Suggestions for a new role for India’s Planning Commission #3

Before I come to my detailed suggestions re: Planning Commission, let me outline late Amaresh Bagchi's suggestions (2007). The current PC more or less follows Bagchi's recommendations.

Key highlights:

EXTRACTS

From Amaresh Bagchi's "Role of Planning and the Planning Commission in the New Indian Economy: Case for a Review", Economic and Political Weekly, Vol. 42, No. 44 (Nov. 3 – 9, 2007), pp. 92-100.

That planning now has to be primarily indicative and the state can at best be a facilitator for private enterprise was reiterated in the two plans that followed, the Ninth and the Tenth. However the practice of drawing up ambitious plans on a five-yearly basis (five-year plans, FYPS) under the aegis of the agency that was created for the purpose, i e, the Planning Commission (pc) — a habit imbibed from the Soviet era — persists with all its paraphernalia, the collapse of the Soviet system notwithstanding. The institutions that had come up to help implement the plans during the controlled economy era also remain almost intact despite their well known shortcomings and irrelevance in the changed economic milieu.

The focus of the discussion on institutional reforms [in this paper] is on three of the institutions/ practices that have a vital bearing on the results sought to be achieved through the plan. These are:

• one, the disjunction between the budgets of the government and the plan, and the practice of classifying expenditures in government budget under "plan and non-plan";
• two, inadequate fiscal space of the states for fulfilling the objectives of the plans while major responsibilities for plan implementation are devolved on them; and
• three, the system of intergovernmental transfers that is supposed to help address one of the basic objectives of planning, i e, balanced regional growth.

Conclusion

If public resources are to be used optimally to advance growth and welfare of citizens, planning is needed even in a market economy. [Sanjeev: I disagree!] However, the function of planning in a predominantly market-driven economy has to be indicative, co-ordinative and prescriptive. There is also need for a central agency to perform these functions. [Sanjeev: I disagree!] That provides the justification for India's Planning Commission to engage in the task of preparing development plans for the economy periodically even after liberalisation.

However with control over investment in the private sector beyond its purview such planning can at best be indicative. Planners in India seem to be well aware of this reality.

The FYPS now drawn up seek to provide an indicative path of development by setting out the imperatives for alternative growth scenarios in terms of macro-variables like saving and investment (broken down under public and private), current account balance, projected government revenue and expenditure, and investment for the centre sectorally worked out through elaborate exercises done by working groups set up specifically for the purpose. [Sanjeev: I disagree!]

Even if these exercises are left to be undertaken by the ministries, it would still be necessary for an agency like the PC to integrate and coordinate the plans of different ministries and undertakings of the central government, and bring them in line with the medium and long-term goals while keeping within the budget constraint. [Sanjeev: I disagree!]

However for coordination to be meaningful, budgets must be tailored to the FYP by appropriate yearly phasing of outlays planned. That calls for moving over to a system of multi-year budgeting on a rolling basis. This has acquired urgency in the context of resource constraints imposed by the fiscal responsibility laws.

The plan/non-plan distinction in government expenditures has lost its relevance and should go. [Sanjeev: I agree.]

With the 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 has lost its significance and should be done away with.

The system of transfers from the centre needs to be reformed. There should be some rethinking on the relative roles of the PC and the FC. [Sanjeev: I agree.]

The pc also performs a prescriptive function by making recommendations covering a wide area of public policy. There are a number of other agencies as well to make policy recommendations to the government, like the RBI, the Economic Advisory Council to the prime minister, and the think tanks financed by government. Even so, there can be a prescriptive role for the PC but there should be better networking among these agencies. [Sanjeev: I disagree!] The interface between the PC and the MOP in particular should be strengthened if the FYPS are to be made really operational.[Sanjeev: I disagree!]