A LLOCATION OF PUBLIC EXPENDITURE UNIT 3 Swagat Kishore Mishra

CONTENTS Defining Public Expenditure Management Indian Economy Plan and Non-Plan Expenditure Budget and Components (Group Quiz) Public Expenditure Outlays National Income Accounting

P UBLIC E XPENDITURE M ANAGEMENT (PEM) AIMS AT 3 OUTCOMES Aggregate Fiscal Discipline, Allocative Efficiency, And Operational Efficiency. Aggregate fiscal discipline refers to the alignment of public expenditures with total revenues (domestic revenues plus a sustainable level of foreign borrowing); roughly speaking, it means keeping government spending within sustainable limits. In layman's terms, it means don't spend more than what you can afford. Allocative efficiency on the other hand refers to the consonance of budgetary allocations with strategic priorities: are budgetary resources being allocated to programs and activities that promote the strategic priorities of the country? Put simply, is the government spending money on the “right” things? And finally, operational efficiency refers to the provision of public services at a reasonable quality and cost. The relevant question here is whether the country is getting the best buy for its money.

F ACTORS REQUIRED FOR IMPROVING PUBLIC EXPENDITURE MANAGEMENT Aggregate fiscal discipline, Strategic allocation of resources and Operational efficiency.

The essential requirements for public expenditure management include o performance-focus, o link between policy making, planning and budgeting, o well-functioning accounting and financial management systems and o appropriate links between budgeting and other systems of the Government.

I NDIAN ECONOMY In India too, there is an emphasis on improving outcomes of public expenditure in Central and State Governments through the instrument of outcome budgets. However, there have been several limitations that impede widespread practical use of the outcome-based budgeting.

P ROBLEMS IDENTIFIED Segmentation of expenditure between Plan and Non-Plan, Absence of a hard budget constraint, Lack of incentives to Ministries to reallocate resources, Non-availability of information on costing of services, Problems in budget and accounting classification, Inadequate information systems on transfers of resources to States and Absence of robust financial management information systems.

CONSTITUTION OF INDIA The classification of expenditure into Plan and Non-Plan, although not rooted in the Constitution, has evolved with planning process. In the initial years of planning bulk of Plan expenditure was capital expenditure and the aim was to increase the productive capacity of the economy. However, the composition of the plan expenditure in both Centre and States has changed over time as the bulk of the plan expenditure is now revenue expenditure.

OUTCOME: PLANNING PERIODS Due to the complex nature of Government, the policy regarding what should get classified as plan expenditure and what should get classified as Non-Plan expenditure has been losing clarity. Besides, a notion has widely gained ground among the policy makers and officials across all levels that plan expenditure is good and Non- Plan is bad.

PLAN GRANTS The important plan grants that are transferred from Centre to the States are of four types: (1) State Plan Schemes that include Normal Central Assistance (NCA) and other Scheme based Central Assistance (CA)- which are also known as ACA Schemes; (2) Centrally Sponsored Schemes (CSS) for which funds are routed through consolidated fund of States and (3) Centrally Sponsored Schemes (CSS) for which funds are transferred directly to State/District Level Autonomous Bodies/Implementing Agencies and (4) A small portion of FC grants treated as Plan grants.

N ON - PLAN GRANTS The Non-Plan transfers such as Finance Commission grants and other Non-Plan grants are transferred to the States through treasury route.

T HE MAIN ISSUES REGARDING THE SCOPE OF PUBLIC SECTOR PLAN OF THE C ENTRE AND S TATES RELATE TO : Budgetary Plan of the Centre and States Plan of the public sector enterprises of the Centre and States Plan of rural and urban local bodies Plan of the Implementing Agencies/SPVs Public Private Partnerships(PPP)

P UBLIC EXPENDITURES IN INDIA ARE CLASSIFIED USING A SIX - TIER HIERARCHICAL CLASSIFICATION STRUCTURE Major Head – represents major functions of the Government Sub-Major Head – represents sub-functions of the Government Minor Head – represents programmes of the Government Sub Head – represents schemes Detailed Head – represents sub-schemes and Object Head – represents the economic type of expenditure.

T HE VAST BULK OF G OVERNMENT CURRENT EXPENDITURE IS ACCOUNTED FOR BY THREE CORE AREAS OF SOCIAL PROVISION : Healthcare Social protection Education

Q UIZ 1 : I NDIA ’ S B UDGET 2014 Group -1 Group- 2 Group- 3 Group- 4

B RIEFLY EXPLAIN THE DISTINCTION BETWEEN : Plan Expenditure (PE) and Non-Plan Expenditure (NPE) Budget Estimates (BE) and Revised Estimates (RE) Fiscal deficit and Revenue deficit

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