In early April, the Planning Commission completed the Mid Term Review of the Tenth Plan. The outcome will be placed before the National Development Council. Presiding over the meeting, the Prime Minister emphasised the need to ?walk on two legs?one embracing the cluster of high growth and the other addressing the issue of deregulation and planned development.? He was echoing the sentiments in the Planning Commission Charter.? The Commission was constituted in March 1950 to formulate a plan for an effective and balanced utilisation of resources, to determine priorities, and the machinery for implementation, and apprise progress from time to time. In July 1951, the first draft plan outline was presented.
What has been our experience in these 55 years? The country has made enormous progress, achieved food and foreign exchange sufficiency, strengthened infrastructure and increased its global integration. Yet, has the Commission adequately adapted with changing times? Perhaps not. The Prime Minister has aired his views: ?The Commission has played a historic role. To be a corner-stone of our federal structure, it has to be a think-tank and reservoir of research, responsive to the changing world and the winds of intellectual enquiry.?
A restructuring exercise initiated five years before by Jaswant Singh, as deputy chairman, and Montek, as member, had come up with many creative ideas, but did not take off. Montek and I failed then, but the PM?s thoughts create fresh hope.
What should be the ingredients for a restructured Commission? First, the name itself. It conjures notions of a centrally planned economic model with an input-output matrix, controls on resource allocation and production patterns, and general micro-managing of the economy. Last year, both at Insead, Fountainbleu, and Harvard, students questioned me on the need for such a Commission. My explanations failed to convince.
? The name itself conjures images of central control and micro-management ? There is a definite need to reorganise expenditure management policies ? Given our complex federal structure, an interactive policy body is needed |
The Chinese created the ?Commission for Economic Reforms and Restruct-uring,? a nodal entity for coordinating reforms. We have no such institution. Many other countries have recognised the need for a separate ministry for economic coordination, like Japan and Indonesia. There may be merit in renaming the Commission as the ?Commission for Economic Coordination and Reform.?
Second, government needs to reorganise its expenditure management policies. The finance ministry allocates non-plan expenditure largely to meet interest, salary and establishment costs, and statutory devolutions to states. The Planning Commission, on the other hand, allocates the sum provided by the ministry, the gross budgetary support to central ministries and approves states? annual plans. We need to integrate expenditure management. The classification between plan and non-plan, revenue and expenditure must be revisited. It has been discussed, with no outcome.
Complicated expenditure allocation makes audit difficult. Real-time monitoring escapes attention. We need to combine the expenditure management functions of the Planning Commission and the expenditure department into a separate entity along the lines of the US government?s Office of Management and Budget, or similar institutions.
Third, in a federal entity like ours, the Comm-ission has been a link between the Centre and states. States look upon the finance ministry with some discomfort, as their dialogue revolves either on fiscal responsibility, or ways & means accommodation. On the other hand, the Commission is an entity with which they periodically interact, seek accommodation and secure approval for their annual plans. This approval is notional, as the bulk of resources are either statutory devolutions, or based upon the Finance Commission recommendations, leaving little scope for manoeuvre. Nonetheless, the discussions are useful for states to mainstream policies with the national approach. However, if the Commission is to prove useful to the states, it must become a ?think-tank.? This would require induction of high quality expertise from across various disciplines.
Fourth, the practice of allocating resources to central governments lacks imagination. Expenditure is incremental expenditure-driven; compliance with zero-based budgeting is mechanical, and the historical baggage of schemes leaves little flexibility. A more purposive policy dialogue with the central ministries would make policies coherent.
Fifth, how does the Commission become a think-tank? It must become lean and capable. Induction of high-quality talent has become a casualty. Serious academics or experts, forgoing salaries, will not even accept a short term, in the absence of meaningful engagement in policy formation.
Finally, the restructuring must be in tandem with the restructuring of the finance ministry. The expenditure department?s fragmented responsibility is not sensible. Delegation of financial powers to administrative ministries and dual responsibilities of financial advisors must be revisited. Given our ample foreign exchange and credible regulators for capital markets, economic affairs must be restructured to focus on macro management and catalyse supporting sectoral initiatives.
The PM has been truthful in acknowledging the need for a basic change. An interactive policy-making body is inescapable in our complex federal structure. The restructuring will enable a more purposeful response to contemporary challenges. We should do so now, instead of awaiting the outcome of the proposed Administrative Reforms Commission, or the Commission on Centre State Relations.
