New Delhi: The finance ministry will not remove the distinction between Plan and non-Plan expenditure in the budget for the next fiscal year.
This goes against the recommendations of several panels, including that led by the Prime Minister’s economic advisory council chairman C. Rangarajan, to get rid of the distinction to make government expenditure more accountable.
“We do not see any merit in abolishing the current distinction and opting for any new categorization,” a finance ministry official said, declining to be identified. “The present distinction of Plan and non-Plan expenditure explains the nature of expenditure correctly at least by 80%.”
Finance minister P. Chidambaram will present the budget for 2013-14 on 28 February.
Plan expenditure is spent on productive asset creation through centrally-sponsored programmes and flagship schemes, while non-Plan expenditure refers to all other expenses such as on defence, subsidies, interest payments and salaries.
Over time, the distinction between the two types of expenditures has blurred. The notion that Plan expenditure is good and non-Plan expenditure is bad has encouraged both the Union and state governments to budget for higher Plan expenses.
This bias has also led to a situation where essential non-Plan expenditure such as maintenance of assets created is being neglected. A ban on the creation of new government posts, a part of non-Plan expenditure, has added to the problem.
The Rangarajan committee, in a report on Efficient Management of Public Expenditure that it submitted to the Planning Commission in September 2011, called for removing the distinction to make linking budgetary outlays to outcomes easier and a more comprehensive multi-year budgeting framework possible.
The Planning Commission, too, had proposed abolishing this distinction, saying in its 11th Plan (2007-12) document that it was “illogical and dysfunctional”. The document was prepared in 2007.
Montek Singh Ahluwalia, deputy chairman of the Planning Commission, India’s apex plan body, said the proposal can now be taken up by the next government after the general election in 2014 as states at present are not keen on the proposal. “I don’t think states want to come to the Planning Commission and defend what they do on the non-Plan side,” he said.
“The issue of taking a view on how to classify every head of expenditure has been going on for a long time as the existing dispensation does not feel it is something that should be on the front-burner,” said B.K. Chaturvedi, transport and energy member at the Planning Commission.
Experts said removing the distinction is important as that can reduce misallocation and distortion of government expenditure.
“Maintenance of existing assets is more important and could even contribute more to intended outcomes than creation of new assets, but the classification leads to a distorted focus on creating new assets under plans,” said D.K. Srivastava, chief policy adviser at Ernst and Young. “It is difficult to find any other country that maintains this kind of a classification now.”
“These are deep reforms that once implemented will make it possible to reduce the cost of schemes by making public expenditure efficient,” a second government official said on condition of anonymity. “Today, we are looking at outcomes and drawing conclusions from only Plan expenditure, which is not giving us the full picture of the costs and outlays.”
Public finance scholar N.R. Bhanumurthy of the National Institute of Public Finance and Policy said the distinction could be removed for new projects. “Implementing this important recommendation for ongoing projects may be difficult for the government at this juncture, but it may be easier to do it for new projects,” he said.