By B Yerram Raju
It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way— in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.
— Charles Dickens in his epoch-making novel, A Tale of Two Cities written in 1859 aptly describes the day India had independence, 75 years ago. When I wanted to narrate the tale of two institutions that shaped India, viz, the Planning Commission that had 65 years of existence, and the NITI Aayog that is just in its eighth year, the title seems apt.
Arun Jaitley, former Finance Minister had said: “The 65-year old Planning Commission had become a redundant organisation. It was relevant in a command economy structure, but not any longer. India is a diverse country and its States are in various phases of economic development, along with their own strengths and weaknesses. In this context, ‘one size fits all’ approach to economic planning is obsolete. It cannot make India competitive in a global economy.”
There is a tacit acceptance of its relevance at the times it served the nation. The objective of this article is not to compare the Planning Commission with NITI Aayog but to place before the readers the relevance of the former as it evolved over the years, for it was not contested and second, whether the new institution has been able to truly live up to its objectives. Also because of the period of their existence, it would be imprudent to compare them. We should have the best of both worlds. Preparedness is crucial for ushering in such best.
The Planning Commission was the architect of 12 Five Year Plans and each plan had a clear agenda. The way it evolved is certainly a story that cannot be wished away. These Plans gave impetus to certain policy interventions and even birth to new institutions.
Three years past August 15, 1947, the Indian economy was on the threshold of rebuilding out of the chaos we inherited from the colonial British. The shadow of the Second World War still loomed large with food shortages, famine in Bengal and politically fragmented India. The three arms of the Constitution — Executive, Legislature and Judiciary — were in a state of evolution. There was uncertainty on the borders. The economy was dominantly poor and marginally rich. The government under the charismatic leadership of Prime Minister Jawaharlal Nehru took the issues headlong.
The Nehru-Khrushchev-Kennedy trio effectively engaged the world in shaping the global setting. Nehru, keeping in mind the Avadi (Tamil Nadu, then part of Madras Province) resolution of the Indian Congress in establishing a socialist pattern of society, was sold to the idea of planning largely influenced by the Soviet economy.
Sir Arthur Lewis, the architect of development planning — providing a powerful tool for import substitution and protection, Ragnar Nurkse’s famous doctrine of ‘vicious circle of poverty’, Rosenstein-Rodan (1943), who argued that the modern industry was subject to indivisibilities and economies of scale, and Rostow, whose idea of ‘take-off’ shaped the approach of the world planners, influenced Nehru to believe that large capital investments in transport, communications, power, and urban infrastructure shall come from the state exchequer rather than the poorly endowed savings and the private sector, whose interests in quick profits would be overwhelming. Concepts of ‘relative backwardness’ among countries emphasised that the state must substitute for the market and force industrialisation.
The Planning Commission was the architect of 12 Five Year Plans and each plan had a clear agenda.
Niti Aayog prepares sectoral indices mostly done by external institutions
The success of Keynesian activism and the Marshall Plan in the quick reconstruction of the war-damaged economies of western Europe and the industrial drive of Soviet Russia in the 1930s created a virtual intellectual consensus among the planners of India. PC Mahalanobis became the chief architect of Indian planning. If the first plan emphasised patience, the second aimed at achieving rapid structural transformation by adjusting in all feasible directions at the same time. The diverse democracy required specific direction as several of the States, subsequently formed on linguistic basis, required balanced regional development. The objective of the Planning Commission, therefore, involved upfront a rational assessment of the material, capital and human resources, including technical persons of the economy, and plan for augmenting any resources noticed as deficient in tune with the nation’s requirements.
In the 1950s and 60s, there was a broad consensus that governments must intervene directly and play an activist role in development. Even the capitalist-oriented World Bank was not inclined to lend to countries that did not have a government-sponsored ‘Development Plan.’
No wonder the Planning Commission played an integrative role in the development of a holistic approach to synthesising, and where needed, coordinating in the areas of literacy, environmental protection, provision of safe drinking water, rural energy needs, and to meeting education needs from the primary to higher education and technical education, in a cost-effective and resource-efficient way. Five-Year Plans used to be the goalposts for the annual Budgets of the Union government. It played a significant role in building new institutions.
Structural facilitation from the National Development Council, consisting of all the Chief Ministers, evened out the differences among the States both in resource allocation and their efficient use. States too had set up State Planning Boards with its chair taking the rank of a Cabinet minister. The Project Monitoring and Evaluation Department of the Planning Commission guided the State counterparts and such reports were kept in the knowledge of Parliament and in the public domain.
Five-Year Plans used to be the goalposts for the annual Budgets of the Union government and played a significant role in building new institutions
Niti Aayog’s sectoral indices complimenting States on their performance carry no relevance to the line departments in the Union Ministries and have no relationship to the budgetary allocations
What did the Plans Achieve
Per capita income moved from $60 in 1950 to $2,200 75 years later. Still, our ranking is among the bottom 25%. Economists opine that this growth was largely in tune with the rest of the world and not specific to India. 1950-1990 and 1990-2014 are two distinct periods. 1950-1990 represented India in the transition when the political economy was fighting the legacy of colonial rule and poverty, and new institutions created under the Plans hardly lived up to expectations.
The years 1951-84 that accorded primacy to industrial growth as the pivot of planning saw 3.8% per annum growth, while it was 4% thereafter till 1990. The share of industrial growth increased from 15% to 23% over the whole period while the share of the workforce rose only from 12.6% to 13.8% (Sundaram, 1987).
