To enable state governments manage their finances better, the government is planning to do away with the classification of plan and non-plan expenditure in the Budget documents.
Instead, the government wants to treat the two as ‘capital’ and ‘revenue’ spending.
In a pre-Budget meeting with state finance secretaries, union finance secretary Ratan Watal said that the finance ministry has already started discussions on the subject. “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 losing its relevance... If the accounting of expenditure is classified broadly under revenue and capital... I think this is where the focus is.”
“Change in classification will help in better public expenditure management,” he added.
In 2011, an expert committee headed by C Rangarajan had first proposed removing the distinction between plan and non-plan expenditure for both the Centre and states.
Also, the Expenditure Management Commission, headed by former RBI governor Bimal Jalan, recently suggested that all expenditure be classified as revenue and capital.
Earlier in the day, addressing state finance secretaries, minister of state for finance Jayant Sinha emphasised the need for increasing social-sector spending and enhancing capital expenditure while remaining on the path of fiscal consolidation.
A finance ministry statement quoting Sinha said: “The macro-economic indicators of late have shown positive trend and structural reforms undertaken have started contributing to sustainable growth through participation by states. He also stressed on the need to increase social sector spending and increase capital expenditure and at the same time strive to remain on path of fiscal consolidation...He dwelled upon the priorities for an inclusive growth wherein support for the poor people has to be kept in mind. Sinha emphasised on access to financial services; direct benefit transfers (DBTs); removing distress in agriculture by encouraging investment and solving credit issues and tackling the problem of unplanned urbanisation among others.”
Department of economic affairs secretary Shaktikanta Das, department of financial servicessecretary Anjuli Chib Duggal, chief economic adviser Arvind Subramanian, special secretary (expenditure) AN Jha and controller general of accounts MJ Joseph were also present at the meeting.
Besides expenditure management, cess-based schemes, including education or Swachh Bharat mission, liquidity and fund flow planning, which affect financial management, were also discussed. Cess-based schemes are likely to undergo some kind of change when the Goods and Services Tax (GST) comes into play, since all kind of taxes have to be phased out. “So we have to see how best we can manage these schemes,” Watal said.
The Centre is hopeful of meeting the fiscal deficit of 3.9% of GDP for 2015-16, he added.