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Reform initiatives in the budget.

In economic terms, budget is divided into two types: revenue budget and capital budget.Reforms initiatives in the budget. The revenue budget consists of transactions that have implications up to 1 year. The capital budget consists of transactions that have implications of more than 1 year. Both revenue and capital budgets consist of receipts as well as expenditure. The 2017-18 budget size was ₹21.47 lakh crore.There are reform initiatives in the budget.

Major heads of expenditure of the central government (₹100 crore)

Revenue expenditure + Capital expenditure = Total expenditure

Revenue expenditure includes revenue defence expenditure, interest payments and subsidies. Capital expenditure includes loans and advances, capital outlay and capital defence expenditure.

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 Reforms Initiatives in the Budget

In Budget 2017-18, three major reforms have been undertaken:

1.Merger of railway budget into general budget (no separate railway budget)

  • A separate rail budget has its genesis in the recommendations of the Acworth Committee of 1920.
  • This was considered necessary because the railway’s revenues far outstripped the general revenue.
  • In budget 2017-18, the government decided to merge the rail budget and the general budget.
  • In 1947, when independence was achieved, railway revenues were still 6% more than the general revenue. By the 1970s, the size of rail revenues had shrunk and was about 30% of the general revenues. By 2015-16, it was down to 11.5%.
  • The decision reflects the decrease over time in the relative size of the rail budget compared to some of the other components in the general budget, such as defence and roads and highways.
  • Moreover, a separate railway budget kept the railway portfolio into the public limelight and thus the railway minster avoided raising fares, leading to losses for the railways.

2.Advancement in presentation of budget

The Finance Ministry presented the budget on 1 February 2017. The idea behind bringing forward the budget date, according to the government, reform initiatives of budget is that the ministries and state governments can begin disbursing funds from the beginning of the financial year. Advancing the budget date will allow funds to be released to the states by April.

Earlier, the initiatives reforms of budget was used to be passed till the end of May and funds used to be assigned to the states by June. Thereafter, the development works are affected on account of rainy season. Thus, actual utilisation of funds for development purposes begin in September.

3.Elimination of distinction between plan and non-plan expenditure

Plan expenditure refers to the expenditure that is incurred as part of the five-year plan for development purposes. Non-plan expenditure refers to the expenditure that is not part of five-year plans and is incurred to meet revenue expenses of consumptive nature, for instance salaries, subsidies, interest payments, etc.

The distinction between plan and non-plan expenditure has been removed by the government because of the following reasons:

  • Plan expenditure tends to get priority especially when expenditure reduction has to be done to meet fiscal deficit target. Non-plan expenditure is reduced even if it is vital for economic development. For instance, allocation of funds for the maintenance of assets such as hospitals, schools, and irrigation dams, which have been already created, is also equally important.

The funds used for the creation of assets (such as hospitals) are treated as plan expenditure, and the funds used for the maintenance of assets (such as running hospitals) are treated as non-plan expenditure.

  • Outcome budgeting and performance budgeting are applicable only on plan expenditure. This means that estimation of outcome of expenditure incurred on running schools and hospitals is not within the purview of budgeting as it is a non-plan expenditure.

Indian Economy

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