Non Plan Expenditure
The Indian development process is centrally planned through a series of 5 year plans. At the beginning of each Plan, funds are estimated for approved plan schemes and every financial year (starting April 1), after a series of deliberations with stakeholders, the Planning Commission (in consultation with the Finance Ministry) allocates funds to various Central Ministries and to sub-national governments to implement these plans. There are, however a large number of heads of expenditure which are not allocated by the Planning Commission.
Expenditure, which does not come under the purview of the Planning Commission is called non-plan expenditure. This includes both developmental and non-developmental expenditure. Part of the expenditure is obligatory in nature e.g. interest payments, pensionary charges and devolution/statutory transfers to States, which are recommended by the Finance Commission.
A part of the expenditure is an essential obligation of the State, e.g. Defence and internal security. Then, there are special responsibilities of the Centre like external affairs, co-operation with other countries and currency and mint. Expenditure on maintaining the assets created in previous Plans is also treated as Non-plan expenditure. Similarly, expenditure on continuing services and activities at levels already reached in a Plan period is classified as Non-plan expenditure in the next Plan period, e.g. continuing research projects and operating expenses of power stations. Expenditure on salaries as well as explicit subsidies provided by the Government also form part of non-plan expenditure. Thus, as more Plans are completed, in addition to the interest on borrowings to finance the Plan, a large amount of expenditure on operation and maintenance of facilities and services created gets added to Non-plan expenditure.
The Committee on Non Plan Expenditure (CNE) in the Department of Expenditure (Ministry of Finance), chaired by Secretary (Expenditure) approves annual allocations towards non plan expenditure based on the inter-se priorities.
In the Central budget of 2011-12, non plan expenditure accounted for nearly 65 per cent of the total expenditure. Of this, defence expenditure accounted for a quarter of the non plan expenditure. In sub- national government budgets, also non plan expenditure accounts for a major share of total expenditure.
In sub-national governments annual financial statements also expenditure is divided into plan and non plan expenditure just as it is done in the case of the Union Government.
In the Union Budget 2016-17 it was stated that the Plan and Non-Plan classification will be done away with from fiscal 2017-18.A broad understanding over the years has been that Plan expenditures are good and Non-Plan expenditures are bad resulting in skewed allocations in the Budget. This is proposed to be corrected to give greater focus to Revenue and Capital classification of Government expenditure.