Budget may drop plan, non-plan classification of expenditure

“If the accounting of expenditure is classified broadly under revenue and capital...I think this is where the focus is,” Union Finance Secretary Ratan P. Watal tells the first meeting of State finance secretaries.

The Centre is looking to do away with the practice of classifying expenditure as ‘plan and non-plan’ in the Budget documents as part of an effort to improve the link between spending and outcomes, Union Finance Secretary Ratan P. Watal said on Tuesday. The distinction, in the budget due to be presented in February 2016, he indicated, could be between ‘capital and revenue’ spending—a proposal first mooted in 2011 by Dr. C. Rangarajan, the Chairman of the Economic Advisory Council to then Prime Minister Dr. Manmohan Singh.

“In the backdrop of the abolition of Planning Commission and setting up of NITI Aayog, the classification of expenditure as plan and non-plan is in the way of losing its relevance. If the accounting of expenditure is classified broadly under revenue and capital...I think this is where the focus is,” Mr. Watal said speaking at the first meeting of State finance secretaries convened by the Union Finance Ministry.

For the remainder of the XII Plan, which will run till 2017, the current practice will continue but after that the new distinction was expected to be adopted also at the state level, the Finance Secretary clarified.

The Centre was working on a ‘Plan B’ to ensure the fiscal deficit during 2015-16 will remain within the budget target of 3.9 per cent of the GDP despite lower-than-projected growth and likely increases in expenditure on account of the seventh pay commission award, Mr. Watal told reporters after the conference.

He also said that that those schemes that are based on cesses collected by the Centre, such as for education or the Swachh Bharat mission, could see changes once the GST comes into play.

Also speaking at the conference, Minister for State for Finance Jayant Sinha said that the macro-economic indicators of late have shown positive trend and the structural reforms undertaken have started contributing to sustainable growth through participation by States.

He also stressed on the need to enhance social sector spending and increase capital expenditure while at the same time staying on the path of fiscal consolidation.

Addressing the State finance secretaries, Mr. Sinha dwelled upon the priorities for inclusive growth and emphasised access to financial services, direct benefit transfers (DBTs) and the need to remove agricultural distress.

Finance secretaries of 29 States and two UTs participated in the conference convened against the backdrop of 14th Finance Commission’s recommendations, which are being implemented from 1st April, 2015 and will continue to be in place till March 31, 2020.

The objective of the conference was to ensure capital and social sector expenditures are enhanced without losing sight of fiscal consolidation.

In his address, Mr. Watal also said that that the deliberations would help the Government to understand States’ finances better and also aid the implementation and governance issues. He also said that, in future, such meetings would be held in a much more structured and planned manner and on a regular basis.

Economic Affairs Secretary Shaktikanta Das, Financial Services Secretary Anjuli Chib Duggal and Chief Economic Adviser Dr. Arvind Subramanian also attended the meeting.