During the past few weeks, we have been deluged with negative news. News regarding the rapid, almost maniacal spread of Covid 19. Deaths everywhere, in some countries much higher than the projected 1% to 2% of infected patients. The high risks associated with age and pre-existing medical conditions. The lack of testing facilities and the resultant understatement of infection figures in developing and least developed countries. Lockdowns without warning and without preparation.The tragic sight of millions tramping miles across dusty, desolate roads, men, women, children, the old and the young, the sick and the infirm. Self respecting working people pathetically waiting for a morsel of food. Chaos everywhere. Impending economic collapse. Fear, terror.
My column this week will be about none of these. At least in my own mind, let me restore a semblance of normalcy and discuss a subject that should come back into prominence in the weeks and months ahead as we struggle to bring order back into a broken economy. An economy that started to collapse many months ago and could not be retrieved thanks to a policy that resolutely failed to see where the problem lay. I will talk about planning which is needed once again to quickly put in place the building blocks of the economy after the public health crisis is hopefully over. And I will rely not so much on theoretical texts but on my experience as State Finance Secretary, Revenue Secretary in Ministry of Finance( MOF),Union Cabinet Secretary and my tenure as Vice Chairman, State Planning Board and, in that capacity, having dealt directly with both Planning Commission( PC) and NITI Aayog.
Planning was not Nehru’s invention although he strongly believed in it. As early as 1876, Dadabhai Naoroji conceived of a systematic way of alleviating poverty in India. In 1933, Visweshwaraiah produced a ten year plan for doubling India’s national income. In 1938, the Indian National Congress set up a National Planning Committee. In 1941, the Government of India set up a Committee for Planning , converted into a Reconstruction Committee directly under the Governor General in 1943. In 1946, an Advisory Planning Board was set up by the Government of india. There was obviously clear realisation that the massive economic problems that plagued the country required a structured, planned approach. We are in a similar situation today. The economic slowdown of the past two years has been further immeasurably aggravated by the blow struck by the virus. Our position today is no better than the post Second World War situation when India endeavoured to pull itself up by its bootstraps even as the world was recovering from a devastating war. The first two Five Year Plans, with their accent on agriculture and heavy industry, clearly laid the foundations for future growth.
Was the erstwhile Planning Commission an anachronistic and decrepit entity which served no purpose? Perhaps, over the decades, it had lost the bite and purpose that Nehru and the early votaries of planning had expected of it. But, in my view, it continued to serve a very useful purpose by ensuring allocation of sizable resources to development. I recall the intense conflict that used to take place every year between the PC and MOF over the size of the Gross Budgetary Support( GBS) to the Plan. Conflicts that were settled only through a peremptory decision by the then PM, himself a renowned economist whose role in the revival of India in 1991 will never be forgotten by history,
The concept of GBS and the Plan/Non-Plan distinction in the budgets of Ministries and States ensured that they thought deeply about expenditure on development while preparing their Budgets. The same purpose was served by the annual debate between State Planning Boards/Commissions and State Finance Departments. This too was settled usually with the intervention of the Central Planning Commission and Chief Ministers. This system also served to curb the tendency of the Finance Ministry at the Centre and Finance Departments in States to sacrifice development expenditure to meet non-plan needs or to put unnecessary curbs on development spending.
Today, this system has been brought down like a house of cards. No longer do Ministries and States have to reflect deeply on development schemes and projects while preparing their Annual Plans. The Ministry of Finance and State Finance Departments hold sway. After providing for non-Plan expenditure, schemes promoted by the PMO, only the residue goes into development.
The 14th Finance Commission endeavoured to redress the fiscal imbalance between States and Centre by raising vertical devolution of Central revenues to States from 32% to 42%. This, they said, was only a “compositional shift”. The Centre clawed back its share of resources by reducing Central shares in Central Schemes and Centrally Sponsored Schemes. The resultant surpluses and the savings out of the dip in oil prices in the early years of the present government went into spawning a new generation of sponsored schemes, principally contributed by the PMO. Participative scheme formulation was replaced by a top down approach, which, indeed, has characterised government policy generally in all areas.
