Budget Explainer - Capital Expenditure

Capital Expenditure seems to be one of the most awaited figures in the government’s budget. But what is it and why is it so awaited?

• What is it?

Capital Expenditure is the money that the government spends for the development of machinery, equipment, building, health facilities, education, etc. If the government buys a fixed asset like land, the money spent in doing so is called capital expenditure. On the other hand, the money spent on repaying a loan is also known as capex as it reduces the government’s liability. So basically, all the money spent by the government for the creation or acquisition of assets is known as capital expenditure. 

• Why is it important?

Well, capex plays a triple role in the economy. 

1. It helps create assets for the government which generate income for many years.
2. It increases production and creates more jobs.
3. Most importantly, it helps in enhancing the country’s infrastructure.

• How much is it?

The government is trying to amp up the economy after the pandemic and has announced pretty high capital expenditures in the last two years. In 2021-22, capex was set as 2.5% of the GDP which was later increased to 2.9% in the next year. 

• What does a high capex mean? 

A high capex helps generate demand in the economy, attracts private investments over the long term and sustains economic growth.

What do you think? Will the high capex trend continue this year as well?

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