The Plan and Non-Plan expenditure heads created distrotions in developmental funding which seek resolution.

With the government moving away from the system of five-year plans from the next financial year, the distinction between Plan and Non-Plan is soon going to be a thing of the past, once the new Budget comes into effect. The practice of classifying expenditure budget as Plan and Non-Plan in the Budget documents was introduced from the First Five Year Plan in 1951, with the Planning Commission deciding the estimates of plan allocation.

Plan expenditure has included spending incurred on programmes and schemes of the government detailed under the prevailing Five Year Plan: it included all kinds of expenditure on schemes, whether on Recurring, or Revenue or Capital heads. Taking Sarva Siksha Abhiyan as an example, expenditure on teachers’ salary constituted Plan Revenue Expenditure, and that on construction of school buildings was Plan Capital Expenditure.

Non-Plan expenditure has referred to outlays on routine functioning of the government. Interest payments, subsidies, salary and pension payments (for regular cadre staff across sectors), police, defence, expenditure on maintenance of assets or infrastructure across sectors constituted Non-Plan expenditure. In important development sectors, more than two-third of total public spending has come from Non-Plan budget.

To understand the pattern of fund allocation followed until now, let us take an example. The government made allocations to the Rural Development Ministry for building roads under the Pradhan Mantri Gram Sadak Yojana as Plan Expenditure, but their maintenance belonged to Non-Plan budget. Similarly, funds for regular cadre teachers (Kendriya Vidyalayas, Navodaya Vidyalas, other government schools) and for regular cadre doctors (Health centres and Medical colleges of the government) came from Non-Plan Budget, while salary for the contractual teachers (under SSA) and contractual doctors (under NHM) came from Plan Budget. With the unveiling of this Union Budget, all expenditure will be reported together.

There were issues related to accounting of expenditure classified as Plan and Non Plan. This classification had given rise to a misleading notion that Plan expenditure was developmental and Non Plan was non-developmental. The bias for Plan over Non-Plan had gained wide acceptance and required correction. This notion led to an excessive focus on Plan expenditures, with a corresponding neglect of items such as maintenance that was classified as Non-Plan. An even more adverse consequence of neglect of Non-Plan was acute shortage of regular cadre staff across sectors in most states. The bifurcation had also contributed to fragmentation of available resources; allocations based on this distinction made it difficult to ascertain cost of delivering a service. Resource allocation would be easier now by putting plan and non-plan expenditure together; this approach of looking at expenditure as a whole will also help link outlays to outcomes better. There are quite a few states that will follow the new budgeting practice in line with the Centre and scrap this distinction. It is necessary for the Union government to ensure that the states that decide to continue with these segments in their next budgets do not face difficulties.

Under the Scheduled Castes Sub-Plan (SCSP) and Tribal Sub-Plan (TSP) strategies, plan resources were being earmarked from the budget of Union ministries and State departments in proportion to their share in population (16 per cent for dalits and 8 per cent for adivasis). The government has announced that earmarking of funds for SCSP/TSP by Union ministries in their respective programmes and schemes will be retained at the same level as 2016-17 and 2015-16; however, clearer norms for these strategies are needed by the Ministries as well as state departments. With the abolition of Planning Commission, the Ministry of Social Justice and Empowerment and Ministry of Tribal Affairs, will need to play a greater role in monitoring SCSP/TSP fund utilisation.

An important objective of development planning was to address the disparities faced by backward regions and disadvantaged sections through channeling additional public resources for them and achieving balanced development. Decentralised planning is the most important strategy in planning for socio-economic development. Strengthening of District Planning Committees that are constitutionally mandated to prepare development plans is the government’s responsibility. These important objectives need to be integrated into the budgeting process in the new budgetary classification. While the plan and non-plan distinction is being dropped, excessive focus on ‘capital’ and ‘revenue’ classification and their definition has its own risks. The tendency to promote capital expenditure and check the growth of revenue expenditure is problematic for crucial sectors such as Education and Health, which report large chunks of expenditure in revenue account.