Relevance: GS III (Indian Economy – Investment Models & Budgeting) | Source: The Hindu Business Line
1. The Context: Budget 2026 & The Pivot
The Union Budget 2026 has continued the government’s strategy of heavy spending (Capital Expenditure) to boost the economy.
- The Pivot: While the focus has traditionally been on building Physical Assets (Roads, Railways), experts argue we must now shift to “Digital Capex” (investing in AI, Data Centers, and Digital Platforms).
- Why? Physical roads have limits (traffic jams, wear and tear). Digital highways (like UPI or ONDC) have infinite capacity and generate much higher growth for every rupee spent.
2. The Power of the “Multiplier”
The Capex Multiplier measures how much GDP grows for every ₹1 the government spends.
- Physical Multiplier: Investing in roads/bridges creates about ₹2.5 to ₹3.5 of GDP for every ₹1 spent.
- Digital Multiplier: Investing in digital assets creates a massive >₹6 to ₹10 of GDP.
- The Secret: Digital assets have “Network Effects.” A road deteriorates (loses value) as more people use it. A digital network improves (gains value) as more people join, with almost zero cost to add a new user.
3. Why Digital Capex Wins?
- Smart Spending: Building a digital platform costs a fraction of building a physical expressway but connects millions to the global market instantly.
- Crowding-In: When the government builds the digital “skeleton” (Aadhaar/UPI/AI Infra/Bharat Net), the private sector rushes in to build the “muscles” (Apps like PhonePe, Paytm), creating huge employment.
UPSC Value Box
| Concept / Term | Simple Definition |
| ONDC | Open Network for Digital Commerce. A government-backed initiative to democratize e-commerce. It allows small kirana stores to sell online without being dependent on big monopolies like Amazon or Flipkart. |
| Incremental Capital Output Ratio (ICOR) | It measures efficiency. It asks: “How much money do I need to invest to get one extra unit of output?” Lower is better. Digital infrastructure makes India more efficient (lowers ICOR). |
| Crowding-In Effect | When government spending encourages private companies to invest more. (e.g., Govt builds a digital market $\rightarrow$ Private companies build apps to sell on it). |
In the context of the Indian economy, a “Lower Incremental Capital Output Ratio (ICOR)” implies:
- That the country needs more capital to produce the same amount of output.
- That the efficiency of capital usage in the economy has improved.
- That the government has stopped all capital expenditure.
Correct Answer: (2)
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