What is Plan Expenditure?
Planned expenditures are defined as the expenditure on the programmes that are mentioned in our country’s current five-year plan. For example, electricity, water, communication, transportation, agriculture and other activities, social services, etc. In simple terms, the Expenditure Report shows the expenditures made by Central Aid for state and federal needs and items under the Central Plan.
What is Non-Plan Expenditure?
The expenditure incurred on programmes other than those detailed in the current five-year plan of a country is known as Non-plan Expenditure. For example, expenditure on defence services, payment of interest, expenditure on administrative services, etc. Non-plan expenditures are a must for every country because they are incurred on the routine functioning of the government
Difference between Plan and Non-Plan Expenditure
| Basis | Planned Expenditures | Non-Plan Expenditure |
| Meaning | Spending on project details in a country’s current five-year plan. | Spending on projects outside the country’s current five-year plan |
| Incurred on | Planned expenditure is for current development and investment | Non-Plan expenditures are used for the day-to-day operations of the government. |
| Arises when | Plan expenditures arise only when the plans say so about such expenditures. | Unplanned spending is necessary for any business and the government cannot escape it. |
| Money comes from | Money comes from Consolidated funds of India. | Under emergency conditions, money comes from the contingency fund of India. |
| Example | Energy, water, communication, transportation and agricultural expenditures etc. | Defence expenditures, interest payments, administrative expenditures, pensions etc. |
Why the distinction between Plan and Non-Plan expenditure was abolished in 2016?
- The Government of India in 2016, abolished this classification on the recommendation of C. R. Rangarajan Committee.
- The earlier distinction did not give a holistic picture of expenditure. The distinction of plan and non-plan expenditure prevents any meaningful ‘outcome-based budgeting’ because only plan expenditure is considered for gauging the outcomes. This led to incorrect estimation of the expenditure incurred.
- Planned and Non-planned expenditures give the notion of good and bad, respectively. Due to this notion, the government prioritizes planned expenditure while neglecting essential non-planed expenditure.
- This was replaced by the use of Capital and Revenue Expenditure in calculation of Expenditure.
What is Revenue Expenditure?
- Any expenditure of the Government that does not lead to the creation of assets or liabilities will be put under Revenue Expenditures
- E.g. Property taxes, Pensions, Wages to Government employees, Subsidies, Interest Payments etc.
- Revenue expenditures are typically ongoing operational expenses which are short-term expenses that are used in running the daily business operations.
What is Capital Expenditure?
- Capital expenditure is the government’s expenditure on items which will start producing an economic benefit or helps in the growth of the country like machinery, equipment, housing, healthcare, education, etc. refers to the money spent to build it.
- E.g. Manufacturing Equipment,Computers,Furniture Loans to States & Union Territories, Loans to Public Enterprises, Loans to Foreign Governments, Acquisition of valuables etc.
Read here: Capital vs Revenue Expenditure
