Monday, September 8, 2014

Why Planning Commission needs a credible replacement?

I remember my school days when I used to study about Five-Year Plans in Civics class and it was so painful to understand and remember what the First, Second, Third Five Year Plan outlined and so on. At one point in 1999 when I saw the rise of cell phones a question did come to my mind. Just one year and one policy brought a meteoric rise of cell phones in India and how could a five year plan think of changes needed in 5 years from the point of planning? 

India's bureaucratic system is notorious for having multiple agencies doing the same task and in certain cases a single agency having no power. 

Recently, the PM decided to abolish this body and replace it with a brand new body with new powers. No one knows what shape it will take. Planning Commission is currently chaired by the PM and it has experts in Economics, Administration, Industry and Science. This article tries to understand why the existing Planning Commission has become so non-functional and obsolete and what the possible solutions are.

To understand this one has to know 3 facts. The first - Planning Commission is not a body recognized by the Indian Constitution. The second - it's authority has far exceeded its capability (This statement was made by Mr. Modi (Source) when he was the CM of Gujarat). The third is the existence of Finance Commission of India which is accountable to the Parliament and is appointed by the President to look into many of the affairs Planning Commission does and thereby duplicating responsibilities.

Let's elaborate these further. Planning Commission was constituted by India's first PM Nehru who was inspired by Soviets and thought a centralized planning body would help India grow much faster than anticipated. His idea which also translated into a Resolution had 5 major functions -a) Formulate 5 year plan providing framework for development b) How much money each scheme announced by the govt would get c) Appraising the scheme to see if resources are optimally utilized d) Monitoring the same e) act as a mediator between center and states.

The Planning Commission did some commendable jobs. Until the late 1960's Planning Commission had some great experts whose recommendation was taken seriously by Nehru and he established the IIT, IIM, DRDO, IISC and such other prestigious institutions that have helped the country tremendously. Many aspects of land reforms were also formulated and implemented by the Planning Commission. Planning Commission was responsible for recognizing and establishing steel plants (Bhilai, Rourkela, Durgapur), Hydroelectric power projects, state electricity boards and many more.

Since this was not a body accountable to the Parliament and has no constitutional authority each of the successive governments used it to push their agenda and made Planning Commission a transfer agent of centre's money to the states. This was an absolute deviation from the vision it was set up with. As each state became more complex to manage it was in the late 60's that the amount of money to be given to any state became dependent on tax the state generated, its population and many such parameters(Gadgil Formula as it is called). 

When the economy opened up in 1991 private sector began to control many of the resources which the government controlled till then. As an example amount of money needed to make roads, airports or ports. These began to be built in partnership with private companies and no state or government could get into the business of allocating resources. This began to make its role of resource allocation meaningless. Instead of planning with a vision they became a body of monitoring central schemes and transferring money to states in the name of the schemes. So, post 1970's functions a), b),d) became the only function of the Planning Commission.

Truly, formulating a 5 year plan has become obsolete now since every year new technology and scientific innovation forces existing mechanisms to be re-evaluated. So, the Planning Commission is out of touch with this reality. If one remembers this commission was widely criticized for coming up with the definition of poverty which was anyone close to spending Rs.32 per day or below. 

Let's explore now the 3rd fact before getting to the second one. The Finance Commission of India was set up under Article 280 of the Constitution (Source). Its functions, roles and responsibilities are all explained on the website. This body contains 5 experts nominated by the President of India and has done a fair job in coming up with numbers as to which states must get what money and it has a wide variety of parameters based on which it comes up with a formula. It also changes these parameters as and when required. This money typically is the transfer of total taxes collected on various items or services collected by the Center to various states on various formulae (Source). Unlike Planning Commission which uses its own discretion about how much money needs to go to one state, the Finance Commission applies formula and rationale behind its math. The Government of the day has to submit a report about "action taken" and both the Government and Finance Commission are accountable to the Parliament. The Finance Commission also meets with the concerned officials of every state and has the powers of a civil court in the event of discharging such duties. 

Now, coming back to the second fact - The Planning Commission's authority far exceeds its capability. This is very true because Planning Commission is an extra constitutional authority. It has no powers to transfer money to the states and is often accused of using adhoc mechanisms to estimate several parameters and make it binding on the states to accept it. Over the past 10 years according to this article, Planning Commission began to appraise all PPP projects in infrastructure something which the respective departments in the Government must do. Planning Commission got into a direct conflict between several departments.

Clearly, the function of formulating plans with a vision was sidetracked and Planning Commission became a body of monitoring schemes and transferring money to states. 

What can be done in this scenario?

a) Finance Commission is appointed every 5 years. Instead, it should be 2 or 3 years and must be made permanent.
b) It should now become the de-facto body of transferring funds to states since it has the required expertise. Currently, it does non-planned expenditure only. The difference between the two must be removed and all money transfers must now take place only through Finance Commission.
c) Make the recommendations of the Finance Commission binding on the Union Government. So, far almost all Central Government's have accepted Finance Commission recommendations. However, the Commission must be given powers to identify if the Govt has indeed acted on the report it produced in the Parliament.
d) Make Planning Commission strictly a body that can formulate plans with a vision and have experts in it who have enough experience to plan with a big picture.
e) Have planning commission officials in every state who can share their expertise with the respective state since each state has its own geography, resource constraints and demographics. One suggestion applied in Kashmir may not work in TamilNadu and one formula applied in Kerala may not work in West Bengal.
f) There should be one wing of academicians who study the similar problems that exist in other parts of the world and solutions applied to the same. These academicians must submit a report of their own assessment. 
g) A reward mechanism must be set in place where such students/academcians who suggest out of the box and practical solutions be given recognition.

Only time will say when the new body will be formed and whether it will be made effective enough to cause a difference in the broad policy framework. Planning is essential, but planning that includes policies that are feasible to implement is the only way of measuring success of such a body.

While Mr. Modi is in the right direction he needs to take it to the right conclusion. If this does not happen then the new body will be like the old wine in a new bottle.

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