Rangarajan panel to reclassify public spend

Written by fe Bureau | New Delhi | Updated: May 1 2010, 04:40am hrs
The Planning Commission has started the groundwork for re-classifying public expenditure in a more pragmatic way by setting up an 18-member panel chaired by Prime Ministers economic advisory council chief C Rangarajan. The panels recommendations will have major implications in the way revenue deficitthe gap between estimated and actual net revenueis calculated. The decision to explore reclassification of public expenditure was announced as part of the union budget for 2010-11.

Now, the Centre sponsors many programmes such as the ones on rural electrification and urban development that are executed by state governments. Since funds are transferred to the states and autonomous bodies from the Centre, the productive assets created as a result are not owned by the central government. Therefore, such expenditure, which is on the rise over the last several years, cannot be shown as capital expenditure. The government also wants to see whether it is correct to classify funds released to sick public sector companies as capital expenditure. The committee would consider the merit of classifying expenditure as revenue or capital depending on the end use.

Finance secretary Ashok Chawla, a member of the panel, recently told FE that the idea is not to change the classification to reduce revenue deficit, but to make the classification more pragmatic. The terms of the panel include suggesting an action plan for abolition of the classification of expenditure into plan and non-plan and to define the scope of public sector plan and expenditure in the light of changes in the administrative machinery and evolution of new project models like special purpose vehicles and public-private partnerships. The panel will also examine the accountability concerns arising from the direct transfer of funds to the states and district-level bodies under centrally sponsored schemes.