The Indian government is set to expand the definition of capital expenditure (capex) starting from the fiscal year 2028 (FY28). This expansion aims to encompass spending on rehabilitating, retrofitting, and upgrading public assets, as well as investments in technology infrastructure. The initiative seeks to provide a more accurate representation of the government's investments in productive assets and enhance the quality of expenditure reporting.
The revised accounting framework will introduce dedicated expenditure categories for digital equipment and information, as well as computer and telecommunications (ICT) equipment. This change will allow the government to separately account for investments in software, ICT hardware, and telecommunications infrastructure, alongside traditional infrastructure assets such as roads, railways, ports, airports, power projects, and irrigation systems.
Under the new framework, expenditures on rehabilitation, overhaul, retrofitting, and upgrading public assets will be classified as capital expenditure and booked against the relevant asset category. Routine repair and maintenance will continue to be treated as revenue expenditure. This classification applies to a broad range of public assets, including roads, bridges, railways, ports, airports, power projects, irrigation systems, and other government-owned infrastructure.
Projects that could fall under the revised classification include strengthening and widening highways and bridges, mid-life rehabilitation of railway tracks, locomotives, and rolling stock, airport and port modernization, renovation and capacity enhancement of power plants, refurbishment of irrigation canals and dams, retrofitting government hospitals and public buildings to improve safety and energy efficiency, and major upgrades of water supply and sewerage networks. Such expenditures extend the productive life, capacity, or efficiency of an asset and therefore represent investment rather than consumption.
By recognizing these outlays as capital expenditure, the government expects to present a more realistic assessment of investments made in modernizing public infrastructure rather than only creating new assets. This approach aligns with the government's infrastructure-led growth strategy and aims to support economic development through enhanced public investment.
The introduction of dedicated expenditure heads for digital equipment and ICT equipment reflects the government's growing investment in digital governance and technology infrastructure to deliver public services, implement welfare programs, and facilitate financial transactions. Initiatives such as the Digital India program, Unified Payments Interface (UPI), direct benefit transfer (DBT), DigiLocker, and other digital public infrastructure are becoming integral to governance. The new accounting structure will allow policymakers to monitor investments in digital and ICT assets separately.
Abhash Kumar, assistant professor of economics at Delhi University, stated, "As public service delivery becomes increasingly digital, the revised framework is expected to improve transparency in technology-related public spending and facilitate better-informed policy decisions."
Ranen Banerjee, partner and leader of economic advisory at PwC India, commented, "As per accounting practices in the private sector, when an asset is replaced or a major overhaul is undertaken, such expenditure is capitalized and then depreciated over its life. Given government accounts are on a cash basis, expenditure is accounted only in the year it is spent and there is no provision of depreciation. Hence, to reflect the true extent of capex being done, it is fair to include expenditure on major retrofitting, rehabilitation, and significant upgrading of assets. Routine operation and maintenance should, however, remain outside the capex basket, with clear guidelines to prevent overstatement."
The revised accounting framework is set to take effect from FY28, providing ministries and departments time to align their budgeting, accounting, and financial management systems with the new expenditure classification. This transition period will ensure a smooth implementation of the changes and allow for necessary adjustments in financial reporting practices.
The government's decision to broaden the scope of capital expenditure underscores its commitment to infrastructure development and modernization. By including asset upgrades and technology investments in the capex category, the government aims to enhance the quality and efficiency of public infrastructure, thereby supporting sustainable economic growth and improving the delivery of public services to citizens.