Reimagining Indian economic planning: Planning Commission 2.0

16 December 2014, Observer Research Foundation, Analysis

Original link is here
This summer, Prime Minister Modi proposed a radical change to Government of India’s economic bureaucracy by announcing the decision to close down the Planning Commission as it existed. Any new organization of Indian economic leadership, however, must learn from the failures and successes of the erstwhile Planning Commission, continuing its best aspects while reforming all that is irrelevant. There are at least five changes that should be considered vital to the new ’avatar’ that the Prime Minister seeks to fashion.

The Planning Commission was a key part of Indian Centre-State fiscal relations, disbursing ’planned’ funds from the ’Centre’ to ’State’ governments. It once served a valuable role in keeping economic policy coordinated in the nation’s early years. Yet this important aspect of federalism had been overwhelmed by developments (the Indian economic liberalisation that made the distinction between ’planned’ and ’unplanned’ expenditure increasingly anachronistic) and political machinations (the tendency of ruling parties at New Delhi to view Planning Commission expenditure as a political tool to influence the State(s)). The new government must recognize the value of national coordination, while leveraging its constitutionally guaranteed pole position within federal processes that empower the provinces. Changing the Planning Commission should entail neither the continued rigid centralisation nor chaotic and wholesale devolution, but a nuanced combination that respects divided economic responsibilities, with the intention of shaping a system where those best placed to deliver results are entrusted with the responsibility — communities, states, the Centre or the private sector.

India’s economic growth has been hampered by excessive governmental management of resources and assets; the new government should use Planning Commission reorganisation as an opportunity for economic reform that will replace inefficient central planning with better arbitration from the market. Prime examples of the problems with the current system is manifested in gas pricing, coal and telecom spectrum allocation among other resources. Audits by the Auditor General and verdicts from the Supreme Court have indicted the systems of government allocation of coal blocks as well as telecom spectrum as being flawed. Government control in many sectors has led to mismanagement, corruption, rent-seeking, and missed opportunities for private investment. A renewed push for reform is needed to overcome the political barriers encountered in relinquishing government control over resources. A key job for the new ’Commission’ should be designing workable market-based solutions for coal, telecom, and other resources.

The Planning Commission at its best was composed of domain experts and academics that provided pertinent advice and economic leadership to the Prime Minister’s Office; at its worst, it was filled with non-specialist bureaucrats and political appointees. Any new body must not only reform this duality of participation, but expand it to include inputs from all relevant economic stakeholders—professionals from the private sector and civil society can give shape and form to pragmatic recommendations for the economy. Of course, any such involvement from stakeholders invested in various sectors of the economy comes with the danger of conflicts of interest, and preventing this remains important. Care should also be taken to have a creative and flexible salary and renumeration structure that can attract private sector experts, so the Indian government receives the best competitive economic advice and is not simply choosing from those unable to succeed at the highest levels of the private sector economy. The private sector is not the enemy of economic development and in fact it is the engine; with the proper incentives and protection against rent-seeking, private sector expertise can be an ally of government policy.

Under the old system, the Planning Commission’s mandate was restricted solely to domestic concerns and some of the more prominent multi-lateral issues. Indeed, it could not take overseas economic interests into account, even as the Indian Diaspora grew and globalisation became a major driver of economic growth. Today, when remittances are the second largest sector in the Indian economy, and Indian corporations are invested globally, Indian economic policy will be suboptimal without strategic thinking on utilisation of international resources. The Centre’s role in ameliorating inter-state and regional disparities will also be hindered without accounting for the differential levels of international access available to different States, for instance Kerala and Madhya Pradesh. In a globalising world with an increasingly internationally engaged India, the government’s economic planning must take into account the world as well as the nation.

Finally, the Planning Commission has had another, perhaps even larger blind spot that if solved could revolutionise governance. The promise of big data analytics, collating information from across India into easily accessible data at the Centre, could allow an unprecedented level of evidence-based policymaking. With the reform of the Planning Commission, bureaucratic opposition to the use of data analytics can now be overcome. Knowledge of how economies actually behave in real time and in granular detail brings governmental planning from earlier eras of often wishful thinking to pragmatic, adjustable action. Government’s own household surveys could be recalibrated and reviewed and then used for policy purposes. These could be triangulated with other data sources including from the public and private sector and used for developing precise policy formulations.

Despite its challenges, federal governmental economic planning remains necessary. The importance of State autonomy should not obscure that this is particularly true for a largely ’unitary’ India , where the ’centre’ draws the big picture by encompassing state-level interests and others beyond national borders. Though the Planning Commission in its old form may have made itself progressively more irrelevant, it is certainly not redundant to have a body of this kind. Should it adopt nuanced federalism, relinquish control of resources to the market, expand its talent pool to the private sector and civil society, acknowledge India’s international economy, and use data analytics for evidence-based policy, Indian economic planning can serve the cause of delivering prosperity to all citizens more effectively.

(The writer is vice president at Observer Research Foundation)

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