In news: Recently, the government has crossed 50 percent of its budgeted target for capital expenditure, or the Rs 5 lakh crore mark, so far in the ongoing financial year 2023–24.

The overall trends in revenue and spending were along expected lines, and the Center should be able to meet its stated fiscal deficit target of 5.9 percent of the gross domestic product.

Capital Expenditure

  1. Capital expenditure is the money spent by the government on the development of machinery, equipment, buildings, health facilities, education, etc. It also includes the expenditure incurred on acquiring fixed assets like land and investments by the government that will yield profits or dividends in the future.
  2. Capital spending is associated with investment or development spending, where expenditure has benefits extending years into the future. Capital expenditure includes money spent on the following:
  • Acquiring fixed and intangible assets
  • Upgrading an existing asset
  • Repairing an existing asset
  • Repayment of the loan

Importance of Capital Expenditure

  1. Capital expenditure, which leads to the creation of assets, is long-term in nature and allows the economy to generate revenue for many years by adding or improving production facilities and boosting operational efficiency. It also increases labor participation, takes stock of the economy, and raises its capacity to produce more in the future.
  2. Along with the creation of assets, the repayment of loans is also a capital expenditure, as it reduces liability.

Revenue Expenditure

  1. Unlike capital expenditure, which creates assets for the future, revenue expenditure is one that neither creates assets nor reduces any liability for the government.
  2. Salaries of employees, interest payments on past debt, subsidies, pensions, etc. fall under the category of revenue expenditure.
  3. It is recurring in nature.

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