BackDe-jargoned: Plan and non-plan expenditure
The government's expenditure is divided under two broad headsplan and non-plan
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The biggest takeaway from the interim budget presented by the finance minister P. Chidambaram on 17 February was that the government will be able to contain the fiscal deficit in the current fiscal at 4.6% of the gross domestic product (GDP) against the target of 4.8% of the GDP. However, to contain deficit, the government had to slash the plan expenditure during the year while the non-plan expenditure still went up. This disappointed many analysts.
Plan and non-plan expenditure
The government’s expenditure is divided under two broad heads—plan and non-plan. Non-plan expenditure constitutes bulk of the government’s expenditure. According to estimates, it is expected to be 68.5% of the government’s total expenditure in the next financial year. In the current financial year, the proportion is estimated to be at over 70% of the total expenditure.
The plan expenditure of the government is normally associated with productive expenditure, which helps increase the productive capacity of the economy. It includes outlays for different sectors such as rural development and education. Non-plan expenditure, on the other hand, includes expenses on heads such as interest payment on government debt, subsidies, defence, pensions and other establishment costs of the government. A large part of this is obligatory in nature. For example, the government may cut allocation towards rural development or education if it falls short of funds, but it cannot cut interest payments on borrowed funds.
According to estimates, in the next financial year, the government will spend about 4.27 trillion on interest payments, which will be over 24% of the total budgeted expenditure for the year. Similarly, in the next fiscal, the expenditure on subsides is estimated to be over 2.5 trillion.
The trade-off
At any point of time, the government has limited resources that it is able to generate through tax and non-tax revenue. Therefore, there is always a trade-off between spending on one head or another. However, what happens is that under pressure to contain expenditure, the government ends up cutting the plan expenditure since a part of the non-plan expenditure is either an obligation or a necessity for the state to function and, therefore, difficult to cut.
Lower plan expenditure adversely impacts the growth prospects of the economy. So, it is important that government rationalizes expenditure on heads such as subsidies in the non-plan segment. This will help it contain the deficit and allow it to spend on activities that create assets and contribute to development in the long run.
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