The 11th Plan document raised several conceptual issues arising out of the present structure of plan financing.

The classification of expenditure has an important bearing on the overall expenditure management. The distinction of expenditure into Plan and NonPlan categories has significant implications for efficient management of public expenditure. The revenue and capital categorization also requires a fresh look in the post-FRBM scenario in view of the need for substantial resource transfers to States and local bodies. The transfer of Central resources to States through various types of schemes and multiple modes of transfer have posed problems in obtaining a comprehensive overview of transfers to States as well as in effective monitoring of expenditure. There are also issues concerning accountability of funds directly transferred to implementing agencies in States. The Eleventh Plan document also referred to innovative methods of financing of projects such as public private partnerships and new administrative mechanisms of implementation and the need, in this context, to clarify the scope of the public sector plan. In response to these issues, Planning Commission set up a High Level Expert Committee to suggest measures for the efficient management of public expenditures. The composition and terms of reference of the Committee are given as Annexure to the Report. I have had the pleasure of chairing this Expert Committee and now in submitting the report of this Committee. Major recommendations of the Committee are as follows:

The Plan and Non-Plan Distinction

The classification of expenditure into Plan and Non Plan, although not rooted in the Constitution, has evolved with planning process. Over a period of time, several issues have cropped up from the distinction between plan and non-plan, making it dysfunctional and an obstacle in outcomebased budgeting. Therefore, this distinction should go for both Union and State Budgets. On removal of Plan/Non-Plan distinction in the Budget, there should be a fundamental shift in the

approach of public expenditure management- from a segmented view of Plan and Non-Plan to holistic view of expenditure; from a one year horizon to a multi-year horizon; and from input based budgeting to the budgeting linked to outputs and outcomes. This shift to holistic view of expenditure would require, interalia changes in organizational structure, mandates and processes.

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iv Report on the Efficient Management of Public Expenditure

In the envisaged system, the MOF will prepare proposed allocations for ministries with broad scheme-wise allocations and committed items and send it to Planning Commission for their feedback and scrutiny. The Planning Commission will scrutinise these allocations based on the overall development priorities, outcome targets and sectoral requirements. On the receipt of the comments of Planning Commission, the budget allocations will be further reviewed and incorporated in the budget by the MOF.

Comprehensive framework of Transfers to States

A new multidimensional budget and accounting classification being worked out, may include independent dimensions in respect of Functions, Programmes and Schemes, Economic Object, Recipients of funds, Geography and Beneficiary. The proposed classification and coding system must provide uniform codes for Central programmes, sub-programmes and schemes which are implemented in States so that comprehensive view across the country is facilitated. The Committee recommends that the Central Plan Scheme Monitoring System (CPSMS) should be extended to interface with State treasuries and AG offices as well as Core Banking Solution (CBS) of banks to enable tracking of expenditure down to the last level of implementation.

Accountability Concerns arising from Direct Mode of Transfer

The Committee recommends the treasury mode of transfer of central plan funds. The switchover to complete treasury mode of transfer of funds may be made straightforward possibly beginning all new schemes from the 12th Five Year Plan. For existing schemes, a short transition period

is required to allow for necessary adjustment. However, till complete switchover to treasury mode is done, accounting, and submission of Utilisation Certificates under society mode should be rationalized and auditing strengthened through several measures in the manner described in Chapter 4.

Revenue Capital Classification

The Committee is in favour of continuing the Revenue-Capital classification. Capital expenditure should relate to creation of assets and be determined by ownership criterion. While all transfers should be treated as revenue expenditure in accounts, an adjusted revenue deficit (adjusting the revenue deficit to the extent of grants for creating assets) may be considered only for FRBM compliance.

Scope of the Public Sector Plan

The Budgetary component of the Plan of the Centre or a State will have oneto-one relation with the Government Budget of the Centre or of a State respectively. The Central or State Plan should continue to include investment outlays (funded by IEBRs) of CPSEs and SPSEs respectively. All States/UTs must include information about investment outlays of SPSEs (funded out of IEBRs) in their budgets as a separate annexure. The resources of the rural and urban local bodies should
Report on the Efficient Management of Public Expenditure v

also be included as part of the State/UT Plans. As regards Public Private Partnership (PPP) projects, since both annuity payments and VGF are provided from the budgetary support, these will form part of Plan of the Centre or the State. It is important to have regular information on the investment crystallized through PPPs. Therefore, there should be supplement to the Central/ State Budgets providing Project-wise, Ministry-wise and Sector-wise information on PPPs. I would like to thank all members of the Committee for their active participation and contribution. Professor Abhijit Sen, Member, Planning Commission, Smt. Sudha Pillai, Member Secretary, Planning Commission Smt. Sushama Nath, Secretary (Expenditure), Dr. Subir Gokarn,

Deputy Governor, RBI and Dr. Kaushik Basu, Chief Economic Adviser, DEA, MoF. provided deep insight into the issues. Dr. Rekha Gupta, Deputy Comptroller & Auditor General and Shri C.R. Sundaramurti helped prepare position papers on the allocated subjects to bring clarity on the outstanding issues and options to go forward. Dr. Nitin Desai, Professor D.K. Srivastava, Dr. M.G. Rao and Professor Ravindra Dholakia provided analytical and critical comments from their years of experience and research. Shri C.M. Bachhawat, Shri N.K. Shanmugan, Shri G.P. Singhal and Shri H. S. Das enriched the discussions with their practical experience of the issues at the State level and suggested several pragmatic solutions. I would particularly like to acknowledge the outstanding contributions of Shri Tuhin K. Pandey, who as Member Secretary of the Committee provided analytical, logistical and drafting support to the Committee. I would like to acknowledge important contributions of Shri R. Sridharan, Dr. K.P. Krishnan, and Shri Ritvik Pandey who generously shared their experience and ideas on the subject. I would also like to thank Shri Shaktikanta Das for his valuable comments. Finally, I would like to place on record my appreciation for the support and assistance rendered by Shri H.K. Hajong and other members of the secretariat team, namely Shri Subhajit Roy and Ms. Shraddha Kothari in FR Division of Planning Commission.