Consider the following statements : Statement-l: The ratio of revenue expenditure to capital outlay (RECO) is decreasing continuously since 2020-21. Statement-ll: Fiscal composition has become more investment-focused since 2020-21.
Which one of the following is correct in respect of the above statements ?
(a). Both Statement-I and Statement-II are correct and Statement-ll explains Statement-I
(b). Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
(c). Statement-I is correct, but Statement-II is incorrect
(d). Statement-I is incorrect, but Statement-II is correct
Explanation Statement-l is correct: The Indian government has been emphasizing capital expenditure over revenue expenditure to stimulate economic growth. Data indicates a consistent increase in capital outlay relative to revenue expenditure: . 2020-21: Capital outlay was ₹1.27 lakh crore, while revenue expenditure was ₹13.49 lakh crore. . 2021-22: Capital outlay increased to ₹1.50 lakh crore, with revenue expenditure at ₹14.83 lakh crore. . 2022-23 (RE): Capital outlay further rose to ₹1.69 lakh crore, and revenue expenditure was ₹15.83 lakh crore.This trend reflects a deliberate shift towards enhancing capital investments. Statement-lI is correct: This period encompasses the profound economic disruptions triggered by the COVID-19 pandemic and the subsequent shift toward infrastructure-led revival. The Centre responded to the crisis with large-scale fiscal interventions - direct cash transfers, emergency health allocations, liquidity measures for stressed sectors - while pivoting toward higher capital outlays to stimulate growth. This policy choice is reflected in the rising share of capital outlay in GDP (from 1.6 per cent in 2020-21 to 2.8 per cent by 2024-25 (BE)) and the concurrent fall in the RECO ratio. It may be noted that the Centre’s effective capital expenditure (i.e., including outlays on grants-in-aid for creation of capital assets) was placed higher at 4.6 percent of GDP in 2024-25 (BE). Fiscal composition has, thus, became more investment-focused,
Statement-II explains statement-I: Since Fiscal composition has become more investment-focused since 2020-21 that is the root cause of decreasing the revenue expenditure to capital outlay (RECO) ratio.
Kutos:Economy Expert
Hello! I am a Economy expert. You can ask any question or request a detailed analysis related to this topic.
