Reclassifying public expenditure

From fiscal 2017-18 onwards, the Government is introducing a significant structural reform in the budgetary expenditure classification system. It has decided now to classify expenditure as Revenue and Capital instead of the hitherto Plan and Non-Plan classification.

There are multiple advantages of this structural reform. Not only is it a constitutional requirement but also in tune with international best practice and is an essential ingredient for policy formulation and efficient resource allocation. It would enable us to follow the “golden rule” of balancing Current account expenditure with Current Revenue over an economic cycle and restricting borrowings to investments.

It is important to note the fact that development expenditure is spread across both Revenue and Capital accounts. Revenue expenditure also includes various incentives and subsidies like power, fertilizer, rice etc., which benefit the end consumers, and grants-in-aid to local bodies and autonomous institutions for development purposes.

Revenue expenditure also covers maintenance expenditure of assets created earlier. Maintenance expenditure is equally vital because it contributes to sustaining the development activity initiated in the past. Outcomes of programmes depend on total expenditure.

This expenditure classification enables us to take a unified consideration of the budget. This is a lasting structural reform needed to make our economy fit for the future and to protect the future generations and not burden them. It will ensure that Government lives within its means, balances the budget and reduces the burden of long term debt.