CPSEs’ Capital Expenditure

Subject – Economy

Context – At 20%, CPSEs’ capex pace strong, yet below target

Concept –

Capital expenditure by large central public-sector entities — companies and undertakings – rose by 19 per cent on year to Rs 3.1 lakh crore in the first eight months of the current financial year.
In April-November of FY22, the railways was the largest investor by deploying capex of about Rs 93,000 crore or 48 per cent of its annual target of Rs 1.95 lakh crore.

Capital expenditures

Capital expenditures are the ones that create some liability/asset for the government. These include loans to public enterprises, loans to States, Union Territories and foreign governments and acquisition of valuables.
They are long-term investments of huge amount of money for acquiring long-term assets like manufacturing equipment. Such assets acquired provide income-generating value over a period of years.
Hence, the cost of such assets is recovered through year-by-year depreciation over the productive life of the asset. In essence, the expenditure which is done for initiating current, as well as the future economic benefit, is actually capital expenditure.

Examples of capital expenditures

Purchase of factory and building.
Purchase of machine, furniture, motor vehicle, office equipment etc.
Cost of goodwill, trademarks, patents, copy right, patterns and designs.
Expenditure on installation of plant and machinery and other office equipment.
Additions or extension of existing fixed assets.
Structural improvement or alterations as to fixed assets which increase their life or earning capacity. For example: Conversion of handloom to powerloom.
Development expenses in case of mines and plantations.

To know about Capital Expenditures and Revenue Expenditures, please refer October 2021 DPN.