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 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.
- 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)
- decrease the consumption expenditure in the economy
- increase the tax collection of the Government
- increase the investment expenditure in the economy
- increase the total savings in the economy