Budget is a statement of estimated receipts and expenditures of the government in respect of every financial year.
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| What is plan and non-plan expenditure? | Budget is a statement of estimated receipts and expenditures of the government in respect of every financial year. Budgeting is the process of estimating the availability of resources and then allocating them to various activities of an organization according to a pre-determined priority. |
| How is government expenditure classified in the budget? |
Any expenditure that is incurred on programmes which are detailed under the current (Five Year) Plan of the centre or centre’s advances to state for their plans is called plan expenditure. Provision of such expenditure in the budget is called Plan Expenditure. Expressed alternatively, “plan expenditure is that public expenditure which represents current development and investment outlays (expenditure) that arise due to proposals in the current plan.” Such expenditure is incurred on financing the Central plan relating to different sectors of the economy. Items of plan expenditure are: Expenditure on electricity generation, (ii) Irrigation and rural developments, (iii) Construction of roads, bridges, canals (iv) Science, technology, environment, etc. It includes both revenue expenditure and capital expenditure. Again, the assistance given by the Central Government for the plans of States and Union Territories (UTs) is also a part of plan expenditure. 1. Non-plan expenditure: These include interest payments on government debt, expenditure on organs of the state such as the judiciary and the police and even expenditure on the maintenance of existing government establishments such as schools and hospitals. Non-plan expenditure too, has revenue and capital components. |
| Why there is proposal for removing this distinction? | 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.
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. The classification of expenditure as plan and non-plan had become “dysfunctional” and it had created a bias among policymakers in favour of plan expenditure. Since non -plan expenditure is considered wasteful insignificant amounts are allocated for it which leads to lack of maintenance of the asset created under plan budget which ultimately adversely effects the outcomes of the expenditure incurred on plan budget. Hence the 14th Finance Commission (FC) has proposed elimination of the distinction to the finance ministry as it becomes an obstacle in outcome-based budgeting. |