The Indian economy has never been a planned one in the strict sense of the term.
Yes, the Planning Commission has been around for well over fifty years and some ten Five-Year Plans have been prepared. But, as Vivek Chibber reminds us in his recent book (Locked in Place: State-building and Late Industrialisation in India, Princeton University Press, 2003), the private sector in India stoutly resisted the discipline of planning and subverted the licence-permit system to shut out competition and make easy profits.
Even the public sector often went its own way with faint regard for the plan. The planners never had any real control over credit or foreign exchange allocations and only a modest influence on foreign trade and investment-licensing system.
Chibber's standard of comparison is not some planned socialist economy but that flagship of capitalist development--South Korea and its Economic Planning Board.
According to Chibber, state intervention worked in South Korea because the logic of export-led development made it rational for the private sector to accept coordination and direction from the planners, while, in India private and public businesses could survive even with the inefficiencies of mismatched investment plans.
The Indian economy today is radically different. Competitive pressures within India are much greater, exports are more central in corporate plans, the public sector is less cosseted, and the economy is more exposed to foreign competition.
Now, like their South Korean counterparts, Indian capitalists must see that their profitability and survival depend on constructive intervention by planners to ensure that upstream requirements, particularly infrastructure, come up as planned and that the opening up to the world economy is sequenced and timed carefully.
Of course the answer is not the old one of bureaucratic direction. What is needed is a space where the planners and industry can exchange information, identify problems, agree on solutions, and, unlike the old development councils, hold each other accountable for performance.
Planning is not just about infrastructure and industry. In fact, the central concern of planning, at least as stated, has been the eradication of poverty and deprivation.
Yet here too the actual impact has been woefully disappointing. The continuing persistence of abject poverty, unemployment, ill health, illiteracy after over five decades of effort, the failure to anticipate and address problems like the HIV/AIDS pandemic, and the weak safety nets to reduce vulnerability, for instance of farmers, reflect another disconnect, this time between the planners and people.
Addressing this requires a better connection between planners and elected representatives, including in the panchayati raj system, a genuine two-way dialogue between the Centre and the states and an organised outreach to community organisations and voluntary agencies.
In some ways the need to connect better with industry is almost in contradiction with the need to be credible in the eyes of people's representatives and civil society.
These forces are most often on opposite sides in any debate on public policy, particularly in the context of globalisation. The greatest challenge for the Planning Commission is to bridge this divide and develop a shared understanding of the role of public policy with regard to:
All of these areas of policy have been the staple of planning. But in all of them we need to move away from special programmes and bureaucracy-enriching subsidies and controls to a more systematic reflection of these concerns in fiscal and trade policies.
We also need to move away from patronage to participation and listen more to the ones who are supposed to be the beneficiaries of policy. And in all three areas, particularly the last, we need a long-term vision for medium-term policies.
These areas of public policy cannot be left to market forces. They require more or less systematic and planned intervention by public authorities.
The primary responsibility for formulating policies in each of these areas rests with some specific part of the central or state administration.
Good planning means that the competencies and capacities for doing this are strengthened in these loci of policy formulation. But many of these separate policies are interconnected.
They also need to be driven by a common vision and they must enjoy a broad consensus amongst all stakeholders. This is where the Planning Commission can add value to these separate policy-making processes at the Centre and the states.
A Planning Commission that is designed to do this must be substantially different from what it is at present. A significant part of the capacity of the Planning Commission is devoted to the minutiae of plan budgeting for the Centre and the states.
This capacity has to be redeployed with a substantially greater emphasis on perspective planning and analytical work, monitoring and evaluation of policy and programme impact, dialogue with industry, academia, trade unions, NGOs and other stakeholders, and a presence in public debates on development.
There is a risk that a Planning Commission redesigned in this manner could become a mere research institution and talk-shop. In order to ensure that it carries weight in policy making, the processes that go into the formulation of the Five-Year Plans must be maintained.
They provide an occasion for Centre-state and stakeholder engagement in thinking about public policy. The Plan framework must be an obligatory basis for policy formulation by all entities in the central and state administration.
The policy reviews undertaken by the Commission must also be given official status and taken seriously by the primary policy formulators.
A word is necessary on the role of the Planning Commission in Centre-state relations. This must move beyond the annual ritual of state plan discussions, where the Centre tries very ineffectively to sit in judgement on what the states are doing.
Fiscal discipline has been the goal of these discussions. In fact, fiscal discipline has been the principal casualty. Nor can it be restored by exhortation.
The role that regional leaders play now in national politics is such that this is hardly feasible and, in today's political context, we may end up with an even more egregious patronage exercise.
The orientation of the dialogue with state governments must be changed. Fiscal discipline must come from the norms and rules set by bodies like the Finance Commission and RBI.
The aim of the Plan discussions must not just be that the Centre influence state policies but for the states to contribute to national policies.
Let each state put forward its ideas for the national plan. Empower groups of chief ministers to address national issues.
The institutional mechanism for doing this can be the meetings of the Commission with the individual states, the NDC meetings and a greater use of NDC-mandated committees of chief ministers on specific problems.
A redesigned Planning Commission has to become an instrument for keeping together a fragmented polity around a set of shared values and goals.
It has to function as a political safety net to keep together the coalitions that will rule at the Centre, act as an honest broker between the Centre and the states and keep the polarised forces in civil society engaged in the policy dialogue. That is the challenge for Montek Ahluwalia and his team.
The author is a former under-secretary general at the UN, and before that chief economic advisor in the finance ministry.
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