Budget Expenditure

Plan and Non-Plan Expenditure of Indian Government

Government expenditure is classified into plan expenditure and non­ plan expenditure on the basis of whether or not it arises due to plan proposals.

total expenditure

(a) Plan Expenditure:

Any expenditure that is incurred on programmes which are detailed under the current (Five Year) Plan of the centre or centre’s advances to state for their plans is called plan expenditure. Provision of such expenditure in the budget is called Plan Expenditure. Expressed alternatively, “plan expenditure is that public expenditure which represents current development and investment outlays (expenditure) that arise due to proposals in the current plan.” Such expenditure is incurred on financing the Central plan relating to different sectors of the economy.

Items of plan expenditure are:

(i) expenditure on electricity generation,

(ii) irrigation and rural developments,

(iii) construction of roads, bridges, canals and

(iv) science, technology, environment, etc.

It includes both revenue expenditure and capital expenditure. Again, the assistance given by the Central Government for the plans of States and Union Territories (UTs) is also a part of plan expenditure. Plan expenditure is further sub­classified into Revenue Expenditure and Capital Expenditure.

(b) Non-­Plan Expenditure:

This refers to the estimated expenditure provided in the budget for spending during the year on routine functioning of the government. Non­-Plan expenditure is all expenditure other than plan expenditure of the govt. Such expenditure is a must for every country, planning or no planning. For instance, no government can escape from its basic function of protecting the lives and properties of the people and protecting the country from foreign invasions. For this, the government has to spend on police, Judiciary, military, etc. Similarly, the government has to incur expenditure on normal running of government departments and on providing economic and social services.

Budget Expenditure: Revenue Expenditure and Capital Expenditure!

Budget Expenditure refers to the estimated expenditure of the government during a given fiscal year.

The budget expenditure can be broadly categorized as:

(i) Revenue Expenditure

(ii) Capital Expenditure.

(i) Revenue Expenditure:

Revenue expenditure refers to the expenditure which neither creates any asset nor causes reduction in any liability of the government.

i. It is recurring in nature.

ii. It is incurred on normal functioning of the government and the provisions for various services.

iii. Examples: Payment of salaries, pensions, interests, expenditure on administrative services, defence services, health services, grants to state, etc.

An expenditure is a revenue expenditure, if it satisfies the following two essential conditions:

(i) The expenditure must not create an asset of the government. For example, payment of salaries or pension is revenue expenditure as it does not create any asset. However, the amount spent on construction of Metro is not revenue expenditure as it leads to creation of an asset.

(ii) The expenditure must not cause decrease in any liability. For example, repayment of borrowings is not revenue expenditure as it leads to reduction in liability of the government.

It must be noted that Union Grants to states are treated as revenue expenditure, even though some of the grants may be used for creation of assets.

(ii) Capital Expenditure:

Capital expenditure refers to the expenditure which either creates an asset or causes a reduction in the liabilities of the government.

1. It is non-recurring in nature

2. It adds to capital stock of the economy and increases its productivity through expenditure on long period development programmers, like Metro or Flyover.

3. Examples: Loan to states and Union Territories, expenditure on building roads, flyovers. Factories, purchase of machinery etc., repayment of borrowings, etc.

Expenditure is a capital expenditure, if it satisfies any one of the following two conditions:

(i) The expenditure must create an asset for the government. For example, Construction of Metro is a capital expenditure as it leads to creation of an asset. However, any amount paid as salaries is not a capital expenditure as there is no increase in the assets.

(ii) The expenditure must cause a decrease in the liabilities. For example, repayment of borrowings is a capital expenditure as it leads to a reduction in the liabilities of the government.


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