TRANSFORMATIVE PLANNING
Makeover of Planning and it's Commission
V.K. Srinivasan & S. Chakravarthy Hyderabad, India 1/20/2011 5:01:28 AM
Reports emanating from Delhi suggest that a proposal for transforming the Planning Commission of India, set up in March 1950, into a Systems Reforms Commission has been initiated and the process of consultation with stake holders and others is under way. It has been indicated that the Planning Commission will restructure it self to serve three essential functions: build a larger network around its members with think tanks and opinion makers, produce thought papers at a faster pace and communicate more lucidly with polity. Now that the Planning Commission has completed six decades of formulation and implementation of eleven Five Year Plans and a few annual plans, it is perhaps time for a retrospective analysis of its performance and an analysis of the rehaul plan, which will facilitate the XII FYP to focus on three Ps — Profits People and Planet.
Origins of Planning
While commencement of Planning in India is generally placed in 1950 when the Planning Commission was set up by a Government resolution of 15 March 1950, we should remember the earlier efforts like Sri. M. Visveswarayya’s Ten Year Plan of 1934, the Bombay Plan by group of Industrialists, the People’s Plan by Sri. MN Roy and the Gandhian Plan of Sriman Narayan. The Institutional structure can be traced to the recommendations of Conference of Provincial Ministers of Industries (1938) for the constitution of All India Planning Commission and the formation of a National Planning Commission with Sri. Jawahar Lal Nehru as Chairman and Prof. KT Shah as General Secretary.
More formally, Governmenr of India created in 1944, a Planning and Development Dept. to coordinate post war re-construction work. In 1946 Govt. appointed an Advisory Planning Board with Sri. KC Neogy as Chairman and in December 1946 the APB recommended the appointment of a single compact authoritative planning organization, non-political and advisory character. This was followed in 1948 by the recommendation of the Economic Programmes Committee of the All India Congress Committee for setting up a Central Planning Commission and the resolution of Congress Working Committee in January 1950 recommending a statutory Planning Commission.
As a consequence of such recommendations, it was announced in the Central Budget of February 1950 that a new body will be set up “so that the best use can be made of such resources as we possesses for the development of the nation”. As a follow-up the Planning Commission was set-up by a resolution of Govt. of India dated March 15, 1950, indicating that “during the last three years the Centre as well as the provinces has initiated schemes of development but experiences show that progress has been hampered by the absence of adequate co-ordination and sufficiently precise information about the availability of resources”. As a result of problems faced, “the need for comprehensive planning based on a careful appraisal of resources and on an objective analysis of all relevant economic factors has become imperative. These purposes could be achieved through an organization free from the burdens of day to day administration but in constant touch with the Government at the highest policy levels”. The GOI resolution further stipulated that the Planning Commission will act “in close understanding and consultation with the Ministries of Central Government and Governments of various States”. It is clear from the GOI resolution that the Planning Commission was conceived as an advisory body of experts, non-political in character but in close touch with policy makers.
Organization and Process
The institutional Framework for carrying out planning activities consisted of a) Planning Commission, set up in March 1950 with Prime Minister as Chairman and Members Incharge of various subjects assisted by a Secretariat of officials with Administrative and Professional expertise and b) Planning Departments in the State Governments. Since India is governed by a Federal Constitution and Planned Development can be meaningful only if it covered the efforts of the Centre and the States, it was decided to set up a National Development Council in August 1952 to consider and approve the plans formulated by the Planning Commission for implementation over a five year period.
The NDC has the Prime Minister as Chairman, Members of the Planning Commission and Chief Ministers of the various states as members. This lends the NDC some stature and the process of approval of five year plans a measure of authority and popular acceptability.
With a view to linking the five year plans to the budgetary processes of the centre and state Governments, preparation of annual plans with a shorter time duration of one year came into practice. The process of formulation of five year plan consisted of a) preparation of an Approach Paper as a consultative document circulated widely for eliciting comments and opinion from state governments and other stake holders, b) assessment of financial resources and assembling of schemes and projects by different working groups, c) preparation of draft five year plan and d) approval of the five year plan by the National Development Council.
The process of formulating five year plans and annual plans , has acquired over the years a measure of acceptability, with some degree of clarity on programmes and projects, their objectives, physical targets and financial outlays , and the relative responsibilities of the Union and State Governments in mobilizing resources, and implementing the Plan. While the extant process, has considerable merits, and a few weaknesses, the proposal to substitute this with, ‘thought papers’ and presentation of options, may only serve to dilute the plan process and deprive it of what ever strength it has. If there is any noticeable weakness in the plan process, it is more in the process of implementation, with responsibility for resource mobilization and physical implementation shared by the Union and the State Governments. To push the plan process into the vague world of thought papers and options may only serve to distance the five year plans from the challenging tasks of grappling with the ground level realities of issues of poverty alleviation, and building, technical and socio economic infrastructure for rapid development of the economy.
