The system of classifying government expenditure into two categories Plan and non-Plan is set to change, with the Planning Commission coming to the conclusion that the distinction is illogical and dysfunctional.
The Plan panel has proposed the formation of a high-level committee to look into the entire gamut of issues arising from the present system.
Government funds spent on productive asset creation through programmes and schemes are termed "Plan" expenditure, while "non-Plan" is a generic term that refers to all expenditure (including establishment and maintenance activities) of the government not included in the Plan.
The proposed change is part of the 11th Plan (2007-12) document, cleared by the Union Cabinet on November 30. It is now slated to be discussed and approved by the National Development Council, a body that comprises all chief ministers, on December 19.
The Plan document points out general perception that the Plan expenditure creates new assets and non-Plan expenditure is unproductive and wasteful, and, therefore, needs to be minimised.
"The argument against continuing with this distinction is that the focus on new schemes and projects, as against the ongoing schemes, which alone qualify for being included in the Plan, results in neglect of maintenance of the existing capacity and service levels," the 11th Plan document states.
The problem has become particularly acute as the United Progressive Alliance government has emphasised a lot on the social sector, where salary costs are high. Routine bans on recruitment for non-Plan posts to conserve expenditure cause serious problems for service delivery in health, education and extension systems.
"It is a welcome step. Due to the present distinction, non-Plan expenditure gets low priority and assets already created are not maintained properly. We should start categorising our expenditure as revenue and capital," said an eminent economist who did not wish to be quoted.
However, the Planning Commission has pointed out that a revenue-capital categorisation is also fraught with many anomalies, as capital expenditure as currently defined does not always amounts to investment.
For example, a loss-making public sector enterprise may receive injections of equity to fund losses.
The high-level committee proposed will look into the entire gamut of issues arising from the present classification of expenditure and suggest measures for efficient management of public expenditure.
It may also redefine organisational mandates assigned to various government entities for government expenditure management.