Plan and Non-plan expenditure

Why can't we put welfare schemes under plan expenditure? In the wake of governments recent cut in the non-plan expenditure part of budget (Exceeds 70% of total expenditure).

Plan: where the govt starts/initiates a new plan and allocates funds for that. Eg Funds for construction of new road, or new railway line.

Plan expenditure is a one time expenditure

Non-plan: the routine expenditure of the govt. Example: salary, the maintenance of such road, or railway lines the next year onwards will be included in non-plan.

Non-plan as you can see, is regular yearly expenditure.

Needless to say, the non-plan has to be high, as the expenditure is majorly in salary, provisions etc. the non-plan is ideally met by the revenues, that is the regular income that comes from tax, thus both equal each other.

Then where will the money come for plan expenditire?

For that the govt borrows money.

Borrowing has a cost. govt has to pay interest on that.

The logic is that, though govt pays interest, the money spent on such new road and rails is expected to increase the total productivity, and thus increase the GDP, and this increase the total revenue (tax) to the govt!

Every year govt pays interest for all the loans it has borrowed. So, the interest expenditure will be plan or non-plan? – Non plan

So, the interest becomes a part of non-plan expenditure of the govt!! Recently there are discussions to join both plan and non-plan as both are anyway expenditures.

Plan expd came because the govt wanted to be a 'welfare state' and provide new things! Else, road, rail etc can be constructed by the private companies!!

What is the duty of the govt?

To maintain army, police, run school, hospitals etc. All these run on non-plan, regular routine expd.

Compare this:

Buying a car is a plan expenditure. buying petrol for that car is non-paln. if you own some 30cars, every montg you will spend huge amount on petrol!