Role of Planning and Finance Commission
The role and responsibilities assigned to the Planning Commission, significantly differed from those assigned to the Finance Commission, set up under Article 280 of the Indian Constitution to even out the issues arising from the mis-match of functions and legislative powers assigned to the Union and the States and their resource mobilization capacities. Article 246 and the seventh schedule distributed powers and allotted subjects to the union and the states with a three fold classification: List I, the Union list contains, 97 subjects, List II, the State list containing 66 subjects and List III, concurrent list with 47 subjects. As per Article 248, the Union has exclusive power on any matter not enumerated in the State or concurrent list and as per Article 254 in case of conflict between Union laws and State laws, the Union law shall prevail. The Taxation powers of the Union and State have also been indicated. Experience has shown that there is asymmetry between the functional responsibilities and revenue raising powers assigned by the Constitution to the Union and State Governments. The Constitution makers has recognized that the division of resources and function between Union and States was such that there would be imbalance between them and provided in Article 280 for appointment of a Finance Commission even five years to correct the imbalance and bring about an alignment between resources and functions.
The Indian Federal fiscal system provided a workable mechanism, by which the statutory Finance Commission and the advisory Planning Commission can re-distribute the national resources between the Centre and the States and among the latter taking into account the ability and needs of the states. In 1984, Sanjivi Guhan an economist with experiences both in the centre and states observed that “the weakness has been that in the actual working of the two commissions, there has been a lack of both clarity and coordination in regard to ways in which each Commission could address itself to upgrading ability while responding to needs and concurrently and conversely compensate for backwardness while upgrading ability”
Needs of Mixed Economy
It must also be mentioned that apart from federal structure of the nation, the Planning Commission had to take into account the fact Indian Economy continued as a mixed economy with role for the public sector in retaining “commanding heights of the economy” with a significant role in the build up of economic infrastructure and planning for socio economic transformation and a less significant role for the private sector catering mainly to the consumer needs with profitability of operations as the main criteria with a functional framework established through Industrial Policy Resolutions of 1948 and 1956 and later modified in 1981 and 1991. The economic scenario has changed, in the last few decades, with liberalization of Governmental regulations and assignment of an increasingly larger role for the private sector in not only production of goods but also provision of services which were hitherto mainly in the domain of governments, local authorities and public sector enterprises. The plan formulation and time phasing of investments have to be adjusted to the changed scenery.
Plan Objectives
Development Plans since the 50s, were initially guided by objectives of growth with social justice, self reliance and balanced regional development. These were later modified in the nineties to emphasize pursuit of rapid economic growth, balancing equity and efficiency. The national perspective and broad political vision that emerged in the initial decades of planning has somewhat been clouded by the recent upsurge of regional aspirations and narrower caste and community interest. The mutually influencing political activity and the implementation of economic programmes have significant impact on the pace and pattern of growth and even more on spread of benefits across communities and states. The implications of the change in emphasis on policy goals and implementation process need to be studied in depth and findings published, as there is currently a revisit to the old questions of Role of State Vs. Market and Speed of growth vs. quality of growth. The current emphasis on inclusive growth is an offshoot of this debate.
Increases in Plan Investments
Plan outlays have increased from Rs. 1,960 crores in the First Five Year Plan (1951-56) to Rs. 15,25,639 crores in the Tenth Five Year Plan (2002-2007). The Eleventh Five Year Plan (2007-2012) has been approved with an outlay of Rs. 36,44,718 crores and is in the process of implementation (see Table 1). The Planning Commission is getting ready with an approach paper to the Twelfth FYP. As earlier mentioned the Federal Constitution of India required investment planning and implementation of schemes to be carried out by both the Union Government and various State Governments. It may therefore be appropriate to take a look at not only the total investments under the various plans but also the relative shares of the Centre and the States in plan expenditure.
It is seen that the Centre’s share in Plan Expenditure has increased from 36.02% in the First FYP to 58.5% in the Tenth Plan, while the share of the States has come down from 63.52% to 41.5% in the corresponding period. It must be remembered that the centre’s expenditure will cover transfers to the States for implementation of central sector and centrally sponsored schemes, apart from central assistance for state plans.
