Capital Expenditure vs Revenue Expenditure
Government spending that creates assets versus spending consumed in the current year.
Start here
Capital expenditure is government spending that creates physical or financial assets or reduces liability; revenue expenditure is recurring spending on salaries, subsidies, and interest that is consumed within the year.
The capex multiplier is a Budget buzzword — ₹1 of highway spending generates more GDP than ₹1 of subsidy payout. The accounting split explains why.
FRBM and rating agencies reward capex-heavy budgets; high revenue expenditure without matching receipts widens revenue deficit.
Side-by-side comparison
| Feature | Capital Expenditure | Revenue Expenditure |
|---|---|---|
| Deficit impact | CapEx-driven fiscal deficit can be growth-positive | RevEx mismatch → revenue deficit |
| Depreciation link | Assets depreciate over time (affects NDP later) | No depreciation — fully expensed now |
| State vs Centre | States capex lower share; interest + salaries heavy | Centre led PM Gati Shakti, capex incentives to states |
| Off-budget items | Some infra via SPVs (IFFCO, NHAI bonds) — fiscal transparency issue | Subsidy arrears sometimes off-budget |
| Defence split | Rafale jets, naval vessels — capital | Defence salaries and pensions — revenue |
| Quality of deficit | Capex-led deficit can be growth-positive | RevEx-heavy deficit widens revenue deficit — lower fiscal quality |
At a glance
Asset creation
Yes — infrastructure, machinery, loans given
No — consumed in current period
Examples
Railways, defence equipment, loan to states
Salaries, pensions, MGNREGS wages, subsidies, interest
Multiplier effect
High — crowding-in private investment
Lower — supports consumption, not capacity
Budget trend (India)
Capex doubled ~2019–2024 (infrastructure push)
RevEx dominated by interest + subsidies (~80%+ of total)
PM Gati Shakti highway vs PM-KISAN transfer
GoI spends ₹50,000 crore building the Delhi–Mumbai Expressway — capital expenditure. The road asset stays on the books for decades, boosting logistics productivity. Same year, it transfers ₹60,000 crore as PM-KISAN direct benefit — revenue expenditure (consumption support, no asset). Paying ₹10 lakh crore interest on past debt? Also revenue expenditure — it does not create new assets.
What this means for the exam
CapEx = builds/reduces liability | RevEx = consumed now — salaries, subsidies, interest.
Understand the difference
Effective capital expenditure
Budget 2021+ reports “effective capex” including grants-in-aid for capital asset creation by states. Understanding this prevents understating India’s infrastructure push in Mains answers.