Fiscal Architecture for Inclusive Growth: Analysing the Employment Efficacy of Capital Expenditure in India's Socio-Economic System
DOI:
https://doi.org/10.65638/2978-8196.2025.01.08Keywords:
Unemployment, Capital expenditure, Recurrent expenditure, Real GDP growth rate, Private investment, Socio- Economic system, Socio-Economic analysisAbstract
This study empirically evaluates the relationship between government expenditure components, private investment, and unemployment in India over the period 2000–2024, with the objective of informing the country’s evolving fiscal strategy and its implications for inclusive development. Using time-series econometric techniques, unemployment is modelled as a function of capital expenditure, recurrent expenditure, real GDP growth, gross capital formation, and private investment. The stationarity of the series is established through the Augmented Dickey–Fuller (ADF) test to ensure robustness of the estimations. The results demonstrate that capital expenditure exerts a statistically significant negative effect on unemployment in both the short run and the long run, underscoring its capacity to stimulate labour demand, expand productive capacity, and generate durable employment opportunities. Recurrent expenditure, by contrast, shows no statistically meaningful effect on unemployment, indicating limited employment multipliers associated with consumption-oriented public spending.
These findings carry direct relevance for India’s contemporary fiscal framework, including the Medium-Term Fiscal Policy Statement and the investment-led consolidation approach envisaged under the FRBM architecture. The evidence supports a legislated and rules-consistent reallocation of expenditure toward high-impact public capital formation, complemented by the rationalisation of recurrent spending to expand fiscal space. Such a strategy can strengthen public–private complementarities, crowd in private investment, and enhance the employment elasticity of growth in sectors such as manufacturing, renewable energy, and digital infrastructure.
Viewed through the broader lens of equitable socio-economic outcomes and economic justice (‘adl), the study highlights fiscal policy as a structural instrument for correcting market asymmetries, reducing regional and demographic disparities, and expanding access to dignified livelihoods. By demonstrating the superior employment impact of capital expenditure, the paper positions capex-led fiscal strategy not merely as a macroeconomic choice but as a pathway toward inclusive growth, shared prosperity, and long-term socio-economic resilience in India.
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