Except for brief periods, bureaucratic controls proliferated leading to inordinate delays in project implementation and an increase in the cost of projects. Balance-of-payments crisis erupted following the oil crisis in the Gulf. India’s record in education, health, and social indicators, and, as a result, human resource index (0.44, as against China’s 0.72, and Korea’s 0.90) came in for justifiable criticism. The impetus for such growth owes in no small measure to the Five Year Plans. 1966 to 1969 saw three annual plans instead of the FYPs due to political uncertainties.
A major lacuna of the planning system was the absence of a link between Plan priorities and macroeconomic policies to support those priorities. Decentralised planning leading to bottom-up planning was conceived as the best means to get the macro-level plan integration with the grassroots development. The Hanumantha Rao Committee that advocated decentralised planning gave a blueprint for its preparation and involvement of the States and districts in a big way. The Reserve Bank of India directed Lead Banks to prepare the district-level credit plans in sync with the development plans of the districts.
Later, service area plans, as an improvement over the Annual Action Plans following a survey of the villages in the area of operation of each bank branch, were sought to be integrated. After the National Bank for Agriculture and Rural Development (NABARD) was set up, it prepared synchronistic perspective plans for each State. But these perspective plans, State development plans and the annual action plans placed before the State-level Bankers’ Committees chaired either by the State Chief Minister/Minister for Planning or Agriculture Minister became meaningless ritualistic exercises largely incremental in character over the previous years.
Under Planning Commission, structural facilitation from the National Development Council evened out the differences among the States both in resource allocation and their efficient use
NITI Aayog became a poster boy of the NDA govt with its Aspirational Districts program giving up the Accelerated Irrigation Benefit programme of the Planning Commission, taking credit for startups and innovations that came up despite them and not because of them
Eighth to 12th FYPs marked a clear departure from the earlier plans that envisaged a facilitating role for the government instead of direct intervention save in the areas of large investments in transport infrastructure, education and health. The focus of industrial development was increasingly on making the private sector more effective and public sector undertakings lost their primacy deservedly as they were incurring losses year after year. The rest of the plans aimed at gradually lessening their role in job creation and increasing the focus on growth. Jobless growth resulted in preparing a plan for creating one million jobs every year when SP Gupta was the Vice Chairman of the Planning Commission.
The 1990s Era
Come the 1990s, governments came to be seen as an impediment to development. There was a chorus: ‘let business be done by enterprises, from small to big and let governments engage in governance.’ Margaret Thatcher of the UK, and Ronald Reagan of the US contributed to the change in that direction. From the 1990s onwards, planning in India took a new direction. Important anomalies in the industrial structure developed due to the tenuous link between macroeconomic policies, particularly tariff and fiscal policies, and intersectoral targets of the Plans.
Public sector banking provided an impetus to the sinking public sector industries. The banking sector reforms since 1993 resulting in cleaning up their balance sheets, freedom to charge risk-based pricing to assets financed by them and the effects of globalisation saw the dilution of the emphasis on the priority sector. While the percentage of lending to the priority sector remained at 40 of the total lending of the banks, the composition of this percentage has been undergoing changes. This drifted the attention of grassroots planning from social development to refuelling growth. The result: a 10% jobless growth in 2013-14. The duo of the last FY Plan was former Prime Minister Manmohan Singh and Montek Singh Ahluwalia. A new structure, christened NITI Aayog, came in place of the Planning Commission under Prime Minister Narendra Modi.
NITI Aayog or the National Institution for Transforming India was set up as a think tank of the government of India and not as a substitute for the Planning Commission. It is supposed to reflect the vision of the government — cooperative and competitive federalism. It envisaged both the Union and State governments as development partners along with the other cohorts — civil society organisations, private sector, innovative institutions, and innovators to accelerate the pace of development.
Northeast has been accorded special status with the formation of the NITI Forum to implement State-focused projects and the Himalayan States’ Regional Council with the involvement of 13 central universities located in these States. It started preparing sectoral indices and placing them in the public domain. Such indices and project monitoring studies were mostly prepared by external institutions and through an internal intellectual pool.
The indices on water conservation, quality of school education, delivery of public health, state of innovation eco-system, export preparedness and achievement of Sustainable Development Goals (SDGs) have attracted significant positive attention. Over the past four years, the States have come to recognise the usefulness of these sector indices for improving their governance and improving accountability of their sector officials. The former CEO of the think tank was more on social media and NITI Aayog became a poster boy of the NDA government with its Aspirational Districts program giving up the Accelerated Irrigation Benefit programme of the Planning Commission, taking credit for the startups and innovations that came up despite them and not because of them.
Although it started complimenting States on the performance in certain key areas, they carried no relevance to the line departments in the Union Ministries and have no relationship whatsoever to the budgetary allocations. Economic Surveys during the last eight years also do not quote such performance excellence of a few States like the Telangana government’s Mission Bhagiratha that provides piped drinking water to all the villages in the State, linking up of the 40,000 tanks in Telangana or Kaleshwaram, the world acclaimed largest lift irrigation project that made dry Telangana into wet Telangana, or the institutional innovations like the T-Hub or TSiPASS or TS-BPass.
To conclude, we go back to what Rajiv Kumar, former Vice Chairman, NITI Aayog, wrote in his book, Exploding Aspirations-Unlocking India’s Future: Should there not be some accountability for government agencies to ensure that their forecasts and pronouncements are not completely out of whack from ground realities?
(The author is an Economist and Risk Management Specialist. Views are personal)