Plan and Non-Plan allocations

FM Arun Jaitley may break tradition and move away from plan and non-plan budget allocations a method of accounting that considered five-year plans, which began in 1952 and ended in 2014 – to budgeting by annual capital and revenue expenditure.

We know that since 1st April 1951, India has adopted the path of planning (Five Year Plans) to achieve its rapid economic development. So far, ten Five Year Plans have been implemented and presently the Eleventh Five Year Plan (2007-2012) is in operation w.e.f. April 1, 2007.

In the light of these plans, government expenditure is classified into plan expenditure and non- plan expenditure on the basis of whether or not it arises due to plan proposals.

(a) Plan Expenditure: Any expenditure that is incurred on programmes which are detailed under the current (Five Year) Plan of the centre or centre’s advances to state for their plans is called plan expenditure. Provision of such expenditure in the budget is called Plan Expenditure.

Expressed alternatively, “plan expenditure is that public expenditure which represents current development and investment outlays (expenditure) that arise due to proposals in the current plan.” Such expenditure is incurred on financing the Central plan relating to different sectors of the economy.

Items of plan expenditure are: (i) expenditure on electricity generation, (ii) irrigation and rural developments, (iii) construction of roads, bridges, canals and (iv) science, technology, environment, etc. It includes both revenue expenditure and capital expenditure.

Again, the assistance given by the Central Government for the plans of States and Union Territories (UTs) is also a part of plan expenditure. Plan expenditure is further sub-classified into Revenue Expenditure and Capital Expenditure which along with their components are shown in the preceding chart.

(b) Non-Plan Expenditure: This refers to the estimated expenditure provided in the budget for spending during the year on routine functioning of the government. Non- Plan expenditure is all expenditure other than plan expenditure of the govt. Such expenditure is a must for every country, planning or no planning.

For instance, no government can escape from its basic function of protecting the lives and properties of the people and protecting the country from foreign invasions. For this, the government has to spend on police, Judiciary, military, etc. Similarly, the government has to incur expenditure on normal running of government departments and on providing economic and social services. (Courtesy: http://www.economicsdiscussion.net/)