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Concept of Capital Expenditure
Concept of Capital Expenditure
Tags: Gig Economy Economy WTO WTO Public Stockholding MSP Economic Growth Masala Bond Environmental Performance Index Forecast of Economic Growth Functions of the Finance Commission
Capital expenditure, according to the Union government, is defined as the acquisition of assets like land, buildings, machinery, and equipment as well as the investment in shares. The money the government spends on building, machinery, equipment, education, and other construction projects is known as capital expenditure. It also includes the cost of acquiring fixed assets like land and government investments that yield future profits or dividends.
Concept of capital expenditure
Capital expenditure is linked to spending on investment or development, which has benefits that last for years. Capital expenditures include the following expenditures:
• Purchasing intangible and fixed assets
• Improving an existing asset
• Repaying a loan
Why is capital expenditure important?
The long-term nature of capital expenditure, which results in the creation of assets, enables the economy to generate revenue for many years by expanding or enhancing production facilities and improving operational efficiency. It also takes stock of the economy, increases its capacity to produce more in the future, and raises labor participation. Repaying a loan is also considered capital expenditure because it reduces liability, which results in the creation of assets. However, the government must exercise caution when spending money. Capital expenditure accounted for 14.2% of Budget Estimates for 2019-20. To meet the deficit goal, the government had to drastically reduce public spending toward the end of the year. Compared to 2017-18, total expenditures decreased by 0.3 percentage points in 2018-19. This includes a decrease in revenue expenditure of 0.4 percentage points and an increase in capital expenditure of 0.1 percentage points.
Why is spending on capital important?
• A government's investment in the creation of infrastructure and other assets, which are essential for rapid economic growth, typically increases when capital expenditure is high.
• The construction of roads, highways, dams, bridges, ports, airports, and railway lines is referred to as capital expenditure.
• India's failure to develop the social and physical infrastructure necessary for high economic growth resulted in decades of low growth rates.