Plan Assistance to States
While in the initial decades of planning central assistance for state plans was dictated by discretion of Planning Commission Members, resulting at times in avoidable controversies, a significant step towards formula based assistance common to all states was taken by Prof. DR Gadgil in 1969 and revised by the Planning Commission in 1980, 1990 and 1991 (See Table 2). The Gadgil formula made a distinction between special category states and other states and tried to evolve criteria for distribution of Central Plan Assistance on the basis of size of population, per capita income, outlays on irrigation and power projects and special problems of the state. The first revision made in 1980 eliminated the outlay on irrigation and power projects as a criteria for central assistance and increased allocation for per captia income as a criteria. The second revision made in 1990 lowered the weightage for population and increased the weightage of per captia income. The third revision made in 1991 restored the weightage for population and modified the weightage for performance and special problems. The formulae for plan assistance from centre to the states has to be seen with the other stream of flow- devolution of taxes and grants in aid recommended by the statutory Finance Commission appointed every five years.
It is clear that formulae for transfer of central resources to states with equal emphasis on equity and efficiency call for care in not only choice of criteria but also close consideration on the weights to be assigned to each criteria. The changes in the criteria and weightage made by the various Finance Commissions indicate a shift from population and per capita income as the dominant factors to consideration of performance of tax effort and fiscal discipline. The need to bring, expenditure and debt management within this fold is evident. The formulae for central assistance for plans continue to give high weightage to population and per capita income even after revisions in 1980 and 1990 and there is also fine tuning of the criteria for judging performance. It must be, however, recognized that, the weightage assigned to performance has been relatively lower in comparison with the weightage given to population and poverty.
Performance as Criteria
Both Finance Commission and Planning Commission have tried to improve the manner of application of the income criteria, by considering different weightage to distance and deviation and alternative formulae. Similarly, criteria for performance have also been subjected to changes and refinement. The weightage of 10% each given to performance and special problems by Gadgil Formula of 1969, was subsequently modified in 1991 with weightage of 7.5% each for performance and special problems, with the performance weightage objectives.
Similarly Finance Commission have also been changing the criteria of fixed transfers to the states. While the Tenth Finance Commission give a weightage of 10% to tax effort calculated as per formula evolved by it, the Eleventh Finance Commission not only reduced the weightage to five percent but also changed the manner of computing the states share on the basis of tax effort and further introduced fiscal discipline as criteria with 7.5% weightage. There is some degree of confusion in the State Governments resulting from these frequent changes in the choice of criteria, assignment of weightage and method of computation of share of individual states. There is a felt need for not only care in the choice of criteria and for balance in the assignment of weights, but also a measure of stability and continuity regarding this.
The role that the Planning Commission plays in the examination and approval of state plans will call for close consideration as, on the political firmament there have been significant changes with different political parties and their combinations coming to power at the Centre and in the States. Demurring voices about non clearance of schemes and projects by the centre are now more common and strident than they were in early decades of planning. Unless the Planning Commission is so re-constituted as to bring in expertise and local knowledge regarding the various regions and states, the planning process may continue to suffer from the unwillingness of states to accept the Yojana Bhavan dictates and advices. What is urgently needed is a substitution of the well meant but rarified academic wisdom of of Yojana Bhavan by states-specific development strategies with adequate appreciation of the local needs and persisting differences in the resource endowments and levels of development of the various States.
Change in Structure
An important aspect of the economy in the first three decades of plan development was the change in its structure, slow in the fifties and quite noticeable in the sixties and seventies. Between 1950-51 and 1980-81 the share of Agriculture went down from 59.2% to 41.8% while that of Industry increased from 13.3% to 21.5% even as the share of Services rose from 27.5% to 36.9%. The next 25 years between 1980-81 and 2005-06 saw sharp decline in the share of agriculture in GDP from 41.8% to 21.7%, slow rise in share of Industry from 21.5% to 24.1% and significant increase in the share of services from 36.7% to 54.2%. The structural change needs to be more clearly considered in setting priorities for plan investments.
Growth Performances of the Past
The FYP set out growth targets for achievements and indicated plan outlays with investment quantum, budgetary support and extra budgetary resources. The growth targets for the first three FYP were set out with respect to national income. The fourth FYP set out growth with target interest of net domestic product and all subsequent FYPs have set targets for growth of GDP at factor cost.
Looking back, we notice that while the plan outlays increased from Rs. 1960 crores in I FYP to Rs. 1,525,639 crores in X FYP the average growth rate of Gross Domestic Product not only fluctuated from Five Year Plan to Five Year Plan but was also below the target set in the plan documents (see Table 3). If one took the average of the first twenty five years of planning 1950-1975, the annual growth rate was about 3.5%. While the economy trudged along there was a considerable slack in the system and more than a measure of indiscipline in the economy the controversial imposition of emergency hurt the civil society but considerably improved the implementation of economic and other programme. The average growth rate of GDP moved up to 5.5% during the VI FYP and 5.8% during the VII FYP. In the following decades thanks to important policy changes, most notably liberalization of controls and regulations since 1984, and moves for integration with global economy since the early nineties, the Indian economy moved into a higher trajectory of growth with a average annual rate of growth moving up from 5.6% during VI and VII FYP to 6.7% during VIII FYP, reverting to 5.5% during IX FYP before rising to 7.6% during X FYP. The XI FYP projected an higher growth rate, but the implementation at face the challenges of global recession. The gradual revival of the Indian economy has once again revived prospects for higher growth rates.
