Merging plan and non-plan expenditures will be a big reform by Modi sarkar

A major expenditure reform is underway. It is mainly targeting abolition of the distinction between plan and non-plan expenditures as it has become dysfunctional and an obstacle in outcome-based budgeting. This is being planned from the next financial year 2017-'18.

This would mean a reduced role for the Niti Aayog with the finance ministry directly controlling decisions of financial allocation and spending.

The 14th Finance Commission, headed by the former Reserve Bank of India (RBI) governor YV Reddy, has been pitching for the distinction to go. The government is likely to listen to the Finance Commission's report in this regard.

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It is hoped that even the states and the comptroller and auditor general (CAG) will be in its favour. With all stakeholders on board, the Union and states can very well introduce the change from the next fiscal in their respective budgets.

The fiscal estimates of plan allocations are decided by the Niti Aayog while the finance ministry decides on the non-plan expenditure without referring it to the Niti Aayog.

Once the distinction is gone, the Niti Aayog might as well be able to guide the overall development priorities, setting of outcome targets and review of performance of the departments, while the government will be able to call the shots in terms of spending without a distinction between plan and non-plan expenditures.

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Budgetary allocations, plan or non-plan, will be henceforth handled by the finance ministry. The Niti Aayog can play a consultative role of suggesting schemes for sectoral spending.

Plan expenditure originally meant and covered development expenditure such as money spent on government programmes and flagship schemes.

Non-plan expenditure included spending on defence, subsidies and devolution to states.

The government wants to abolish the difference as this is considered a major hurdle in outcome-based budgeting.

According to the medium-term expenditure framework released last week, the government expects higher economic growth. With the difference between plan and non-plan expenditures gone from 2017-'18, the government expects to do more capital spending by setting aside a higher allocation from the next fiscal.

There are promising pictures of saving emerging from subsidies of fuel and food which is a conservation of non-plan expenditure to be put to bigger plan expenditure whether or not a distinction between the two exists.

The new issue that the government would like to tackle is the imbalance that exists between capital and revenue expenditures. It is taking steps to enhance the capital component within its total expenditure from Budget 2017-'18 with the merger of plan and non-plan expenditures.