5.2.1. Scrapping of Plan and Non-Plan classification

The previously exiting Plan and non-plan classification of expenditure has been done away with from FY 2017-2018 and their place has been now taken by capital and revenue spending classifications. In 2011, an experts’ committee headed by C. Rangarajan had proposed that this distinction should be abolished.

Under the previous classification, all expenditures which were done in the name of planning were called plan expenditures while all other expenditures were placed under non-plan expenditures. Further, generally (not always), the plan expenditure produced some tangible assets related to economic development. This was the reason that plan expenditures were also called “development expenditures”.

Rationale behind this move

1. This move is in line with the scrapping of Planning Commission and thereby development based on hitherto existing planning.

2. This classification has led to an increasing tendency to start new schemes/projects neglecting maintenance of existing capacity and service levels.

3. It has also led to the misperception that non-plan expenditure is inherently wasteful, adversely affecting resource allocation to social sectors like education and health where salary comprises an important element.

4. It prevented any meaningful 'outcome based budgeting' because only plan expenditure is considered for looking at outcomes while practice should be to look at total expenditure.

5. Growing complexity in nature of government and expenditure on varied heads ensure that

segregating a head under plan or non-plan items is not done on rational grounds and hence the distinction is not logical.

6. The distinction meant that infrastructure like schools come under planned expenditure while expenditure on teachers come under non-planned expenditure likewise hospitals under planned and salaries etc. of doctors under non-planned. This mismatch leads to mismanagement and ineffective resource utilization.