1. Expenditure which results in creation or acquisition of assets.
2. Expenditure on operational expenses that don't create any assets, but are routine spends.
2/n
Union budget proposed big rise in Capital Expenditure. What does does it mean?
A simple thread to understand Capital Expenditure vs Revenue Expenditure and its potential impact on the economy.
And why this may lead to rotation in sectoral winners.
1/n
1. Expenditure which results in creation or acquisition of assets.
2. Expenditure on operational expenses that don't create any assets, but are routine spends.
2/n
1. It is incurred for normal running of government departments and maintenance.
2. It does not result in creation of assets.
3. It is recurring in nature and incurred regularly.
4/n
5. For example, expenditure on medicines, salaries of government employees, subsidies and other freebies like loan waivers, etc..
Such Expenditure, if increased disproportionately, usually leads to cycles of higher inflation in the economy
5/n
1. It is incurred for acquisition of capital assets
2. It results in creation of assets
3. It is non-recurring in nature
4. It is generally a long period expenditure
5. For example, construction of hospitals, roads, dams, etc. is capital expenditure
6/n
High capital expenditure usually means more investment by the government to create infrastructure and other assets that are strategically important for economic growth.
7/n
The multiplier effect is a name for the fact that every rupee of government spending creates some additional amount of private sector spending.
8/n
9/n
If money is given directly to people through subsidies then it may just stay in their bank accounts or at best be spent to buy some goods. Here the multiplier may be smaller.
10/n
Capital outlay has highest multiplier effect.
11/n
Rather, governments have spent more on subsidies which lead to sharp rise in demand.
12/n
Such growth is unsustainable and non-inclusive.
13/n
High revenue expenditure of the Union government has often been blamed for lower than potential economic growth (output gap) and higher inflation.
14/n
