Indian planning is an exercise which was known for its enormity and fanfare next only to planning in the erstwhile socialist countries. In its early days, Planning Commission invited noted scholars from around the world to streamline Indian planning exercise. They included such well known economists like Oscar Lange, Ragnar Frisch, Nicolas Kaldor, Alan Manne, to name a few. Perhaps this was due to the charisma of Prasanta Chandra Mahalanobis who directed planning in the early years and specially remembered for the second five year plan model. Nobody could deny the importance of planning in India’s socio-economic development in the years following the independence in 1947. The economy, which was a mixture of public sector and private sector from the very beginning, needed development in all spheres for economic growth. The tilt towards heavy industries, which started from the second five year plan, had mixed blessings for the economy. The infrastructure (or core) industries like steel, coal and power, all developed under almost absolute control of the state. This certainly provided a good basis in the sixties and seventies for the development of other sectors like Railways, Heavy Machinery, Machine tools etc. At the same time such a strategy appeared to be heading for a time inconsistency problem since the late seventies and early eighties, with the firm but unholy grip of license-permit Raj in the economy.
What exactly do we mean by the time inconsistency problem here? In the first few years after independence, rightly or wrongly, the planners looked more towards the socialist patterns of comprehensive planning instead of indicative planning of French variety. The production of coal and steel under the state sector might have produced mafias who extracted rent out of the system, but this system coupled with the freight equalization policy provided the much needed core sector products at a distorted but cheap price even to the private sector. In fact, whatever major infrastructural development we had in the Railways, Roads, Ports and Major Irrigation in the last century, the lion’s share belonged to the first thirty years of planning which started in 1951. From the mid-eighties, it was increasingly realized that the so-called vision of self-sufficiency created more dependence on foreigners in some crucial sectors which are pillars of growth, namely the capital goods producing industries (Bhagwati and Desai, 1970). The policy of stressing more the capital goods and basic goods industries showed up in increased share of these sectors in the industrial structure during the twenty five years from mid-fifties to eighties. But this period also witnessed one of the worst industrial recessions which is believed largely due to demand side constraints- a mismatch between the rapid growth of capital and basic goods whose market did not rise that fast due to slower growth in the sectors which used them. Indian economy recovered from this, and in the long run proved the believers in the low level equilibrium trap wrong. But the increasing transaction costs due to the rent seeking behaviour ingrained in the license permit raj made the whole policy of state controlled industrialisation inconsistent with the need of the hour.
The larger issue which bothered the average Indian was the slow rate of growth of the Indian economy during 1950-80, which averaged a paltry 3.5 percent per annum. The official statistics did show reduction of both urban and rural poverty, but a slowly growing economy could not expect a dramatic change in income distribution, especially when the trickle down strategies are always subject to heavy skepticism. Nonetheless, India succeeded in staving off a possible food crisis through the much acclaimed green revolution. However, over the years agriculture sector faced more misery, while the infrastructure in the economy got increasingly neglected. The public sector increasingly got overshadowed by the private sector in the gross capital formation of the nation. We will take up these issues in the next sections to highlight a desirable future road map for the planning process in India.
Policies to Resurrect a Crisis Prone Agriculture Sector
Speaking of agriculture, the first twenty years of planning in India was primarily geared towards ensuring food security among other goals. The per capita availability of cereals increased from 334.2 grams per capita per day in 1951 to 419.1 grams in 1972. One could not minimize the importance of green revolution in this regard. However, over the years public investment in agricultural gross capital formation has declined steadily over the years. The agriculture in India still depends heavily on good monsoon, but the allocation on irrigation and flood control in the government budget has steadily declined over the years and now hovers around 0.1 to 0.2 percent annually compared to around seven to eight percent in the 60s to 80s. This is the major area where the government involvement was perceptible in historical backdrop. The rest of the inputs were more or less privately provided except fertilizer. The paradox is that in India, as in elsewhere, public investment in rural infrastructure acts as a major complementary factor to private capital formation (World Bank, 2003).
One of the net results of this apathy towards agriculture is a fall in the total factor productivity (TFP) in agriculture in the last two decades. TFP measures the quality and efficiency of the inputs (including managerial efficiency) and not the quantity. Incidentally, TFP growth was around 1.39 percent in the 1970s and 1.99 percent in the 1980s compared to -0.59 percent per year in the first half of the 1990s (Srinivasan, 2000). The per capita per day cereal and pulse availability also do not show any promising trend in recent years although some claim the change in food habits might reduce the need of cereals and pulses over time. The overall scenario does not look promising as the agricultural growth has fallen significantly over the years and lately turned negative for some years.
