Winning over the states

Niti Aayog has its task cut out. It needs to restore credibility of the consultation process

Written by K M Chandrasekhar | Updated: January 16, 2015 10:19 am

The Niti Aayog has finally come into being. When the prime minister announced on Independence Day last year that the Planning Commission would cease to exist, the general expectation, articulated in several sections of the media, was that the government would have already done its homework and that an alternative mechanism would immediately come into existence.

But when the prime minister met the chief ministers and lieutenant governors for the first time at a joint meeting on December 7, 2014, it came to light that the 1950 resolution of the government of India constituting the Planning Commission had been repealed by the Union cabinet on August 13, 2014. This raises an interesting question. If the resolution had been repealed then, at that moment, the Planning Commission ceased to exist. But, in fact, the office of the Planning Commission continued to function. Salaries were paid, establishment expenses met. Ministries continued to refer some files to the commission. Perhaps the cabinet decision itself provided for the continuance of the office? Perhaps another order was issued enabling its continuance? These are not facts generally available in the public domain.

Be that as it may, the noteworthy point is that deciding how much of the budgetary resources will be allocated to “Plan” expenditure each year is now entirely the responsibility of the finance ministry. In the past, Plan resources were sequestered in the form of “gross budgetary support”. The size of the gross budgetary support was negotiated between the finance ministry and the Planning Commission, sometimes leading to acrimonious disputes, settled by the prime minister.

It is not clear how funds will be sequestered for development now. While raising this question, I am quite conscious of the fact that, in more ways than one, “Plan” expenditure does not amount to development. There are elements of development on the non-Plan side, just as there are unproductive expenditures on the Plan side. This calls for a review of budgeting for development and for the projectisation of schemes as mentioned by the Rangarajan Committee appointed by the erstwhile Planning Commission. But can we do without sequestered funds for development altogether? There is a real danger of non-productive expenditure gradually crowding out development spending.

In the past, the states used to interface with the Planning Commission at three levels. First, there would be regular annual consultations on the resources available to the state for Plan spending. The factors determining the size of the state Plan, such as its share of Central taxes (dependent on revenue estimations) and normal Central assistance, would be assessed realistically. Second, there would be Plan discussions — ideas would be exchanged at all levels on the schemes under implementation and best practices that could be followed. Third, the Planning Commission would often help the states initiate programmes in specific areas by coordinating with Central ministries.
There is no doubt at all that the interface of the Planning Commission with the states has declined over the years.

The proliferation of Central Plan schemes and rigidly patterned Centrally sponsored schemes has reduced the states’ share of Plan resources from 63.5 per cent in the First Five-Year Plan to 39 per cent by the end of the 11th. This means that the states were increasingly compelled to raise resources internally, within the constraints imposed by Part XII of the Constitution and their respective fiscal responsibility and budget management acts. This made the Planning Commission less relevant to the states. Now, with the allocative function taken away, the Niti Aayog no longer has relevance even for spending by Central ministries and hence its role as intermediary between the states and the Centre could become less important over the years.

The Niti Aayog will have to spend quite some time redefining its role. Among the many functions that have been outlined, two stand out that have a bearing on the states. First, there is the stated objective of “formulation of plans at village level, aggregation at higher levels”. Much more thinking will have to go into how this structural change will be effected and the role of panchayati raj and state-level institutions. Second, it has been tasked with the role of “fostering cooperative federalism, active involvement of [the] states”. Without any direct role in development spending, it is difficult to visualise how this objective is proposed to be achieved.

A positive factor in this development is the assertion that Centrally sponsored schemes will be restructured. It was stated at the prime minister’s meeting with the chief ministers that a basket of schemes will be available from which the states could pick and choose according to their needs and that each scheme would be further tailored to meet specific local needs. The states are looking forward to this fundamental structural change, which, if effected successfully and purposefully, would definitely lead to more optimal utilisation of resources.

The Niti Aayog, therefore, has its task cut out. It remains to be seen how it will bring the states on board and how it will define its role. The big challenges before it will be to restore the credibility of the consultation process with the states and to bring Central ministries into the equation in the absence of any real financial power.

The best that could happen is that the Niti Aayog spearheads a dynamic process of growth and social change, bringing together the states, the Centre and the many stakeholders that together constitute the economy and the polity. The worst that could happen is that it becomes just another Delhi-centric “think tank” engaged in intellectual debate far removed from the stark realities of this vast and diverse nation. Much would depend on the amount of time that the prime minister and ex-officio members are willing to invest in working with the vice chairman and permanent members.

The writer is vice chairman, Kerala State Planning Board, and former Union cabinet secretary
express@expressindia.com

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