Planning Commission: Working Style and Abolition

From its establishment in 1950 till it was abolished recently, the Planning Commission stayed and stood tall amid all policy making institutions of the country for 65 years. On 15 August 2014, India’s Prime Minister Narendra Modi declared to replace the Planning Commission by a new body. On January 1, 2015, the government by a resolution established the NITI Aayog to work as a policy think-tank of Union Government and to involve the states in economic policymaking. Before we move ahead to discuss the current landscape, here are a few relevant questions on Planning Commission:

In what circumstances, Planning Commission was established?

Planning commission was a child of Nehru and it was descendant of the National Planning Committee set up by Subhash Chandra Bose.

• Planning Commission was set up by a Government of India Resolution in 1950 as an advisory and specialized institution.
• It was charged with the responsibility to formulate a strategy of development for independent India in a long-term perspective and for making assessment of all resources of the country, augmenting deficient resources, formulating plans for the most effective and balanced utilization of resources and determining priorities.
• Establishment of Planning Commission was induced by influence of soviet style planning and Fabian collectivism.
• The constitutional provision that was kept in mind while creating the planning commission was that the Economic & Social planning is an item of Concurrent list and creation of such body will strengthen the roots of Centre-State Cooperation and Indian federalism. Later in 1952, the National Development Council was established as an advisory body to the Planning Commission.

The planning commission emerged as an intellectual hub with distinguished scholars and economists as its members. It was such as a respectable body, that it became a role model for planning commissions and boards of many developing countries in those times.

How Planning Commission lost relevance?

Gradually, both planning as well as planning commission lost rationale. It actually began from 1960s, when successive droughts and poor harvests led the government to abandon planning for an interregnum of three years (plan holiday). These plan holidays were early signals of decline of planning commission. Slowly and steadily, the administrative fiat eroded its role and the spirit with which its original writer Nehru had launched it, was never revived later.

Due to administrative fiat, it was transformed into a government department without any proper function or mandate. Its functions collided with Finance Commission as well as Finance Ministry. A few examples are:

• Its role of serving as an intermediate between the centre and state continued, but collided with Finance Commission, which recommended on statutory transfers.
• Its role on non-discretionary transfers was almost nothing as there was a Gadgil Formula in place.
• Its role on residual discretionary allocation of resources to states was in effect nothing, because this is being done by the finance ministry.

However, despite no legal or constitutional backing, planning commission continued to preside over the allocation of central funds meant for the “Plan” both for the centre and the states.  There was a one way flow of policy and for the state governments, the practice of requiring them to come to Delhi for their “plan approval” every year also continued. But, the focus was shifted to crisis management and academic exercises rather. If there is any other notable work of planning commission in recent times, it has been various committees and the ritual of preparing five-year plan documents, mid-term reviews etc. A few nice ideas that have been incubated in the planning commission include Direct Benefit Transfer, Financial Inclusion and Banking Correspondent models etc.  The other specific factors that led to lost of its relevance are as follows:

Globalization, Liberalization and Privatization

When the planning commission was launched, India was on the path of Nehru’s socialistic economy. Today, India is largely a market driven economy where three fourths of investments flow from the private sector. The planning in a largely market-driven economy cannot be similar to an economy that is heavily controlled by the state. Thus, there was a need of shift in the focus of planning in current times in comparison to the past.

Shortcoming in the planning process

The planning process in India, particularly after liberalization, had become erratic due to several reasons such as:

• It was focused on theoretical tools such as sophisticated mathematical models. These models did not work on ground many a times because they were based on input/output coefficients that are highly aggregative. This was mainly due to data problems.
• Planning documents generally resulted in duplication of the jobs of central ministries and the states by setting up parallel divisions in planning commission itself.
• During the successive plan periods, the targeted goals were compromised in most arbitrary way. This was mainly because of the faulty budgeting resulting in absence of annualized break-up of targets set in the plan.
• The multiyear budgeting in our country has its own problems. The rationale behind multiyear budgeting is that different programmes have different time spans. For example, Bharat Nirman was launched for four-year period 2005-09, while JNNURM was launched for seven years beginning 2006. However, five years is a too long a period and almost every plan immediately started dwindling after its launch. It could be more logical if a plan could be prepared for 3 years timeframe and fourth and fifth years would be set as tentative plans. Further, the five year plans were not in sync with the annual budgeting exercise. In the absence of a budget system that helps a five year plan get implemented annually, the five year planning remained at best as an academic exercise.
• The plan/non-plan distinction in government expenditures had lost its relevance and needed to be abolished.
• Dwindling flow of central assistance for state plans and the cessation of on-lending to the states by the centre the system of Annual Plan approval with the states had lost its significance and needs to be done away with.
• The system of transfers from the centre needed to be reformed.

Lost credibility of the planning commission

Successive governments had used the planning commission as a parking lot for decent placement for the favourable officers and academics, who could not be accommodated anywhere else as its members. Its credibility was lost due to its theoretical reports and data-mining which generally did not stand correct on ground.

Finally, Planning Commission was useful in a command economy structure, which is not relevant today.  India is a diversified country and its states are in various phases of economic development along with their own strengths and weaknesses. Planning commission used “one size fits all” approach and imposed policies on states and tied allocation of funds with projects it approved.