{"id":166368,"date":"2022-02-03T22:50:35","date_gmt":"2022-02-03T17:20:35","guid":{"rendered":"https:\/\/blog.forumias.com\/?page_id=166368"},"modified":"2022-02-03T22:50:35","modified_gmt":"2022-02-03T17:20:35","slug":"answered-do-you-agree-that-capex-spending-provides-a-big-boost-to-investment-activity-and-supports-economic-growth-give-reasons-in-support-of-your-answer","status":"publish","type":"page","link":"https:\/\/forumias.com\/blog\/answered-do-you-agree-that-capex-spending-provides-a-big-boost-to-investment-activity-and-supports-economic-growth-give-reasons-in-support-of-your-answer\/","title":{"rendered":"[Answered] Do you agree that Capex spending provides a big boost to investment activity and supports economic growth? Give reasons in support of your answer."},"content":{"rendered":"<p><span data-contrast=\"auto\">Capex (Capital Expenditure) refers to the <\/span><b><span data-contrast=\"auto\">money spent by the government<\/span><\/b><span data-contrast=\"auto\"> that leads to creation of <\/span><b><span data-contrast=\"auto\">assets that are long-term in nature<\/span><\/b><span data-contrast=\"auto\"> and yield benefits for years in the future. Expenditure on acquiring land, development of machinery, building, health facilities, schools etc. are examples of Capex. Capital Expenditure includes\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<ul>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"1\" aria-setsize=\"-1\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span data-contrast=\"auto\">Acquiring fixed and intangible assets.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"1\" aria-setsize=\"-1\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span data-contrast=\"auto\">Upgrading and repairing an existing asset.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"1\" aria-setsize=\"-1\" data-aria-posinset=\"3\" data-aria-level=\"1\"><span data-contrast=\"auto\">Repayment of loans.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><span data-contrast=\"auto\">Significance of Capex in boosting investment and economic growth\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<ul>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"1\" aria-setsize=\"-1\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span data-contrast=\"auto\">It <\/span><b><span data-contrast=\"auto\">creates a multiplier effect<\/span><\/b><span data-contrast=\"auto\">, where every rupee spent creates output worth 2-5 rupees. (National Institute of public finance and policy).<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"1\" aria-setsize=\"-1\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span data-contrast=\"auto\">It boosts infrastructure facilities that<\/span><b><span data-contrast=\"auto\"> increase the efficiency of the economy<\/span><\/b><span data-contrast=\"auto\">.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"1\" aria-setsize=\"-1\" data-aria-posinset=\"3\" data-aria-level=\"1\"><span data-contrast=\"auto\">It leads to the <\/span><b><span data-contrast=\"auto\">creation of Human Capital<\/span><\/b><span data-contrast=\"auto\">, when targeted towards the creation of schools, training institutes, hospitals etc.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"1\" aria-setsize=\"-1\" data-aria-posinset=\"4\" data-aria-level=\"1\"><span data-contrast=\"auto\">Capex in infrastructure or social sector ensure a <\/span><b><span data-contrast=\"auto\">more participative and inclusive economy<\/span><\/b><span data-contrast=\"auto\">, which increases labour force participation and production in the economy.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li><span data-contrast=\"auto\">Capex for repayment of loans, <\/span><b><span data-contrast=\"auto\">reduces liability and increases investor confidence<\/span><\/b><span data-contrast=\"auto\">.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li><span data-contrast=\"auto\">Capex by government creates conducive environment which <\/span><b><span data-contrast=\"auto\">leads to crowding in of private investment<\/span><\/b><span data-contrast=\"auto\">.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li><span data-contrast=\"auto\">Capex by government, can put money in the hands of people which<\/span><b><span data-contrast=\"auto\"> leads to demand creation and starts a virtuos cycle of growth<\/span><\/b><span data-contrast=\"auto\"> in the economy.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><span data-contrast=\"auto\">Capex becomes especially important in economies that are on the path of recovery, which is highlighted by the fact that Union government in the <\/span><b><span data-contrast=\"auto\">budget 2022<\/span><\/b><span data-contrast=\"auto\">, has announced a sharp <\/span><b><span data-contrast=\"auto\">increase of 35.4% in capital expenditure to Rs 7.5 lakh crore<\/span><\/b><span data-contrast=\"auto\">, for faster growth of economy post the pandemic induced slowdown.<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">However, Capital expenditure comes with its own caveats and risks.<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<ul>\n<li><span data-contrast=\"auto\">Capex for<\/span><b><span data-contrast=\"auto\"> covering the losses incurred by public enterprises<\/span><\/b><span data-contrast=\"auto\"> does not result in benefits for the economy.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li><span data-contrast=\"auto\">Capex that <\/span><b><span data-contrast=\"auto\">ignores critical areas like health, education<\/span><\/b><span data-contrast=\"auto\"> etc. has l<\/span><b><span data-contrast=\"auto\">imited positive effects.<\/span><\/b><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"1\" aria-setsize=\"-1\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span data-contrast=\"auto\">Spending money in <\/span><b><span data-contrast=\"auto\">capex while sustaining high fiscal deficit <\/span><\/b><span data-contrast=\"auto\">has risks increasing inflation, current account deficit and risks of financial stability. which could <\/span><b><span data-contrast=\"auto\">negatively affect investor confidence.<\/span><\/b><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"1\" aria-setsize=\"-1\" data-aria-posinset=\"3\" data-aria-level=\"1\"><span data-contrast=\"auto\">For Capex to be effective it <\/span><b><span data-contrast=\"auto\">has to be supplemented with a conducive regulatory regime.<\/span><\/b><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"1\" aria-setsize=\"-1\" data-aria-posinset=\"4\" data-aria-level=\"1\"><span data-contrast=\"auto\">Capex <\/span><b><span data-contrast=\"auto\">has to be implemented effectively<\/span><\/b><span data-contrast=\"auto\"> at all levels (central, state and local) to ensure a positive outcome.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><span data-contrast=\"auto\">Capex is an important tool used by the government to stimulate growth and attract investment. However, money spent on <\/span><b><span data-contrast=\"auto\">Capex must be well distributed and supported by other policy measures<\/span><\/b><span data-contrast=\"auto\"> to achieve the desired results.<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Capex (Capital Expenditure) refers to the money spent by the government that leads to creation of assets that are long-term in nature and yield benefits for years in the future. Expenditure on acquiring land, development of machinery, building, health facilities, schools etc. are examples of Capex. Capital Expenditure includes\u00a0\u00a0 Acquiring fixed and intangible assets.\u00a0 Upgrading&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/answered-do-you-agree-that-capex-spending-provides-a-big-boost-to-investment-activity-and-supports-economic-growth-give-reasons-in-support-of-your-answer\/\">Continue reading <span class=\"screen-reader-text\">[Answered] Do you agree that Capex spending provides a big boost to investment activity and supports economic growth? Give reasons in support of your answer.<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"class_list":["post-166368","page","type-page","status-publish","hentry","entry"],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/pages\/166368","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=166368"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/pages\/166368\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=166368"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}