Capex UPSC NOTE

Why in news

Fresh investments significantly increased in the July-to-September quarter, bouncing back after a decline in the first quarter due to the Lok Sabha elections.
Both government capital expenditure (capex) and private investments rose, leading to a total investment jump of 42.5% to ₹9.21 lakh crore.
State governments increased their spending more than the Central government, with notable growth in projects from various states, especially Maharashtra and Gujarat.

While manufacturing and infrastructure projects surged 79% and 45% respectively, the mining sector saw a 18.1% decline in investment.
Of the 2,684 new investments announced in Q2, 1,093 were government projects, while 1,591 were from the private sector.

Capex

Capital expenditure (Capex) is the money spent by the government on the development of machinery, equipment, building, health facilities, education, etc.
Capital expenditure includes money spent on the following:

Significance of capital expenditure:

Multiplier effect - Capex has the maximum multiplier effect (change in rupee value of output with respect to a change in rupee value of expenditure).
This multiplier effect works through expansion of ancillary industries and services and job creation.
Labour productivity - On the supply side, Capex can facilitate labour productivity.
Macroeconomic stabiliser - Capital expenditure is an effective tool for countercyclical fiscal policy and acts as a macroeconomic stabiliser.

Revenue generation - Capital expenditure leads to the creation of assets are long-term in nature and allow the economy to generate revenue for many years and boosts operational efficiency.
Liability reduction - Along with the creation of assets, repayment of loan is also capital expenditure as it reduces liability.
Economic growth - Government capex catalyses private investment, increases production capacity thereby speeding up economic growth which in turn creates a lot more jobs.

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