Finance Minister Nirmala Sitharaman on December 17 said capital expenditure is a better route to boost consumption rather than "just putting money in the hands of the people".
"...It is not going to benefit if we just spend money or put money in the hands of the people, promote immediate consumption, so that people can go in the market buy their essentials, they are important, but the multiplier effect from spending on the revenue account is far lesser than when we spend on capital expenditure," she said while speaking in the Lok Sabha.
The finance minister explained her stance by emphasising that for every rupee spent on the capital account, the multiplier effect can be as much as 4.3 rupees, "whereas spending on revenue account, for every one rupee, you would get only 0.98 paise...".
Her comments come at a time when there have been concerns around a slowdown in expenditure and its impact on India's growth potential and consumption levels.
After accelerating to a seven-quarter high of 7.4 percent in Q1 FY25, Private Final Consumption Expenditure or PFCE, slowed down to 6.0 percent during July-September.
However, in the first half of the current fiscal, private consumption grew 6.7 percent versus 4.0 percent during the same period in 2023-24. PFCE is a key indicator to measure spending incurred by households.
While rooting for the capex route to push for sustained and high growth in the economy, Sitharaman said, "Capital expenditure amounts are only growing, not just in actual numbers, but in percentage as well. This year, we allocated Rs 11.11 lakh crore for capital expenditure. If we understand that together with the amounts that we have given to the states this year particularly, we have given Rs 1.5 lakh crore to the states as interest-free 50-year loan for capital assistance. If effective capital expenditure of the Union Govt is taken on board... you get the figure is pegged at Rs 15.02 lakh crore."
Capex spending has remained muted so far, with the government spending 42 percent of the fiscal year budget of Rs 11.11 lakh crore, compared with 54.7 percent spent during the April-October period last fiscal.
Sitharaman said that the pace of government's expenditure has picked up since after the second quarter of the current fiscal.
The Union finance minister's take on prioritising capex over direct cash transfers is significant given that many states, amid elections, have announced and implemented plans to put more money in the hands of key demographics, especially women.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
