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Tuesday, January 25, 2022

By the states, for the states

The Planning Commission has increasingly become an anachronistic behemoth, although it did play a crucial role in the initial years.

Written by Bhaskar Dutta |
Updated: December 17, 2014 12:06:11 am


One of the first decisions of the new government has been the decision to scrap the Planning Commission. The Planning Commission, set up in 1950, has increasingly become an anachronistic behemoth, although it did play a crucial role in the initial years when public investment was an overwhelmingly large part of overall investment in the economy. Those were the days when centralised planning, and hence the Planning Commission, had an important role. Obviously, increasing reliance on the market economy in a globalised world and the growth of the domestic private sector have resulted in the commission becoming more or less irrelevant.

Quite apart from the growing irrelevance of the Planning Commission is the fact that there have been serious charges against its actual functioning. Since the government will soon announce a new body that will replace the commission, it is important to keep these in mind, so that the same mistakes are not repeated in future.

Perhaps the most important allegation is that the commission has strayed a long distance away from the role that was initially visualised for it. There has been little attempt to ground the planning process within a consultative framework within which the states and the Central government are equal partners. The Planning Commission has become increasingly autocratic and has typically enforced its diktat over different states. “We know best” may well have become the slogan of the commission. Not surprisingly, state inputs into Five Year Plans have become perfunctory. There are anecdotes that interactions with the commission have become so scarce and meaningless that state allocations are decided even before any interaction with the states. Of course, there are investment projects that are truly national in character, since their reach spans several states. But there are other smaller, state-specific projects whose benefits are more or less contained within the state itself. There can be no justification for allowing officials in Yojana Bhavan to decide unilaterally the contours of such projects.

Another equally serious charge is that the commission has become an agent of the ruling political party or coalition at the Centre. A large fraction of the resources transferred to the states from the Centre are governed by formulas — for instance, those arising from various Finance Commission awards. However, a sizeable component of the transfers is on account of what are called Central plan schemes and Centrally sponsored schemes, and these are almost entirely discretionary in nature. There is overwhelming evidence that the Planning Commission has allowed itself to become an agency of the ruling party or coalition at the Centre, as a disproportionately large fraction of such discretionary grants go to those states that are politically aligned with the ruling party in New Delhi.

There have been reports that the government has been looking at similar bodies in other countries, presumably in order to import best practices from elsewhere. The National Development and Reform Commission (NDRC) in China has often been mentioned in this connection. However, the list of “main functions” of the NDRC is rather frightening. This list seems to include oversight over practically all economic activities in the country. For instance, the NDRC is entrusted with the formulation and implementation of annual and medium-term development plans, to monitor macroeconomic and social development trends and provide forecasts of key economic variables, to summarise and analyse the fiscal and financial situation, and so on. The list is endless — practically nothing seems to be left outside the purview of the NDRC. This format may well be suitable for the Chinese economy as, despite the large size of its private sector, political power in China is after all highly centralised. There is hardly any attempt to have a federal structure — quite unlike the Indian framework.

Perhaps the most important principle that needs to be kept in mind during the restructuring process is to respect the federal structure of our polity. One way in which this can be enforced is by allowing the states themselves to nominate members to the new commission. Of course, each state cannot have its own representative — that would make the commission too big and unwieldy. But the states could be divided into, say, four or five groups, perhaps on the basis of geographical proximity or per capita incomes. And each group can “elect” its own representative.

A system in which members are elected by the states will ensure that the states’ interests are protected, at least partly because the members will know that they owe their appointment to the state grouping to which they belong, and not to the Central government.

Hopefully, this will reduce the misuse of plan funds for narrow political purposes. It will also facilitate the incorporation of state inputs into the planning process.

There is also the issue of specifying the main functions of the restructured commission. The commission should limit itself strictly to its original mandate of allocating resources for Central and state plans. Perhaps a division could also be in charge of the implementation and evaluation of Central plans. Even this may not be required, since different Central ministries surely have a large number of personnel, and each nodal ministry is perfectly capable of carrying out this task. Of course, the new body should certainly not be entrusted with the task of either formulating or evaluating different state plans. Let each state be responsible for its own destiny.

A cursory look at the Planning Commission website reveals that there are about a hundred officers with the rank of deputy secretary and above. There must be a huge support staff as well. Given the reduced role of the planning process in the economy, do we really need such a large number of people? There is no doubt that the commission workforce can be slashed without any effect on its effectivity. This would also be in consonance with the prime minister’s slogan of “minimum government, maximum governance”.

The writer is professor, Department of Economics, University of Warwick, UK.

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