Non Plan Expenditure

Non-Plan Expenditure refers to all government expenditures that are not directly linked to the Five-Year Plans or annual plans for developmental programmes. It primarily includes the day-to-day operational, maintenance, and committed expenditures of the government, such as defence, interest payments, subsidies, pensions, and administrative costs.
Until 2017–18, the Government of India classified its budgetary expenditure into Plan and Non-Plan components. After the merger of the Plan and Non-Plan distinction with the revenue and capital classification, the term Non-Plan Expenditure was discontinued. However, understanding this classification remains important for analysing India’s historical fiscal framework and expenditure management.

Background and Evolution

The distinction between Plan and Non-Plan Expenditure originated in 1951, with the launch of India’s First Five-Year Plan.

• Plan Expenditure covered spending on developmental projects and schemes formulated under the central plans and state plans.
• Non-Plan Expenditure, on the other hand, included all other routine and obligatory government expenditures necessary to maintain existing services, institutions, and public administration.

This bifurcation was intended to facilitate planning-based budgeting, allowing policymakers to track resources allocated for development versus regular administrative needs.
Over time, however, Non-Plan Expenditure began to dominate the budget, raising concerns about the declining share of development-oriented spending. Consequently, in 2017, following recommendations from the Rangarajan Committee (2011) and the Sub-Group of Chief Ministers (2015), the Government of India abolished the Plan/Non-Plan distinction, adopting a Revenue–Capital expenditure classification for greater transparency and efficiency.

Definition and Meaning

Non-Plan Expenditure refers to all expenditures incurred by the government that are not part of the planned development programmes. These expenditures are often recurring and obligatory in nature, aimed at maintaining existing public services, ensuring governance continuity, and meeting contractual or constitutional obligations.
Such expenditures are essential for the functioning of the state machinery, even though they may not directly contribute to developmental or capital asset creation.

Major Components of Non-Plan Expenditure

Non-Plan Expenditure was broadly classified into Revenue and Capital components, depending on the nature of spending.

1. Revenue Component

This forms the bulk of Non-Plan Expenditure and includes items of a recurring nature:

• Interest Payments:Payments made on government borrowings (both domestic and external). This is one of the largest components.
• Defence Expenditure:Salaries, pensions, maintenance of armed forces, and procurement of equipment and supplies.
• Subsidies:Expenditure on food, fertilisers, petroleum, and other essential commodities to support social and economic policies.
• Salaries and Pensions:Compensation to central government employees and retired personnel, including administrative and police services.
• Grants to States and Union Territories:Transfers from the Centre to states for maintenance of existing programmes or for meeting revenue gaps.
• Administrative Expenses:Operational costs of ministries, departments, and constitutional bodies (e.g., Parliament, Judiciary, Election Commission).
• Debt Servicing and Repayment:Outflows towards repayment of internal and external loans, excluding borrowings for capital projects.
• Social and Economic Services (Non-Plan):Expenditure on ongoing educational, health, or infrastructure schemes not classified under new plan programmes.

2. Capital Component

Capital non-plan expenditures relate to creation or maintenance of physical assets and investments that are not part of the plan outlay:

• Capital Defence Expenditure:Purchase of military hardware and strategic equipment.
• Loans to Public Sector Enterprises and States:Advances extended by the Centre for specific non-plan purposes.
• Repayment of Loans:Principal repayments of past loans and advances.
• Investments in Financial Institutions:Equity participation or recapitalisation of banks and other government-owned entities.

Examples of Non-Plan Expenditure

Characteristics of Non-Plan Expenditure

1. Recurring and Obligatory:These expenditures recur annually and are necessary for maintaining existing systems and governance functions.
2. Less Development-Oriented:They generally do not result in direct creation of productive assets or developmental infrastructure.
3. High Fixed Commitment:A large portion of Non-Plan Expenditure comprises fixed obligations like interest, salaries, and pensions.
4. Dominant Share in the Budget:Historically, Non-Plan Expenditure accounted for over 70% of total government spending, reflecting the limited fiscal space for new developmental projects.
5. Non-Discretionary Nature:The government has limited flexibility in cutting down such expenditure due to legal, contractual, or social obligations.

Trends in Non-Plan Expenditure

• In the 1980s and 1990s, Non-Plan Expenditure increased sharply due to rising subsidies, defence outlays, and interest payments.
• By 2014–15, Non-Plan Expenditure accounted for nearly 68% of total expenditure, while Plan Expenditure was around 32%.
• Major drivers of this rise included:
  • Implementation of Pay Commission awards.
  • Growing food and fertiliser subsidies.
  • Increasing debt servicing liabilities.
  • Expanding social sector commitments.

This imbalance led to concerns over fiscal consolidation, prompting the government to shift to a Revenue–Capital classification for clearer budgeting.

Limitations and Criticisms

The Plan–Non-Plan classification faced widespread criticism for several reasons:

1. Artificial Distinction:Many Non-Plan expenditures, such as maintenance of hospitals or schools, were essential for development but were not categorised as “plan” spending.
2. Neglect of Maintenance:Heavy focus on Plan Expenditure led to underfunding of maintenance and operational expenses of existing assets.
3. Fiscal Rigidity:Rising Non-Plan commitments limited the government’s ability to increase Plan allocations.
4. Lack of Outcome Orientation:The classification focused on expenditure type rather than effectiveness or results achieved.
5. Overlap Between Plan and Non-Plan:Many schemes required both categories of funding, leading to confusion and inefficiency in allocation.

Replacement by Revenue–Capital Classification

In 2017–18, the Government of India abolished the Plan and Non-Plan classification, adopting the Revenue–Capital framework in line with international accounting standards.

• Revenue Expenditure: Covers all current, consumption-based expenses that do not result in asset creation (e.g., salaries, pensions, subsidies).
• Capital Expenditure: Refers to investments that create long-term assets or reduce liabilities (e.g., infrastructure projects, equity investments, loan disbursements).

This shift aimed to:

• Improve fiscal transparency.
• Link expenditure to outcomes rather than administrative categories.
• Strengthen accountability and performance budgeting.

Significance and Impact

Historically, the Non-Plan Expenditure classification played a central role in understanding India’s fiscal structure and budget priorities. It highlighted the imbalance between development and maintenance expenditure and underscored the challenges of fiscal consolidation.
Its abolition in 2017 marked a significant step toward modernising India’s public finance system, aligning it with global best practices and enhancing budgetary transparency, flexibility, and efficiency.

Summary