Structural reforms and improving productive capacity can enhance long-term growth

NITI Aayog, the government’s policy think tank, is working on a sector-based medium-term planning framework, Union Finance Secretary Ratan P. Watal told a meeting of state finance secretaries on Monday.

The new planning framework could replace five-year plans, the last of which is set to end in 2016—17, Mr. Watal said. It was possible to synchronise with the finance commission cycle, the financial approval of schemes and projects of both the central and state governments, he said.

The current financial year, 2016-17, is the last year of the 12th five-year plan.

With the Planning Commission scrapped, the process for formulating a 13th five-year plan government has not been initiated, as a consequence of which the era of five-year plans is set to end in India this year.

“This, however, does not mean planning will go away,” Mr. Watal said during the meeting. The finance secretaries meeting was held to assess the impact on the evolution of public financial systems at the central and the state levels following the discontinuation of the five-year plans.

Emphasising on the need for planning, Mr. Watal said: “We need to clearly differentiate between our medium and long-term growth potential.”

While medium-term growth is dependent on past performance, long-term growth, on the other hand, can only be enhanced by structural reforms and improving the productive capacity of the economy, he said.

Union Finance Minister Arun Jaitley had announced in the Budget Speech that from the next financial year, the plan and non—plan distinction will be done away with for expenditure classification.

The government had constituted a committee for proposing a new format of budget statements and accounts, Mr. Watal said. The committee to be headed by Special Secretary Expenditure will co-opt state secretaries. “We need to move to a cost-centric approach where establishments, schemes and projects are treated as such and revenue-capital distinction will be the basis of expenditure classification as required by the constitutional framework,” Mr. Watal said.

The primary units of appropriation at both central and state levels are being revisited to create a clear distinction between revenue and capital items of expenditure so that accounts can be prepared in a bottoms-up manner.

The officials at Monday’s meeting also discussed economic policy matters concerning the Central and the state governments. Mr. Watal sought the cooperation of the States in achieving sustained increase in economy-wide capital spending, imperative for delivering on the goal of sustainable growth and rise in income levels.