Capital Expenditure (CapEx) is an economic and accounting concept that refers to the funds spent by a business or government to acquire, upgrade, or maintain long-term physical assets, such as land, buildings, machinery, and equipment. The Union government in India defines CapEx as money spent on asset acquisition, including investments in shares, loans, and advances to state governments and corporations. The core problem this concept solves is distinguishing between spending that provides a benefit for only the current financial year and spending that creates a lasting asset for future periods.
The mechanism of CapEx is rooted in accounting principles, which dictate that the expenditure is capitalised and recorded as an asset on the balance sheet, rather than being immediately expensed. Since the asset provides benefits over multiple years, its cost is gradually charged to the profit and loss account over its useful life through a non-cash expense called depreciation. This is in contrast to Revenue Expenditure (RevEx), which covers day-to-day operational costs like salaries and rent, and is fully expensed in the year it is incurred.
In the Indian context, CapEx is a crucial indicator of economic growth, as government spending on infrastructure like highways, railways, and ports is a major component. The distinction between CapEx and RevEx is governed by accounting standards like Ind AS 16 (Property, Plant and Equipment) and Ind AS 38 (Intangible Assets), which set criteria for capitalisation. Recently, the Central Government has shown a strong commitment to preserving its CapEx, budgeting ₹12.22 lakh crore for FY27 to sustain growth momentum despite fiscal stress. This focus on CapEx, which has risen sharply from ₹2 lakh crore in FY15, is a deliberate policy choice to boost the country's productive capacity.