The Union government’s expenditure reforms programme is set to take an interesting turn. As reported in this newspaper, an official committee, headed by Dr C Rangarajan, set up to reclassify government expenditure for better accounting of outlays has suggested doing away with the distinction between what Budget documents term as “plan” and “non-plan” expenditure. The committee is of the view that this distinction is out of step with standard budgetary practice and its abolition will simplify both the management and classification of government expenditure. Until now, the government has been classifying its expenditure on major programmes and flagship schemes under the plan head, while the spending on interest payments, defence, subsidies, loans and grants to states would come under the non-plan category. If the finance ministry accepts these recommendations, the 2012-13 Union Budget will adopt the new format in classifying government expenditure.
The move will be significant with many ramifications for the government’s expenditure management and the role of the Planning Commission. Of the government’s total expenditure, almost 65 per cent is classified under the non-plan head, an area that has long remained the exclusive domain of the finance ministry. It is in the remaining 35 per cent of the government’s expenditure where the Planning Commission and the finance ministry hold pre-Budget consultations to decide the Budget allocations for different programmes, schemes and central ministries. It is likely that once the distinction between plan and non-plan expenditure is eliminated, the Planning Commission will have a larger say in the manner in which the finance ministry decides to allocate funds for a host of schemes and programmes like subsidies and grants to states. In a quasi-federal country, where the Planning Commission is expected to be the voice of the states at the Centre and play the role of the Union government’s apex think tank, there is no reason Yojana Bhavan’s role should be restricted to advising the finance ministry only on plan expenditure. The finance ministry, too, will benefit from such expert advice from the Commission, which has the prime minister as its chairperson.
Another significant view expressed by the Rangarajan committee is that there is no need to reclassify revenue and capital expenditure. The finance ministry may be disappointed by this suggestion since it has been in favour of reclassifying a large chunk of its total revenue expenditure as capital expenditure, given that new assets are being created by such spending. The current year’s Budget even estimated such expenditure at Rs 1.47 lakh crore (or almost 1.6 per cent of gross domestic product) and took this into account to claim that the government’s effective revenue deficit was only 1.8 per cent of gross domestic product, compared to a revenue deficit of 3.4 per cent. The Rangarajan committee has correctly argued that the expenditure that creates assets in the books of state governments should continue to be defined as revenue expenditure since it does not create assets for the Centre. This is sensible advice, more so because it would put the necessary pressure on the Centre to make concerted efforts to achieve genuine reduction in revenue deficit, instead of achieving cosmetic contraction through mere bookkeeping.
