Prisoner Of Habit
But while the Planning Commission has got sensitised to the requirements of a liberalised economy, it has not thought the issue through. There is no effort to change any of the instruments of planning. This is so even though the entire framework has now firmly shifted from centralised to indicative planning. As a result, the most critical assumptions of the draft Ninth Plan lie outside the realm of the Planning Commission: the 7 per cent growth rate hinges on the composition of the rate of savings. The onus of achieving the stipulated rate is on the private corporate sector. What the Commission can do to ensure that the composition shifts away from the household and the public sector to the private corporate sector, is far from clear.
Similarly, notwithstanding the hint of recognition that plans will have to supplement, not substitute, the markets and address market failures, the plan panel has found it hard to get away from the earlier mindset of the method of financing plans. Not only has a huge gap of Rs 3,36,000 crore been left uncovered, the plan resources on the revenue account are not equal to the revenue component of the plan. As a result, right at the conception stage, there is a diversion at two levels built into the plan. The first diversion is from the plan to the non-plan segment and the second from the capital to the revenue account. This is the source of all fiscal problems. It remains notwithstanding the laudable but impractical decision to have a zero deficit financing of the plan.
This basic flaw shows that the Planning Commission has not adequately recognised that the revenue expenditure of the government is bound to go up, because of the changed quality of state intervention in the economy. The role of the plan will also undergo a change in the new economic dispensation. The revenue part of the plan will become increasingly important as the states take on more responsibilities for social sector spending as envisaged under the new economic regime. There is thus bound to be a shift towards the revenue expenditure component of the plan. This trend ought to have been anticipated and more realistic estimates of the revenue deficit made.
In organisational terms, the addition of the third tier to the federal set-up in the form of panchayats and municipalities has not been reflected in a change in the mechanics of planning or even the allocations. The Planning Commission cannot at this stage be content with altering the allocation of different sectors within the existing framework. The framework itself needs to be changed. One way to do this is for the Planning Commission to focus exclusively on financing select projects included under the capital plan. This can be done with the Commission operating as a development bank and assisting the state governments in financing investment.