A recent research article published by the RBI has examined the linkages between economic growth and fiscal consolidation. Interestingly, the article redefines capex and considers developmental expenditure (DE) instead. DE is broader in its scope, as it includes socioeconomic expenditure, covering allocations for healthcare, education, skilling, digitalization and climate-risk mitigation. The aim is to capture components of revenue expenditure that could actually result in physical and human capital formation. As against capex, which is budgeted to account for 3.4% of GDP in FY25, DE is set to be around 4.2% in the same year. That is good news for the economy. DE is an important policy indicator worth paying attention to.
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