India to merge rail, general budgets; end non-plan, plan distinction

New Delhi, Sep 21: India on Wednesday decided to do away with a 92-year-old legacy of separate general and railway budgets by unifying them and do away with differentiating plan and non-plan expenditure.

"From coming year, the railway and the general budget will be amalgamated. There will be only one budget. And secondly, distinction between plan and non-plan expenditure will be ended from next year," Finance Minister Arun Jaitley said here after a Cabinet meeting.

The decision to merge the rail and general budgets was mooted by Railway Minister Suresh Prabhu and endorsed by NITI Aayog's member Bibek Debroy, which also proposed the doing away of the distinction between plan and non-plan expenditure.

Both Jaitley and Prabhu clarified that the distinct identity of the Indian Railways will be maintained -- including the freedom to raise resources via extra-budgetary means.

"Functional autonomy of the Railways will be maintained," Jaitley said.

"This is a historic step, matching global benchmark and best. This will help raise capital expenditure in Railways which will enhance connectivity in the country and boost economic growth," Prabhu said.

"Distinct identity of Railways will be maintained. Our effort to leverage extra budgetary resources will continue," he added.

While clarifying on the new date of the budget, Jaitley said it will be advanced and the government in-principle wants the Finance Bill to be passed before March 31. But the date of the budget will be decided depending on various state elections dates.

The advancement of the date is to ensure the Finance Bill is passed in the first half of the Budget session than to spill over to the second half after recess.

Non-plan expenditure is what the government spends on the so-called non-productive areas, such as salaries, subsidies, loans and interest, while plan expenditure pertains to the money to be set aside for productive purposes, like the various projects of ministries.

Finance ministry officials said after the abolition of the Planning Commission, the relevance of plan and non-plan expenditure is lost -- and a better indicator of productive and general expenditure will be a distinction under the heads of revenue and capital.