Column: After the plan panel goes

Updated: Aug 26 2014, 07:01am hrs
More than two decades after India began to introduce market-oriented reforms, the countrys new leader has taken one of the most symbolically significant steps in that processannouncing the abolition of the Planning Commission. That institution will be replaced by some sort of think tank, with the goal being to give the states more room to move forward economically. In fact, the previous Prime Minister had mooted the idea of replacing the Planning Commission with a Systems Reform Commission, and the director-general of the new Independent Evaluation Office, appointed by the previous government, had made the same recommendation as the decision announced on Independence Day. Almost a decade ago, TN Srinivasan and I had made recommendations for reforming or replacing the Commission. The 2011 Rangarajan committee on public expenditure management had also recommended significantly reducing the Commissions scope.

The Prime Minister has begun soliciting ideas from different sources, including the public, on what the new think tank should look like. To formulate an answer, one has to sort out what the Planning Commission has been doing. The Commission makes five-year plans, of course, and this process involves technical analysis, political bargaining, determining allocations of funds, coordinating across individual ministries, and, after the money has gone out the door, trying to figure out how it was spent and whether it made any difference.

Despite the parallels with, and inspiration from, the Soviet planning model, in practice Indias plans were never like thatplanning and government control were not pervasive, and India never had a command and control economy. Given how badly the Soviet model turned out to perform, this was for the best. Instead, much of Indias planning mechanism was indicative, not command and control. Ultimately, the states and the central ministries found ways to do what they wanted, subject to the additional constraints imposed by the planning process. This was the fundamental flaw in Indian planningit never quite came to grips with incentives, with what gets different economic and political actors to behave in ways that a policymaker might want, in the absence of Soviet-style execution (pun intended).

Indian planning also became less and less clear in its goals. Initially, the vision of development involved a rather simple idea of modernisationbuild infrastructure and factories, in other words, physical capital. But over time, it was realised that development requires much broader kinds of investments, in health, education, and institution-building. The economic distinction between plan and non-plan government expenditure ultimately became meaningless, and the planning framework became a hindrance to sensible government budgeting. Another conceptual weakness in the Indian planning process has been the lack of pre- and post-spending evaluationincluding basic cost-benefit analysis. This has plagued Indian government spending across the board, and in some ways is the real problem that the current government needs to tackle.

Even in the role of political bargaining and coordination across ministries or levels of government, the Planning Commission could only do what the authority of the Prime Minister would allow it to do. In the last government, a weak PM could not stop powerful individual politicians from doing what they wished. Indeed, this has been an issue off and on since the last days of Nehru.

Given this history, what should come next Given the size of Indias states, given their increasing competence in governance, the present moment is an ideal time to scrap all plan transfers. The Finance Commission should be able to exercise its constitutional role unfettered, determining revenue-sharing transfers to the states, but in the form of unrestricted funds. The Finance Commission should abandon all its efforts at imposing conditions. The Finance Ministry should provide technical analysis of individual ministry proposals for spending, including project grants or conditional grants to the states. The Comptroller and Auditor General should continue to monitor corruption and waste. The Independent Evaluation Office should make sure that money is well spent, in the sense of achieving outcome goals. Coordination at the central level should take place in the Cabinet, with the PMs Office and Cabinet Secretariat, perhaps with new specialised cells. The National Development Council and Inter-State Council can continue to be forums for bargaining and coordination between Centre and states.

If there are already established specialised institutions that can separately take on the Planning Commissions diverse roles, perhaps the answer to the question of what should come next is that no new think tank is needed. The Finance Commission has long needed a permanent staff for continuity (a point made by Govinda Rao and me, also a decade ago), and the Finance Ministry would also need to create a new cell, but really, the work can be done within all the existing institutions, or outsourced as needed to the real think tanks, like the National Institute of Public Finance and Policy, or Centre for Policy Research. At the state level, governments would be put on notice to follow the central example, and increase the quality of their management of government expenditure. Rather than the people deciding on what a new think tank should look like, they should decide whether their government delivers results.

Nirvikar Singh

The author is professor of economics, University of California, Santa Cruz