What is Plan and Non-Plan Expenditure

The Government of India has traditionally followed the system of 5-year plans where the incoming government outlays the plan for the next 5 years. This led to the classification of government expenses into plan and non-plan categories. Given here is the meaning of planned and unplanned expenditure and related key details.

What is meant by plan and non-plan expenditure?

Plan Expenditure – Plan expenditure referred to the funds allocated for planned or developmental activities and programs aimed at achieving specific goals and targets. It included expenditures on sectors such as education, healthcare, infrastructure development, poverty alleviation, agriculture, and other priority areas identified by the government. Plan expenditure was intended to promote economic growth, social welfare, and overall development.

Non-plan Expenditure – Non-plan expenditure encompassed all other expenditures that were not classified as plan expenditures. It included recurring expenses such as salaries and pensions of government employees, interest payments on loans, defense expenditures, subsidies, grants to states, maintenance expenses, and other routine administrative costs. Non-plan expenditure was considered to be non-developmental in nature and focused on the day-to-day functioning of the government.

Is this classification still implemented?

The distinction between plan and non-plan expenditure was made to prioritize and allocate resources towards developmental activities and programs in line with national priorities. However, this classification system was discontinued by the Government of India in the fiscal year 2017-18 based on the recommendation by the C Rangarajan Committee in 2011 to remove the distinction between Plan and Non-Plan expenditure. The distinction was replaced by a new classification system known as “Revenue expenditure” and “Capital expenditure,” which categorizes spending based on the nature of expenditure rather than the plan or non-plan classification.

Under the new system, revenue expenditure refers to expenses incurred in the regular functioning of the government and the provision of services, while capital expenditure includes investments in assets and infrastructure development. This change aims to provide a clearer understanding of the type and purpose of government spending and aligns with international best practices in budgeting.