Centre may rejig funding, states wary

As the government plans to do away with the plan and non-plan funding classification from the next financial year, the proposal has received a lot of reservation from several states.

The Niti Aayog, which is playing a key role in the roll-out of the new format of Central government expenditure where these will be classified as capital and revenue expenses, has been cautioned by states that it would lead to a lot of confusion in their respective annual budgets and also create a lack of transparency in spending.

With states already unhappy with the Centre having hiked their share in Central taxes by 10 per cent in 2015, as per the recommendations of the 14th finance commission, and also their spend in Centrally sponsored schemes (CSS), a general consensus among them is that by removing the plan and non-plan classification, their headache will increase as states will have to burn midnight oil to ponder over ways to categorise their spending.

Many states have indicated to the Niti Aayog that in the long run, removing the plan and non-plan classification may not prove to be an easy idea to implement. Sources privy to the development told this newspaper that states are of the view that removal of the classification will in fact lead to a lack of transparency.

Under the plan and non-plan system, while states put their expenses made for implementing various CSS and other such initiatives under the plan expenditure, it is the non-plan expenditure which forms a major chunk of their spending as it consists of funds spent in paying wages, subsidies and interests on loans.

Currently, if states tend to overspend under the non-plan expenditure, they have to give an explanation to the finance ministry.

However once the classification comes to an end, it may become easier for states to show certain expenses in any of the heads in their balance sheets, sources informed.

The flip side is that many states have expressed concern that the new system may also add to a lot of confusion, as in the absence of any kind of classification, they will be handicapped to decide where to show expenses made.