Repayment of loan

Significance of capital expenditure:

• It allows the economy to generate revenue for many years by adding or improving production facilities and boosting operational efficiency.
• It also increases labour participation, takes stock of the economy and raises its capacity to produce more in future.
•  Repayment of loan is also capital expenditure, as it reduces liability.

Revenue expenditure:

• Unlike capital expenditure, which creates assets for the future, revenue expenditure is one that neither creates assets nor reduces any liability of the government.
• Salaries of employees, interest payment on past debt, subsidies, pension, etc, fall under the category of revenue expenditure. It is recurring in nature.

Source: The hindu

Previous Year Question

Q1) If the interest rate is decreased in an economy, it will (2014)

1. decrease the consumption expenditure in the economy
2. increase the tax collection of the Government
3. increase the investment expenditure in the economy
4. increase the total savings in the economy