Increase in States’ CAPEX

Increase in States’ CAPEX

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April 26, 2023

In accordance with previous patterns, the states spent around 54.7% of their Budgeted Capital Expenditure during this time. The Centre's emphasis on capital expenditure has pushed states to enhance their CAPEX, according to the Union Finance Ministry on Tuesday. According to the Ministry, capital expenditure by states between April-February 2023 was 11.9% greater than the previous year, citing statistics from the Controller General of Accounts (CGA). In accordance with previous patterns, the states spent around 54.7% of their allocated Capital Expenditure during this time.

What exactly is CAPEX (Capital Expenditure)? - They are spending incurred to create long-term economic assets, whereas revenue expenditures are those incurred to create assets for the Indian government.

Types of Capital Expenditure

Capital expenditures are often classified into two categories: (1) spending to sustain present levels of operation within the organisation, and (2) expenses to permit future growth. A capital cost, such as an equipment or a patent, can be both tangible and intangible. Capital expenditures, both intangible and tangible, are typically considered assets since they may be sold when required. It is critical to remember that funds spent on asset repair or routine maintenance are not Capital Expenditures and must be expensed on the income statement anytime repair and maintenance expenditures are incurred.

Expansion - For both industrial and infrastructural projects, the expenditures and benefits of Capital Expenditure are frequently spread out over a lengthy period of time. A time period of this length challenges the determination of discount rates and the creation of equivalence.

Replacement - Machines and equipment that have become outdated as a result of breakdown or advancement in technology.

Diversification - entails making investments in new product lines and sectors in order to reach diverse goals.

Strategic Investment - entails the purchase of land, property, and other costs as a result of strategic investment choices. That will almost certainly help you in some manner.

The Center's CAPEX budget for FY24 is 33% greater than the previous year, at 3.3% of GDP. The Centre has also announced that the 50-year interest-free loan to state governments under 'The Scheme for Special Assistance to States for Capital Investment' will be extended with an additional outlay of Rs 1.3 trillion. According to the Ministry, this is expected to stimulate infrastructure investment and incentivize governments to implement complementing policy measures. For the previous several years, public CAPEX has been critical in halting the decline in the economy's gross fixed capital creation, with federal and state PSUs also contributing significantly. The Ministry believes that the much-delayed private CAPEX cycle would resume in FY24.

Source - Financial Express