The real question is of relevance

The finance minister?s letter to the vice chairman of the Planning Commission is interesting from several points of view. First, that the letter should be in the public domain, given that the Approach Paper talked about a meeting of state chief ministers at about this time to discuss the approach, it could colour their perceptions. Second, there?s concern over the issues of fiscal responsibility and the arithmetic of the recommendations (such as under estimations of the current account deficit, population growth rate and oil prices), more than the ?approach?. Third, and this is shared by the media (including this paper), there should be substantial improvement in institutional capability for project delivery, which the paper does not address.

The real question is whether the Plan panel?s exercise is relevant at all.

The paper?s theme is ?faster and more inclusive growth?. It is worth noting that during 1991-93, there was a conscious attempt in the planning and budgetary processes (by the same team) to squeeze out public spending on agriculture, irrigation, drinking water, public health and primary education, which meant states had to find funds for programmes hitherto supported by the Centre. That this was the period states got deeper into debt is well chronicled in various Economic and Political weekly issues, as also the impact of such deliberate policy. The Fourth Pay Commission aggravated state debt, states resorted to ingenious borrowing measures and their fiscal deficits ballooned. During 2000-03, measures that included enabling swaps of more expensive debt, lowering of interest rates, and other fiscal corrections put several states back on track. The short point is that planners and Budget makers got it wrong in squeezing out public expenditure for fiscal prudence.

It seems that the Approach Paper is swinging the other way. While holding on doggedly to the liberalisation ag-enda, it tries to tackle the social sector problem thr-ough higher borrowings, thus inc- urring the FM?s ire.

The CPI (M) points out how there is little change of mind in the Commission, ?It has become the hub for the initiation and pursuit of neo-liberal policies.? And complains there is only lip service to the social sector agenda. Above all, it questions the paper?s assumptions.

First, in context of the current account deficit, it questions the assumptions of FDI inflows, as well as of FDI-led technology up gradation in manufacturing, arguing that this is not in the Commission?s control. External inflows have been dominated by portfolio investment, even as FDI has flown more into acquisitions and takeovers than greenfield projects, with little new technology. R&D spends, both in public and private domains, has been limited; knowledge up gradation has not been at globally competitive levels.

Second, the projections for exports and imports have no grounding in any activity on which the Plan panel has control. Third, several studies have shown that growth is fastest primarily in the private domain, and that public sector performance is lagging behind. These arguments erode the foundations of the paper, in terms of it being a prescription for higher GDP growth. The panel, thus, has little control on its goal of ?faster growth.?

This leaves us with ?inclusive growth.? The key advice of higher allocation to the social sectors is controverted by the FM who says institutional reform of delivery mechanisms must precede such spending and that ?a leaking water pipe can?t be repaired by increasing the pressure.? Many others have echoed this. Yet there is little attempt to correct delivery systems. State governments become all important in this.

At best, it expresses the wishes of an important group of individuals who have no control over, nor responsibility for, the outcomes. The Commission is a non-Constitutional body formed by a resolution of the government, not responsible to either the executive or to the Parliament. Except in the First Plan, its growth projections have consistently gone wrong, an overwhelming majority of projects approved were either delayed or had serious cost overruns, project performance did not match expectations, and even the Plans were not completed as envisaged.

This is the one government institution with the lowest success rate, viewed against its goals and agenda. With no accountability, it gets away. Most important, it has not come to terms with the reforms initiated in 1991. Until 2004, it was relegated to a secondary role, with liberalisation a matter of public policy, not the planning process. It generates no resources, and is dependent on the Budget for Plan support. There was some consideration in 2001 and 2002 of evolving it into a project funding body that would, within a budgeted allocation, approve projects of states and ministries and make allocations and releases, along the lines of funding agencies like the World Bank. It could then be judged on its performance.

In its current form, it has outlived its utility, and is an anachronism given that the stated policy is of growth, liberalisation and free trade. China gave up its planning process on its path to economic liberalisation?Long Yongtu, China?s chief negotiator at the WTO, said in 2000, ?countries with planned economies have never been part of economic globalisation. China must become a market economy to participate in the global economic system.? It is time we did the same.

?The writer is a former finance secretary and economic advisor to the Prime Minister