Capital Expenditure meaning: The Union government defines capital expenditure as the money spent on the acquisition of assets like land, buildings, machinery, equipment, as well as investment in shares.
What do you mean by Capital Expenditure? The expenditure incurred by the government is broadly divided into two parts – that which results in creation or acquisition of assets, and the other that is used for operational expenses and liabilities and does not create any kind of assets. The first category is called capital expenditure, and the second is revenue expenditure. Union Budget is broadly divided into two parts – revenue account and capital account. These two are further divided into receipts and expenditure. For example, the capital account is divided into capital receipts and capital expenditure. Similarly, the revenue account is divided into revenue receipts and revenue expenditure.
What is Capital Expenditure in simple words?
The Union government defines capital expenditure as the money spent on the acquisition of assets like land, buildings, machinery, equipment, as well as investment in shares.
What are the examples of Capital Expenditure?
Capital expenditure is the part of the government spending that goes into the creation of assets like schools, colleges, hospitals, roads, bridges, dams, railway lines, airports and seaports. Capital expenditure also covers the acquisition of equipment and machinery by the government, including those for defence purposes. Capital expenditure also includes investment by the government that yields profits or dividend in future.
Why is Capital Expenditure important?
- High capital expenditure usually means more investment by the government towards the creation of infrastructure and other assets that are crucial for rapid economic growth.
- Capital expenditure means construction of roads, highways, dams, bridges, ports, airports and railway lines.
- India experienced low growth rates for decades as it failed to develop physical and social infrastructure, the key to achieving high economic growth.
Capital expenditure versus revenue expenditure debate
In India, both the Union government and state governments have often been criticised for spending too little on creating assets. For example, 85-90% of the Union government’s spending goes into the revenue account. High revenue expenditure of the Union government has often been blamed for low economic growth.
Capital Expenditure in Defence
Purchase of new weapons and weapon systems such as missiles, tanks, fighter jets and submarines requires extensive capital investment. Nearly a third of the central government’s capital expenditure goes into the defence sector, mostly for weapon purchases. Though defence spending is counted as capital expenditure, it does not result in the creation of infrastructure that can facilitate economic growth.