“Capital expenditure is increasingly used as a tool of bailout rather than asset creation”. Substantiate with recent examples. Evaluate its implications for long-term fiscal sustainability. Outline measures to ensure that capex translates into genuine infrastructure creation.
Kartavya Desk Staff
Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment
Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment
Q5. “Capital expenditure is increasingly used as a tool of bailout rather than asset creation”. Substantiate with recent examples. Evaluate its implications for long-term fiscal sustainability. Outline measures to ensure that capex translates into genuine infrastructure creation. (15 M)
Difficulty Level: Medium
Reference: Mint
Why the question India’s capex headline growth hides its diversion into bailouts, misclassifications, and state debt rollover. It has implications for fiscal health and demands reforms. Key demand of the question The question requires substantiating with recent factual examples, evaluating long-term risks to fiscal sustainability, and suggesting concrete measures to align capex with genuine infrastructure creation. Structure of the Answer: Introduction Define the ideal role of capex as asset creation and multiplier for growth; contrast with its emerging misuse. Body Substantiation – Give examples of loans, equity infusions, and state misclassifications showing bailout use. Fiscal sustainability – Show how this erodes multiplier, raises debt servicing burden, and risks debt trap. Measures – Suggest accounting reforms, outcome-linked transfers, disinvestment/turnaround of PSEs, FRBM-linked discipline, and stronger audit oversight. Conclusion Conclude with the need for transparent, outcome-based public spending to convert fiscal effort into durable growth capital.
Why the question India’s capex headline growth hides its diversion into bailouts, misclassifications, and state debt rollover. It has implications for fiscal health and demands reforms.
Key demand of the question The question requires substantiating with recent factual examples, evaluating long-term risks to fiscal sustainability, and suggesting concrete measures to align capex with genuine infrastructure creation.
Structure of the Answer:
Introduction
Define the ideal role of capex as asset creation and multiplier for growth; contrast with its emerging misuse.
• Substantiation – Give examples of loans, equity infusions, and state misclassifications showing bailout use.
• Fiscal sustainability – Show how this erodes multiplier, raises debt servicing burden, and risks debt trap.
• Measures – Suggest accounting reforms, outcome-linked transfers, disinvestment/turnaround of PSEs, FRBM-linked discipline, and stronger audit oversight.
Conclusion
Conclude with the need for transparent, outcome-based public spending to convert fiscal effort into durable growth capital.