Sitharaman bats for capex over free cash transfers to boost consumption
New Delhi: Finance Minister Nirmala Sitharaman on Tuesday asserted that capital expenditure (capex) is a more effective way to boost consumption than simply “putting money in the hands of the people,” media reports said.
"...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 during her address in the Lok Sabha, reported Money Control
Explaining her position, the finance minister highlighted that every rupee spent on the capital account can generate a multiplier effect of up to 4.3 rupees, compared to just 0.98 paise for every rupee spent on the revenue account.
Her remarks come amid concerns over slowing expenditure and its potential impact on India’s growth and consumption levels.
Private Final Consumption Expenditure (PFCE), which reflects household spending, slowed to 6.0 percent in the July-September quarter after rising to a seven-quarter high of 7.4 percent in Q1 FY25.
However, for the first half of the fiscal year, private consumption grew 6.7 percent, up from 4.0 percent in the same period of 2023-24.
Sitharaman underscored the government’s focus on capex for achieving sustained and robust economic growth.
She noted capital expenditure amounts are growing in actual numbers, as well as in percentage.
“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," she told the Lok Sabha.
Despite muted capex spending so far—42 percent of the Rs 11.11 lakh crore budget was utilised in the April-October period, compared to 54.7 percent in the same period last year—Sitharaman noted that the pace of government expenditure has picked up after the second quarter of this fiscal year.
The finance minister’s emphasis on capex over direct cash transfers draws attention, especially as several states, amid elections, have announced schemes to provide cash benefits to key demographics, particularly women.
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