Day 22 – Q. 3. What is capital expenditure? How is it being increasingly prioritized in recent Union Budgets? Discuss its implications for economic growth and employment in India. (150 words, 10 marks)

Q. 3. What is capital expenditure? How is it being increasingly prioritized in recent Union Budgets? Discuss its implications for economic growth and employment in India. (150 words, 10 marks)

Introduction 

Capital expenditure (Capex) refers to government spending on long-term productive assets like infrastructure and machinery. Budget 2024–25 allocated ₹11.11 lakh crore to Capex—a  16.9% increase over FY24—underscoring its growing policy significance. 

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Components of Capital Expenditure 

1. Capital expenditure (Capex) is the money spent by the government on the development  of machinery, equipment, building, health facilities, education, etc. 

2. Capital expenditure includes money spent on the following:

• Acquiring fixed and intangible assets

• Upgrading an existing asset

• Repairing an existing asset

• Repayment of loan 

3. Different from revenue expenditure, which includes recurring costs like salaries and  subsidies and does not result in asset creation. 

Prioritization of Capital Expenditure in Recent Budgets 

1. Rising Share in Total Expenditure: Capex formed 19.2% of government expenditure in  FY25, up from 12.3% in FY20. (Union Budget 2025) 
2. Sustained Rapid Growth Trend: Capex has grown at a CAGR of 23% from FY21 to FY25,  outpacing revenue spending. (PRS data) 
3. Strengthened Through Flagship Schemes: Programs like NIP, PM Gati Shakti, and PLI are  actively driving connectivity and industrial competitiveness. 

Reasons for Emphasis on Capital Expenditure 

1. Crowds in Private Investment: Public infrastructure lowers risks and attracts private  investment into industrial and logistics zones. Example: Expressways, multimodal parks encourage private logistics and manufacturing  clusters. 
2. Generates Large-Scale Employment: Capex projects absorb both skilled and unskilled  labour in multiple sectors. Example: Metro, Bharatmala and PMAY projects support lakhs of jobs. 
3. Promotes Inclusive Development: Improves rural and backward region access to services,  markets, and employment. Example: PMGSY improved rural market linkages and mobility. 
4. High Multiplier Effect: Capital expenditure yields higher returns than revenue spending. Example: NIPFP estimates Capex multiplier at ₹2.25 in the same year and ₹4.80 over time,  vs ₹0.98 for revenue spending. 
5. Acts as a Macroeconomic Stabiliser: Capital expenditure helps drive countercyclical fiscal  stimulus, especially during slowdowns. 

Suggestions to Enhance Capex Impact 

1. Strengthen Monitoring and Coordination: Use PM Gati Shakti for real-time project  tracking and bottleneck resolution. (15th Finance Commission) 
2. Empower States to Scale Up Capex: Continue 50-year interest-free loans for state capital  projects. (Economic Survey 2023–24) 
3. Balance Physical with Social Infrastructure: Invest not just in roads and railways but also  in health, education, and digital inclusion. Example: South Korea’s balanced approach boosted long-term productivity. 
4. Encourage Private Capital Expenditure: Improve ease of doing business, clearances, and  financing options to stimulate private infra investment. Economic Survey 2022–23  highlighted its importance for long-term growth. 

Conclusion

Well-targeted capital expenditure can reshape India’s growth trajectory—creating jobs,  attracting investment, and improving infrastructure. As seen in East Asia, Capex-led  development holds the potential to build a resilient, inclusive economy.