NEWS

The Government Is About To Make A Radical Departure In How It Spends Our Money

From the way it defines spending categories to the way it hands out money, everything is changing rapidly.

31/01/2017 6:54 PM IST | Updated 31/01/2017 8:12 PM IST
Hindustan Times via Getty Images

Budget 2017-18 is now just hours away, and the Economic Survey has set the ground for bold new ideas. One thing is clear--much is changing about the way the government spends its money.

1. Until now, expenditure has broadly been split into "plan" and "non-plan" expenditure. The distinction emerged from the legacy of Soviet-style Five Year Plans, for which expenditure for various ministries and schemes was set aside. Spending on pensions, salaries, loans and interest was classified as non-plan expenditure. This distinction is set to end in this budget, with the government winding up the Planning Commission and deciding to classify expenditure under revenue and capital heads only.

At the moment, non-plan expenditure is nearly three times as large as plan expenditure. Its largest--and growing--share is towards repaying the interest on loans, while spending on defence and on subsidies is roughly the same size (but that might be about to change.)

2. At 1.35 lakh crore, food forms the largest part of India's subsidy bill. This is a big change over the last few years, with the coming in of the National Food Security Act; fertilisers formerly were India's biggest subsidy.

3. But all of that might change. The new Economic Survey has a chapter devoted to a discussion of a Universal Basic Income, which, Chief Economic Advisor Arvind Subramanian made clear in his press conference on Tuesday, would come, when it does, in place of some existing subsidies and schemes, and not in addition to them. However, given the size of implicit and direct subsidies for the non-poor and the middle class, which currently amount to 1% of GDP according to the Eco Survey, subsidies for the poor could remain untouched while these "non-merit" subsidies could go.

4. The biggest story about spending in the last three years, however, has been about a fundamental change in the way the centre and states spend money. The centre is giving more unconditional funds than ever before to states, to spend as they choose.

States are responding by spending more on social sectors.

In past years, budgets would mainly be analysed by how much the government had allocated to each ministry. It's increasingly becoming clear, that those old analytical frameworks are over, and we're going to need to look at government spending with fresh eyes.

More On This Topic