The planning process seems resigned to the fact that agriculture should be left largely to the private sector and market forces. No matter how much one emphasizes the Public Distribution System, a slow growth of agriculture puts the country at the mercy of global players. It is quoted in the media that India buys so much pulses from abroad that there is not much surplus left in the world market of pulses to meet unforeseen shocks. Given the vagaries of long term shifts in the climate patterns, such shocks are not always under human control.
So it is felt that India needs a second green revolution to overcome the maladies of agriculture. The question remains, if such a revolution brought relief to Indian economy in the sixties, then what prevents it from happening now. This is an issue which the planners need to answer soon. The basic problem is twofold- one is the lack of an incentive scheme for the lab to land model to work again and the second is the problem of free flow of relevant information to the farmers from the government departments. Regarding the first problem, one finds a change in the incentive structure over the years for the agricultural universities and research institutions to search for a bio-friendly sustainable innovation in agriculture. Perhaps, it is now more important for the faculty to publish theoretical work in journals without putting these to empirical or practical tests. The incentives for the faculty in such institutions should be scrutinized and any lacunae in operationalising the lab to land model need to be properly addressed. Regarding the second issue, one finds the gradual disappearance of extension services which informed the farmers of latest perils and discoveries in the local agriculture (including more traditional subjects like crop diversification). This was the cornerstone of success of the green revolution in the sixties. The planners need to give serious thoughts to this. The last but not the least in the scheme of things is the need to reduce risk and uncertainty in tenancy relations which exist in different forms in India. It is well known that reduction of production risk increases long term investment on the part of tenants, hence might lead to increase in productivity. One example is the ‘operation barga’ model of West Bengal, which gave heritable rights to sharecroppers reducing their risks. This certainly had a positive impact on agricultural productivity (Banerjee et al, 1998; Raychaudhuri, 2004). One need not follow the same model in every situation, but one must remember that new technology can be spread more easily where risk is taken care of simultaneously through some form of reform in tenure system, product insurance or input supply mechanism.
Education and Employment
The importance of education in the creation of human capital can hardly be overemphasized. It is well accepted now that human capital plays an equally significant, if not more, role along with physical capital in the growth process of a nation. India has made a long stride in educating its huge population, but it still lags behind its neighbours in south-east Asia and China. India recently enacted The Right of Children to Free and Compulsory Education Act in 2009. The Present Act wishes to increase the gross enrollment ratio to 100 up to secondary stage calculated on the basis of new entrants. The Act says every child of age 6-14 will have right to have free and compulsory education in a neighbourhood school till the completion of his/her elementary education. Further, the Act says Centre and State should have concurrent responsibility of funding the cost of providing such education.
The effort is long overdue, but the major concerns to this are several. The first one is regarding the conditions laid down in the act and its implications in terms of funding. The expenditure on elementary education (till class eight) in India, combining both state and centre, is around a static 1.6 to 1.7 percent of GDP. The new effort might increase the need for combined investment to three times the present level. One is not sure how much is spent at present to fulfill the goal. The second major issue is its implication on higher education. The gross enrollment ratio (GER) in class XI-XII education in India was around 28 percent in 2006-07 (Economic Survey, GOI, 2008-09). The GER in higher education institutions (College and universities) was a mere 13 percent in 2003 which might have gone up insignificantly in recent years. Once the new act is properly implemented (which again may be a debatable issue), the need to provide higher education will go up tremendously. The response of government is still along the lines of creation of more colleges and universities to cater to this need. The emphasis is more on the provision of traditional subjects although the government documents do stress on the need to strengthen the urban and rural polytechniques. The existing Public Private Partnership (PPP) models are geared more towards either provision of land to private providers in lieu of government quotas in those institutions or trying to put a cap on the tuition fees and enforcing a standardized teaching module.
However, it is increasingly felt that providing general or traditional higher education to all is a worse alternative than directing the students to their most deserving streams. This creates the need for more vocational and community colleges in the society. Vocational education is really in a mess for most states in India for the simple reason that the government lacks an educational map of the neighbourhood where such a college is located. Thus supply and demand of the skills needed in the area is hardly known and the system might create oversupply in certain vocation while some other vocations may be starving for lack of proper skilled manpower. Such a planning is essential with the active help of neighbourhood industries (probably small and tiny in nature), so that continuous upgrading of the syllabus and infrastructure could be made in the vocational colleges. Otherwise, the students coming out of these institutions will continuously search for an appropriate opening, leading to depression and despair in the minds of thousand of our young men and women. The community college model in US served this purpose exceedingly well. They provided an opportunity to the economically weak and school dropout section of the society to find a position in the changing landscape of the economy. So, the new Act should never be thought of as an end in itself. It should be put in the perspective of endowing the population and the society with more human capital which could bring more growth with equity to the nation.
