Rangarajan committee for end to distinction between plan and non-plan expenditure, FinMin seems in sync.
The accounting system of the central and state governments may change considerably, with a high-level committee suggesting sweeping changes in how expenditure is classified in Budget documents.
The committee, headed by the Prime Minister's Economic Advisory Council chairman, C Rangarajan, has suggested the division between Plan and Non-Plan expenditure be ended. It is, however, not in favour of reclassifying revenue and capital expenditure.
The way revenue expenditure (revenex) is classified in the Budget is considered obsolete by many, as the method does not give a true picture of the expense in creating capital assets.
Some experts argue that if the end-use of funds is for capital creation, it should be classified as capital expenditure (capex).
For instance, aid to states for spending on infrastructure development is classified as revenex, though it is in the nature of capex.
In the last Budget, the finance ministry had introduced a new measure called effective revenue expenditure.
Of the total revenex of Rs 1,097,162 crore (Rs 10,971.62 billion), it classified Rs 1,46,853 crore (Rs 1,468.53 billion) as grants that would be used to create capital assets. This reduced effective revenex to Rs 9,50,309 crore (Rs 9503.09 billion).
In its report, likely to be given to the Planning Commission shortly, the Rangarajan panel has argued that any grant to states for a development work such as building roads would come under 'capital budget' in the books of the states, but in the Union Budget it has to be cl-assified as revenex because it is not creating any assets in the books of the Centre.
The finance ministry appears to be in sync with the recommendations. An official said cl-assification of revenex would remain the same, but the concept of 'effective revenue
deficit' might stay because the 'effective revenue deficit' could be reduced to zero, but not total revenue deficit.
"Removing the distinction between plan and non-plan expenditure will simplify things for everyone. Instead of three columns at present - Plan, Non-Plan and total - there will be only one column - expenditure. No country has such a distinction (Plan and non-Plan) today," the official added.
Plan expenditure is aimed to measure what is spent on productive asset creation for the government's programmes and flagship schemes.
Non-Plan expenditure includes defence expenditure, subsidies and devolution to states, forming a major part of total government spending.
Once the distinction is removed, both the Planning Commission and the finance ministry will have to look at the entire Budget.
At present, the Plan panel looks at only Plan expenditure and the finance ministry decides Non-Plan expenditure without reference to the panel.
With the change, the Commission may look at tasks such as review and monitoring, whereas budgetary allocation may be handled by the finance ministry.
In states, the distinction creates more complications. Once the Centre accepts the committee's recommendations, the same accounting procedure will be followed in states, too.
The Rangarajan panel will also suggest measures for effective management of public expenditure and changes in the structure of the Budget. A committee member said many of the recommendations were on the lines of the Asok Lahiri report of 2004 on 'classification of government transactions'.
"Purely from an accounting point of view, assets that are financed by an entity but not owned by it should be excluded from its balance sheet, since they neither are available to the entity for financing its liabilities nor provide any future financial benefit to it," the Lahiri panel had said.
The Plan panel will have to formulate the 12th Five-Year Plan in line with the proposed changes if these are accepted.
The accounting system of the central and state governments may change considerably, with a high-level committee suggesting sweeping changes in how expenditure is classified in Budget documents.