Capital expenditure

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.

About Capital expenditure

• It is the money spent by the government or Company on the development of 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 dividends in future. 

• It is associated with investment or development spending, where expenditure has benefits extending years into the future.
• Importance: It leads to the creation of assets that are long-term in nature and allow 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.
  • Along with the creation of assets, repayment of loans is also a capital expenditure, as it reduces liability.

How is capital expenditure different from 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 payments on past debt, subsidies, pensions, etc, fall under the category of revenue expenditure. It is recurring in nature.

Source: TH