Wednesday, Sep 17, 2014
Following the global economic crisis, there is a growing recognition that markets are no magic wand, that the invisible hand of the market is not visible because it is not there and that markets are good servants but bad masters. Following the global economic crisis, there is a growing recognition that markets are no magic wand, that the invisible hand of the market is not visible because it is not there and that markets are good servants but bad masters.
Written by Deepak Nayyar | Posted: September 2, 2014 12:04 am | Updated: September 2, 2014 8:29 am

The Planning Commission is in the news. It is being closed down almost 65 years after it began life. Two questions arise. What happened? What next? In thinking about the future, it is instructive to learn from the past.

Then Prime Minister Nehru created the Planning Commission in 1950 to formulate a strategy of development for independent India in a long-term perspective. It was widely respected in government. Before long, it also turned into an intellectual hub, with distinguished economists from across the world traversing its corridors. Indeed, it was a role model for similar planning boards in most developing countries. Economic planning was the flavour of the times. It assigned the state a strategic role in the process of development and sought to restrict the degree of integration with the world economy. Both were points of departure from the colonial era, characterised by open economies and unregulated markets, where the outcome was underdevelopment. This approach helped create the initial conditions and laid the essential foundations for industrialisation, not only in India but also elsewhere in Asia and Latin America.

The economic crisis in the mid-1960s, triggered by successive droughts and poor harvests, led the government to abandon planning for an interregnum of three years. The spirit of economic planning never revived thereafter. The focus shifted to crisis management. In retrospect, the planning process should have been reoriented in the mid-1970s. It was a missed opportunity.

This was the beginning of decline. The role of planning was slowly but steadily eroded by administrative fiat. The Planning Commission was gradually transformed into a department of the government without any clear function or mandate. Its supposed task was to mediate on finances between the Centre and the states but this was more form than substance. The statutory transfers were decided upon by finance commissions. The non-discretionary transfers were governed by the Gadgil formula already in place. The residual discretionary allocation of resources to states in the Union budget was in effect decided by the ministry of finance. It was only the ritual of five-year plan documents that continued.

The decline gathered momentum once again in the 2000s. Governments progressively undermined the role of the institution. And the institution progressively eroded its credibility.

In the civil service system, it was turned into a parking lot, to be used by many simply as a platform while waiting for a decent placement. In the political process, whenever governments changed after elections, it was a place to provide jobs for the continued…

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