Context:
Capex loan to states may be 20% lower than Budget estimates.
Capital Expenditure:
- Investments made by the government or private businesses to upgrade existing or build new physical assets.
- Has a multiplier effect on the economy by creating demand and stimulating economic activity.
- Main Types of CAPEX:
- Infrastructure Development – Building and upgrading public infrastructure such as roads, highways, railways, ports, airports, power plants, and water supply systems.
- Defence and Security – Acquisition and maintenance of defence equipment, weapons systems, and other security-related investments.
- Social Sector Spending – Investments in education, healthcare, and social welfare programs to improve citizens’ quality of life.
- Effective Capital Expenditure:
- Capital expenditure presented in the budget does not include the spending by the government on creating capital assets through grants-in-aid to states and other agencies.
- They are classified as revenue expenditure in the budget, but they also contribute to the creation of fixed assets such as roads, bridges, schools, hospitals, etc.
- Thus, to capture the true extent of public investment by the central government, a concept of ‘effective capital expenditure’ has been introduced.
- Effective capital expenditure is defined as the sum of capital expenditure and grants for creation of capital assets.
- Budgeted at Rs 13.7 lakh crore or 4.5% of GDP (Union Budget 2023-24).
Source: The Economic Times
Previous Year Question
Which of the following is/are included in the capital budget of the Government of India?
1. Expenditure on acquisition of assets like roads, buildings, machinery, etc.
2. Loans received from foreign governments
3. Loans and advances granted to the States and Union Territories
Select the correct answer using the code given below:
[UPSC Civil Services Examination – 2016 Prelims]
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Answer: (d)
