Plan, non-Plan distinction for expenditure might go

Could be recommended in Finance Commission's Oct report and be accepted

A major expenditure reform is possible in the near future, by abolishing the distinction between Plan and non-Plan expenditure from the next financial year.

This could reduce the role of the Planning Commission, with the finance ministry deciding all allocations.

The 14th Finance Commission (FC) might propose elimination of the distinction to the ministry when it gives its report in October.

These recommendations have always been accepted by the Centre; if states and the Comptroller & Auditor General are also on board, the changes could get reflected in the Union Budget of 2015-16, followed by state budgets.

Earlier, the Rangarajan committee had proposed to remove the distinction but the Planning Commission opposed it. Since the FC is a Constitutional body, its recommendations will have more weight than the Rangarajan committee, said a finance ministry official, requesting anonymity.

Plan expenditure, originally meant as development expenditure, is spent on government programmes and flagship schemes, while non-Plan expenditure includes spending on defence, subsidies and devolution to states; the latter is the major part of government spending. The government wants to remove the distinction as it has become dysfunctional and an obstacle in outcome-based budgeting.

"The finance ministry in its terms of reference (ToR) had not asked us to restrict to non-Plan expenditure. For earlier Commissions, they said look at non-Plan revenue expenditure. So, we are supposed to look at all spending, Plan and non-Plan," said an official with the FC.

D K Srivastava, executive director, EY, and a member of both the 12th FC and the Rangarajan panel, said: "If they interpret their task to also cover Plan spending, they have to make a comprehensive assessment of the needs of states for various services provided through the Plan grant route."

The estimates of Plan allocation are decided by the Planning Commission; the finance ministry decides non-Plan expenditure without reference to the Commission. Once the distinction is removed, the Planning Commission, as suggested by the Rangarajan panel, might look at guiding the overall development priorities, setting of outcome targets and review of performance of departments. Budgetary allocations, Plan and non-Plan, will be handled by the finance ministry.

The Planning Commission can evaluate schemes and suggest sectoral expenditure, the ministry official added.

The new government has yet to reconstitute the Planning Commission.

In 1998-99, Bharatiya Janata Party leader Yashwant Sinha, later the finance minister, had advocated elimination of the distinction. It had led to excessive focus on so-called Plan expenditures, with a corresponding neglect of items such as maintenance, which is classified as non-Plan, he'd said.

In the first two FCs, too, this distinction was not made and they used to give grants for development purposes. A reference to non-Plan was made in the ToR of subsequent Commissions.

BLURRING THE LINE

* Plan expenditure, originally meant as development expenditure, is spent on government programmes and flagship schemes

* Non-Plan expenditure includes spending on defence, subsidies and devolution to states

* In 1998-99, the then finance minister, Yashwant Sinha, had advocated the elimination of Plan and non-Plan distinction

* The Rangarajan committee also recommended the same in 2011

* The government wants to remove the distinction between the two as it has become dysfunctional and an obstacle in outcome-based budgeting

* Once the distinction is removed, the Planning Commission might look at guiding the overall development priorities, setting of outcome targets and review of performance of departments

* Budgetary allocations, Plan and non-Plan, will be handled by the finance ministry