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Choose the correct statement related to government expenditure.
Revenue expenditure directly contributes to GDP growth.
Revenue expenditure impacts assets liability of the government.
Revenue expenditure does not impact assets liability of the government.
Capital expenditure directly contributes to GDP growth.
Capital expenditure directly contributes to GDP growth.
Capital expenditure involves spending on the creation of assets such as roads, hospitals, and machinery, which expands the productive capacity of the economy and contributes directly to GDP growth. Conversely, revenue expenditure is primarily for operational costs and recurring expenses, which do not create productive assets.
Capital expenditure involves spending on the creation of assets such as roads, hospitals, and machinery, which expands the productive capacity of the economy and contributes directly to GDP growth. Conversely, revenue expenditure is primarily for operational costs and recurring expenses, which do not create productive assets.
Budgetary procedures are governed by Article 112 of the Indian Constitution, which mandates the Annual Financial Statement to distinguish between expenditure on revenue account and other expenditure.
Capital expenditure (CapEx) creates physical or financial assets or reduces government liabilities.
Revenue expenditure (RevEx) is incurred for the normal running of government departments and provision of services.
Budgetary classification of expenditure is essential for calculating the Fiscal Deficit under the FRBM Act, 2003.
Option C is technically correct in definition regarding liability, but Option D is the standard answer in competitive exams as it describes the economic impact (multiplier effect) of investment expenditure.
Revenue expenditure includes salaries, pensions, interest payments, and subsidies, which are consumption-oriented.
Capital expenditure includes investments in infrastructure (like NHAI projects) and loans to states, which stimulate long-term economic activity.
Option A is incorrect because revenue expenditure is largely consumptive and does not directly create income-generating capacity.
D is correct тАФ Capital expenditure involves long-term investments in infrastructure and assets that directly increase the nation's productive capacity and GDP.
When studying fiscal policy, always link Capital Expenditure to 'Multiplier Effect'тАФevery 1 rupee spent on infrastructure typically generates significantly higher indirect GDP growth compared to revenue spending.
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