Q. With reference to Union Budget, which of the following is/are covered under Non-Plan Expenditure?

  1. Defence expenditure
  2. Interest payments
  3. Salaries and pensions
  4. Subsidies

Select the correct answer using the code given below.

  • 1 only
  • 2 and 3 only
  • 1, 2, 3 and 4
  • None

Answer: (c) 1, 2, 3 and 4

Plan Expenditure:
  • All expenditures done in the name of planning (i.e. Five Year Plans) were called plan expenditures.
    • For example expenditure on electricity generation, irrigation and rural developments, construction of roads, bridges, canals, etc.
  • The government of India has now scrapped the plan and non-plan expenditures in budget exercise and are replaced by capital and revenue spending classifications. 
  • Plan Expenditure was earmarked for activities focused on creating assets, including physical, human, and social capital. This category aimed at fostering development and enhancing the country’s infrastructure.
  • Asset Creation Examples:
    • Projects such as building dams, roads, power plants, and investments in social and human capital were categorized as Plan Expenditure.
    • The goal was to contribute to long-term development objectives.
  • Perverse Effects:
    • Despite the positive intent, the classification led to unintended consequences. Asset maintenance, crucial for the sustainability of infrastructure, was designated as Non-plan Expenditure. This led to neglect of maintenance activities, creating a false perception of skewed spending priorities.
Non-plan Expenditure:
  • All expenditures other than plan expenditure were known as non-plan expenditure.
    • For example interest payments, salaries and pensions, statutory transfers to States and Union Territories governments, defence expenditure, etc.
  • Non-plan Expenditure covered maintenance activities and the upkeep of existing assets. This included routine expenditures to ensure the functionality and longevity of previously created infrastructure.
  • Maintenance Neglect:
    • The negative perception associated with Non-plan Expenditure resulted in a neglect of maintenance activities. The public viewed higher spending on maintenance as a diversion from capital formation, even though it was essential for the sustainability of assets.
Non-plan expenditure is spread across:
  • Expenditure incurred on Defence Services
  • Interest payments for debt
  • Subsidies (food, fertilisers, etc.)
  • Salaries and pensions of employees in various government services 
  • Economic services by the government such as Agriculture, Industry, Power, Science & Technology,
  • Loans and grants
  • Social services such as healthcare, education, social security
  • Police, etc.