The NITI Aayog did play some role in formulation of schemes in the early days, but now seems to engage itself primarily in the preparation of indices to compare States. I have doubts about such indices, even indices prepared by international agencies, because the results depend on parameters chosen and the areas and samples selected. The World Bank’s Ease of Doing Business Index, which showed improvement for India in 2018-19, is compiled on the basis of identified regulatory areas including speed of starting businesses and issuing construction permits, registration of property, getting credit, tax rates and tax paying mechanisms, enforcement and resolution of contracts, training, trading across borders and dissemination. Scores are calculated based on improvements in the selected areas. Results for 2018-19 were weighted in India’s favour by better practices adopted in Delhi and Mumbai to grant construction permits . The fact that Pakistan and Togo were ahead of India in the list of countries showing most improvement must make us sit up and think. If the Doing Business index of the World Bank ranked India higher in 2018-19, the Global Competitiveness Index brought out by the World Economic Forum shows that India had slipped down from the 58th to the 68th position out of 141 countries based on 103 indicators organised into 12 pillars. These twelve pillars are assigned scores and cover data on institutions, infrastructure, ICT adoption, macroeconomic stability, health, skills, product market, labour market, financial system, market size, business dynamism and innovation capacity. India and Brazil are the lowest ranked among BRICS countries at 68 and 71 respectively.The divergence between the two indices in essentially the same sphere of business competitiveness underscores the unreliability of short term indices in determining performance in a limited area. The same applies to inter-State comparisons too. Kerala may be below Gujarat in terms of infrastructure and ease of doing business, but the way in which it handled the Nipah virus in 2018 and is dealing with Covid 19 today, shows how much better equipped its public health system is. We cannot compare apples with oranges.
Not that the erstwhile Planning Commission smelt of roses all the time. Over the years, it had deteriorated badly. It had become a giant bottom heavy bureaucracy. As is the problem with bureaucracies, it allowed control freaks to proliferate. Its procedures, in line with bureaucratic mindsets, became long winded and stalled development rather than speeded it. It became a dumping ground for civil servants who could not find room in mainstream Ministries. Chief Ministers resented being lectured to in annual Plan meetings. Some Central Ministers also felt that the Planning Commission was a drag on their people friendly schemes and projects. In his farewell address to the Commission, Dr. Manmohan Singh asked, ”Are we still using tools and approaches, which were designed for a different era? Have we added on new functions and layers without any restructuring of the more traditional activities in the Commission?"
There was obviously much that needed to be done. Prime Minister Modi’s abrupt decision, announced in his first Independence Day address, to abolish the Planning Commission, even before any thinking on substitute arrangements had taken place, was treated as part of his election promise of “minimum government, maximum governance.” Yet, now, as we struggle to survive in economic turbulence, we must ask ourselves the question, was it necessary to throw the baby out with the bathwater? Is instinctual, impulsive decision making better than structured forward planning based on participative consultation?
These are questions that we need to seriously ask as we move forward to repair our economy. We need to chart out the way ahead, not leave it to chance, and react to crises blindly and without direction as and when they arise. Planning and forward thinking is not antithetical to a market economy. We can perhaps take a leaf out of China’s book. As Dr. Santhosh Mehrotra wrote in the Economic and Political Weekly on September 13, 2014, “The government must recognise that one source of China’s strategic economic growth is an institution with strategic planning capacities, the National Development and Reform Commission. The success of China with the NDRC tells us that fiscal decentralisation, accountability mechanisms, experimentation, learning, and openness to expertise form the core of any institution that seeks to provide vision and strategic economic planning. Further, strategic planning institutions in Asian economies, like India’s Planning Commission, have helped deal with various regional and global economic crises; a lesson we must keep in mind.”
Whether in the form of a revived and restructured Planning Commission or the NITI Aayog in a new garb or an institution by any other name, planned development has once more to capture centre space in the days ahead. Budgets, whether of the Centre or the States, must reflect once again the primacy of development. The Gross Budgetary Support mechanism, in whatever form, must come back as a countervailing force to rein in the Finance Ministry. The Prime Minister’s cherished dream was that “Through the NITI Aayog, India will move away from the one size fits all approach and forge a better match between schemes and needs of States”.
Will the Government of India show the flexibility and breadth of vision to look once more at institutional changes that are necessary to actualise PM Modi’s dream?