Plan Expenditures, Non-Plan Expenditures & Gross Budgetary Support

November 5, 2011

This article differentiates Plan Expenditure, Non-Plan Expenditure and Gross Budgetary Support and explains why the Rangarajan Panel calls for removal of plan, non-plan distinction.

We all know about the Five Year Plans. In the annual budgets, the central plan is the government’s annual expenditure sheet, which follows the five year roadmap developed for the Five year Plan. The expenditures of the government are divided in two broad categories:

Plan Expenditures

Plan expenditures is theoutlay on schemes and programmes formulated by various ministries of the government mainly under 5 year plans and other development programmes.
They are further subdivided into central plan, state plan and Union Territory plan. This expenditure includes the central assistance to states etc.
The funding for Central Plan is split almost evenly between government support (from the budget) and internal and extra-budgetary resources of state-owned enterprises.
Out of this, the government’s support to the central plan is called thebudgetary support.
The Budgetary support to the central Plan is called Central Plan Outlay.
Plan Expenditure comprises the amount the Centre sets aside for plans of states and Union territories. Like all budget heads, this is also split into revenue and capital components.

So, Central or annual plans are essentially the five year plans broken down into five annual instalments. Through these annual plans, the government achieves the objectives of the Five-Year Plans

Non-Plan Expenditures

The non-plan expenditures are those expenditureswhich are outside that incurred in keeping with the plans formulated under the 5 year plans.
It includes interest payments on the money which we have borrowed from outside, expenditures on our internal and external defense and security, subsidies, grants to state governments and Union territories, Pensions, Assistance from national calamity funds, grants to foreign governments, etc.
Plan expenditures and Non-plan expenditures may be on revenue account or on capital account.
You must note thatNon-plan expenditures are NOT tied to any scheme. For example subsidies are not tied to any scheme and thus all classified under the Non-plan expenditures.
Biggest chunk of Non-plan expenditure goes to Defense.

Recently, a Planning Commission panel headed by chairman of the Prime Minister’s Economic Advisory Council (PMEAC) C Rangarajan has recommended for eliminating the distinction between plan and non-plan expenditure in the budgetary process.

The committee says that this willfacilitate linking expenditure to outcomes and better public expenditure.
We can see that if implemented, this would dilute the role of the Planning Commission in resource allocation.
The report says that Plan and Non-Plan distinction in the Budget is neither able to provide a satisfactory classification of developmental and non-developmental dimensions of government expenditure nor an appropriate Budgetary framework.
It has therefore become dysfunctional. The report says that commission should be responsible for formulation of the five-year plan and the task of firming up annual Budgets should be entrusted to the finance ministry, based on inputs from the plan panel.

Gross Budgetary Support

The funding of the central plan is split almost evenly between government support (from the Budget) and internal and extra budgetary resources of public enterprises.
The government’s support to the central plan is called the Gross Budgetary Support, or the GBS. In the recent years the GBS has been slightly more than 50% of the total central plan.
The administrative ministries responsible for various development schemes present their demands before the planning commission. The planning commission aggregates and vets these demand. It then puts forward a consolidated demand before the finance ministry for the budgetary support it needs from the central exchequer.
The amount approved by the finance ministry is usually less than that demanded by the planning commission because of the multiple objectives the North Block has to keep in mind will making allocations. The planning commission in turn adjusts the allocated amount among various demands.

Central plan includes the GBS and the spending of the public enterprises that do not figure in the budget. In that sense the government’s spending on the central plan is limited to GBS. But the centre also provides funds to states and union territories for their respective plans. This contribution, together with the GBS, makes up the total plan spending of the government for a year. This is about 30% of the total government expenditure.

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