Infrastructure and Backward Region Development
Indian Plan documents are replete with policy suggestions for backward region development in terms of accelerated infrastructure development. However, despite different policy directions, backwardness has remained a major issue in India today. The process and principles towards fund devolution face serious questions regarding its efficiency and underlying theoretical foundations. The major issue is not really how to identify the backward regions, but how to allocate appropriate funds for their development. A related, but equally important question is proper implementation of projects contemplated with all the good intention by the planners.
In the existing paradigm, backwardness is measured from Human Deprivation Perspective, based on Capability Shortfalls in terms of different social and economic components. The approach takes the rule of uniformity by which the Backward Districts are identified as per the components mentioned earlier by attaching equal weights to each one of them. However, the actual data gathered from Blocks may call for a differential approach of funding on various components which go towards the creation of an Index of Backwardness. In other words, not all components may be contributing uniformly towards the existence of backwardness in a Block. If Block is taken to be the unit of disbursement, a methodology should be devised to suitably differentiate the importance of different social and economic components of backwardness region and location wise.
One such approach toward aggregating the components is Principal Component Analysis (PCA).
Broadly speaking, Public Infrastructure can be categorized as follows:
Physical Infrastructure, like Roads, Electrification, Irrigation etc.
Financial Infrastructure like Cooperatives, Banks etc.
Health Infrastructure like PHC, SHC, Rural Hospitals etc.
Education Infrastructure like number of schools, teacher student ratio etc.
An aggregate index of backwardness with variable weights attached to shortfall of each type of infrastructure from a socially and economically desirable minimum could be calculated using PCA (Raychaudhuri and Haldar, 2009). The weights really reflect importance of capability shortfall in any particular dimension according to local needs and conditions.
The main problem with the existing planning process is to initiate well intended schemes based on certain uniform percentage based rules of allocation across all the backward regions in India. This approach is self-defeating from the very beginning because the uniform rule ignores the variation of locations and needs across different regions in India. It is about time more flexibility is allowed in all such devolution schemes. What about corruption and other money laundering activities? We would suggest that these are really problems of monitoring and enforcement in the implementation stage and are not part of planning. One must first try to achieve more perfection at the planning stage and then go for its perfect implementation. Thus, a proper mode of devolution of funds is the necessary condition of success to address backwardness and proper implementation is really a sufficient condition for its success.
The issues raised above are to highlight some of the deficiency in the planning process of India today. This is not to deny the historical importance of planning in India nor does it ignore its role at present. Planning, even in its much smaller role today, can be an important means of addressing concerns of average citizen in India. But what is required is a reorientation and repositioning of some of the goals and objectives pursued in our planning process for years. Also, equally important, is to rethink about modes of devolution of funds to alleviate poverty and inequality in the society. We should not succumb to a sense of despair that nothing can be implemented in a society which has lost some of its moral and ethical values. We must not forget that implementation comes later than planning and we should never err too much in the stage that precedes implementation.
References and Additional Thinking
Banerjee, A., P. Gertler and M. Ghatak. “Empowerment and Efficiency: The Economics of Agrarian Reform”, Mimeo, 1998.
Desai, Padma and J. Bhagwati. Planning for Industrialization - A Study of Indian Industrialization and Trade Policies, OECD Development Center, Oxford: Oxford University Press, 1970.
Raychaudhuri, Ajitava and Sushil K. Haldar. “An Investigation into the Inter-District Disparity in West Bengal, 1991-2005”, Economic and Political Weekly, XLIV, Nos. 26 and 27, June 27, 2009, pp.258-263.
Raychaudhuri, Ajitava,. Land Reforms in West Bengal, India, Paper prepared for the World Bank sponsored Scaling-up Poverty Reduction Conference in Shanghai, 2004.
Srinivasan, T.N. Eight Lectures on India’s Economic Reforms, Delhi: OUP, 2000.
World Bank- Agriculture and Rural Development in India: Sustaining Reform, Reducing Poverty, Delhi: OUP, 2003.
(The views expressed in the write-up are personal and do not re?ect the official policy or position of the organization.)