The distinction between plan and non-plan expenditure in budget had created schools without teachers and hospitals without doctors. In the light of this statement, discuss major issues pertaining to plan and non-plan distinction.
Introduce with the abolition of the plan and non-plan classification
Highlight the major issues like focus on plan expenditure, excessive union control etc.
Model Answer :
The Union budget 2017-18 discarded the Plan and Non-Plan expenditure classification. The relevance of plan and non-plan expenditure was lost after the abolition of the Planning Commission. Earlier, the Rangarajan committee had also recommended to abolish this distinction.
The union government control and micro-management of the plan model has led to excessive focus on ‘plan expenditure’ while non-plan items such as maintenance were neglected.
Once the capital assets or the posts are created under plan expenditure, the assets/posts and maintainance are shifted to the non plan side of budget and are often neglected with little allocation. As a result, this distinction is said to have created schools without teachers and institutions without employees.
The States resented the tied nature of funds made available by Planning Commission. In the context of fiscal federalism, this distinction was an obstacle for achieving the goals of co-operative federalism.
The ARC report has also pointed out that, the Plan and Non-Plan divide runs too deep and it was difficult to give a comprehensive idea about resource availability to the departments at an early stage of budget development.
While the Ministry of Finance is charged with the responsibility of maintaining aggregate fiscal discipline, the allocation of resources was in accordance with strategic priorities determined largely by the erstwhile Planning Commission and the line departments were held accountable for the efficient and effective use of resources. Hence funds allocated did not match policy priorities and often the spending did not produce the intended results.
The policy regarding what should get classified as plan expenditure and what should get classified as Non-Plan expenditure has lost clarity. Also, with fragmented distinction, it became difficult not only to ascertain cost of delivering a service but also to link outlays to outcomes. Outcomes and outputs of programmes depend on total expenditure, Plan and Non-Plan put together. Hence doing away with the distinction was a much needed step.