Restructuring of the Planning Commission and the planning process has been the constant refrain of economists since the initiation of the big bang market reforms in the early 1990s. But, even though four Five-Year Plans have been rolled out since then, there has been no significant change in the plan body or its functioning. The issue has resurfaced as the government has to start work on the Twelfth Plan, with reports of new efforts being made to transform the Planning Commission into a system reforms commission.
So what are the prospects that this new effort to rework the Planning Commission and the plan framework will be more successful than earlier ones? The task looks formidable for two reasons. First is the institutional resistance from within the Commission, motivated by fears of a further shrinkage of its already downsized role. Second, and more important, is the lack of any experiments related to planning in a rapidly growing market economy in a globalised world, which India can adopt.
This is in stark contrast to the scenario when India set out to etch out a new path of planned development in the 1950s. Contrary to popular belief, planning efforts initiated here were not solely influenced by the Five-Year Plans of the erstwhile Soviet Union and other eastern European economies. An equally important stimulus was the flurry of national plans unfurled in major market economies, including in the US, which set up the National Resources Planning Board in 1933, the only national planning agency in the country?s history.
The popularity of planning in market economies peaked in post-War Europe with the Marshall Plan, persuading participating countries to draw up four-year plans and annual plans to avail of support. Western opinion was also broadly supportive of Indian planning, only clashing with the Mahalanobis idea of focusing on heavy industries to accelerate growth, on the grounds that India had no comparative advantage in capital-intensive industries.
The primary strategy followed by Indian planners was to focus on investment planning, the scarcity of which necessitated the rationing of investments to the priority areas that would facilitate faster growth. The constraints were challenging, especially on the foreign exchange front, which they sought to overcome using regulatory instruments like licences.
But the gains from planning soon fell far short of expectations. The planners? intense preoccupation with regulatory issues slowly shifted their focus away from the development tasks. The innovative development strategy adopted in the early years soon gave way to a complex regulatory framework, which slowly crystallised to become the dominant symbol of Indian planning.
Consequently, the reforms initiated in the early 1990s focused on dismantling the licence regime and extending the sphere of private sector operation into new areas. The share of the private sector out of the total investments in the economy rose from less than half in the mid-1970s to almost four-fifths in more recent years. This has significantly shrunk the space for investment planning, especially since private sector investment was freed from the licence regime?the main instrument used by the planners to steer investments and determine the growth path.
But, despite repeated efforts, the government has still not been able to navigate to a new framework that would facilitate a new proactive role to the Planning Commission. The half-hearted efforts made by the commission to delve into regulatory issues and workout efficient market mechanisms to mobilise investments and improve competitiveness, especially in the infrastructure sector, have been fiercely resisted by the nodal departments of the government.
The turf of the Planning Commission has shrunk sharply to guiding the public sector plan investments. But even here, the focus has been on ensuring some semblance of discipline in fiscal management rather than on strategies to improve the quality of investments so essential for improving productivity and facilitating faster growth.
An option open for reinventing the Planning Commission is to strengthen its role as a prescriptive agency that can work out policy choices and new mechanisms to create more effective incentives for market agents and spur growth. But this will be again resisted by the different ministries, which may feel threatened by such intrusions into their policy space.
The government?s decision to adopt a gradual approach and nibble at the edges to usher in slow changes rather than to go in for a sudden radical revamp of the Planning Commission has to be seen in the context of such obstacles. To conclude, one can safely say that etching out a new role for the commission without treading on too many toes is likely to be more difficult than anticipated, if the lessons of the last two decades are anything to go by.
?p.raghavan@expressindia.com