Assessing Growth Performance
There have however been questions on the quality and sectoral distribution of growth. While scholars and others have applauded the higher growth rate of GDP achieved in the 25 years, and have attributed this to the policies of liberalization and globalization one should take note of doubts expressed in some circles whether this is a statistical phenomenon as most of the increases is accounted by the Service Sector in which measurement of value can be fluctuating and error prone. Analyzing the growth from the point of view of employment generation, scholars have pointed out that the recent years witnessed “jobless growth”. Employment growth fell sharply from the post reform years from 2.6% p.a between 1983 to 1993 to 1.2% between 1993-2000, with a noticeable fall in agricultural and organization sector. During the 55th meeting of the National Development Council held recently, the Chief Ministers of various states pointed out the link between employment for younger generations and growing extremism and some argued that it will be better if the economy grew at seven percent and created more employment opportunities than growing at 10% without increasing job opportunities. Obsession with higher rates of macro economic growth has to be tempered with meaningful spread of opportunities for jobs and income across sectors of the economy and various states.
Analysts have pointed out that economic growth, noticeable at the macro level has not spread evenly across the states, with regional disparities increasing, and that as a result successive Finance Commissions have to provide substantial allocations from Central Tax Revenue to some backward states. Sociologists have also been highlighting that the socially and economically backward classes people entitled to constitutional protection have not got their due share of benefits. There is a view that higher rates of economic growth have not contributed to balanced regional development or equitable growth of all sections of society. This has long term implications for India’s teaming millions and brings into focus the issue of “measurable growth and meaningful growth”.
The Indian economy whose production base was broadened and increased by rise in demand from domestic consumers, during the first four decades of planned development has certainly received increased trade benefits from the external orientation of policy and programmes in the recent years. Along with these benefits came the unavoidable impact of global financial meltdown in 2008-09. While the nation benefited from the circumspect policies pursued in capital account and current account convertibility in moderating the impact of financial melt down, the downturn in major economies has certainly affected trade and is now having a lagged effect on domestic employment and income growth. This should be kept in view while we discuss measures to sustain high growth rate in the economy and consider steps to protect different sections of society.
Conclusions
While the sharp increase in the plan outlays at the centre and the states have become noticeable, there is continuing concern over the issues of equity in re-distribution of resources and efficiency in utilization of resources, particularly, in determining the respective shares of various states in federal transfers. Public Finance analysts have pointed out that resolving tension between equity and efficiency is a fundamental challenge in public policy. In the federal context, this creates a dilemma for those interested in the task of adjucating the transfer of federal funds to the states.
What is significant and should not be missed by any one is that in India, the pressures of economic growth and financial management are inextricably intertwined with social and political objectives of governance. Rate of growth is to be assessed along with its quality, and distribution equity. That has been the sheet anchor of our development planning. Reiterating this, in his address to the nation on June 25th 2004, the Prime Minister Dr. Manmohan Singh had observed that “Equity and efficiency are complementary, not contradictory, and we must move forward on both these, while maintaining a high degree of fiscal and financial discipline and a robust external, economic profile”. The Prime Minister also observed that “at a regional level the disparities are high and while some regions of the country seem to be on an accelerating growth path, there is a concern that other regions are not only lacking but are also falling behind” and that “as a nation we cannot accept such disparities”.
Makeover of Planning Commission?
Given the benefit of experience of formulation and implementation of development plans of over six decades, we should be ready to consider various suggestions for a makeover of the Planning Commission, in so far as its contribution to the sustained and inclusive growth of the economy. It is however a moot question whether the Planning Commission can be transformed into a Systems Reform Commission for resolving the extant systemic problems as proposed by some. For one thing the Planning Commission as it is constituted now, lacks statutory stature and its present composition with a dominance of Delhi based and Union centric economists and bureaucrats does not lend it much credibility. On the other hand there are genuine apprehensions among States regarding the content and quality of its prescriptions. This in itself may be a good ground for the makeover of the Planning Commission. However timing acquires significance. At a time when questions are raised about the domains of the Constitutionally empowered Judiciary the Legislature and Executive and there is an overhang of uncertainty, the scope for Planning Commission to metamorphose itself into a Systems Reform Commission must be considered limited, unless the nation is got prepared and ready to effect Constitutional amendments. That does not appear to be visible on the horizon.
(The views expressed in the write-up are personal and do not re?ect the official policy or position of the organization.)
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