Who Needs A Planning Commission?
It involves the five-year projection of central and state budgets, and their allocation first between plan and non-plan expenditure, and then between detailed heads of plan expenditure. These levels of expenditure were related to and were meant to achieve physical levels of achievement. In this way the plan was the framework which, if faithfully followed, would lead to the planned growth of the economy and planned improvement in standards of consumption and social services.
If a plan is to be taken seriously, it must include a powerful machinery to ensure that those who are given the financial resources would achieve the planned physical targets, or have good explanations for why they could not do so. If they could not explain, they must be deprived of the power of execution. The Planning Commission never had the teeth to remove anyone. The executing agencies were ministries, central public enterprises and state governments. These were responsible only to their respective legislatures; if the legislatures did not care for non-implementation, the plan could only be a framework for allocation of government funds. That is what it came to be: it became a mechanism for giving government agencies money irrespective of whether they achieved anything with it. It had its own monitoring organisation the plan evaluation organisation and there were a number of others. The finance ministry had its financial advisers. There was the Comptroller and Auditor General. And there were the Public
Accounts Committee and the Committee on Public Undertakings of Parliament, and equivalent bodies of state government. There was no lack of monitoring. But they only asked for explanations; and explanations were galore. In the sea of accusations and explanations, non-performance was drowned.
But over the 1970s and 1980s, Indias inferior growth performance became increasingly obvious; and this was clearly related to the governments way of giving its agencies money without being able to extract performance in return. For years, everyone looked for scapegoats politicians, bureaucrats, procedures and so on. But finally the message began to filter through let us look for other ways of doing things.
This is how the reforms of the last five years came about. The idea was to leave productive units to do their best in the face of competition; if they could not compete, they would die. In this way, whatever growth took place would be more efficient. The idea was much diluted and distorted in execution; but the concern for efficiency has entered the calculations of many Indian productive enterprises, even government ones. There is much pointless debate about markets; but the idea was not so much to introduce markets but to introduce competition, and in the limited areas where it was introduced, it has improved efficiency and accelerated growth. In many areas for instance, electricity or railways it was never introduced; in many others for instance, oil products or telecommunications it was distorted in such a way that its benefits could not be realised.
Competition gives particularly poor results if there is unpredictability; unpredictability introduced by arbitrary changes in government policy is one of the major causes of malfunction in markets. For this reason, Indian type of planning is inconsistent with dependence on competition for efficient growth. Senguptas merit is that five years after the reforms started, he has recognised this. He thinks the Planning Commission should give up target-setting.
But it would continue to allocate funds between the Centre and the states; and for this it would have a three-year instead of a five-year plan. Physical plans would continue to be made by the states. Instead of planning investment and social services, the central Planning Commission would plan policy. It would make a plan for the reform of banking and insurance; it would plan for introducing capital convertibility in the next three to five years. It would also intensively examine policies in four areas which Sengupta thinks are most subject to market failures agriculture, infrastructure, social development, and science and technology.
The question whether the Planning Commission should do anything, or indeed whether it should exist at all, is of importance only to those whose livelihood depends on it. We should ask instead, what are the essential things the Commission does, and what is the best way of doing them?
Of these there are only two: allocating central funds to the states, and looking forward a few years. Allocation of central funds is also done every five years by the Finance Commission; there has always been an overlap between Finance and the Planning Commissions. The last Finance Commission proposed a formula for allocation which would make further finance commissions unnecessary. It proposed that 29 per cent of central revenue should go to the states. This is an excellent idea; if combined with a modified Gadgil formula or something similar, it would make not only further finance commissions unnecessary, but also the Planning Commission especially in the role that Sengupta assigns to it.
Looking forward is necessary not only for the Centre, but also for industries and firms. The finance ministries at the Centre and in the states should have a rolling plan, which would include the phasing of reduction of fiscal deficit, borrowings and repayments, and funding of projects that take years. There is no reason why finance ministries would make worse plans than plan panels. The reason why both make terrible plans is political: parties in power find it more important to spend on shortsighted, populist, consumption-oriented schemes than to make long-term plans which may benefit the rulers who may follow them. Thus looking forward does not require a Planning Commission. There is a stronger case for an economic ministry which would eliminate the rivalry between the finance, commerce and industry ministries. But that has nothing to do with the Planning Commission.
So that leaves the financial sector, agriculture, infrastructure, social development and science and technology. Sengupta is quite mistaken to think that these are particularly subject to market failure. The financial industry certainly requires regulation, but the RBI and Sebi are already there to do it. Competitive structures or procedures that would ensure competition are possible in infrastructure. Insofar as the state wants social services to supplied on a larger scale than an unassisted market would supply them, it needs to subsidise them; all industrial countries subsidise them without a Planning Commission. And S&T are only one input into industry; they have substitutes in technology purch-ase, learning by doing, and competitive replacement of less by more efficient firms. If, for patriotic or imperialistic reasons, one wants more S&T than would be done without intervention, one only has to subsidise it. Thus, I see no reason why a 3,000-person Planning Commission is needed to do things which can be
more easily done by the government without it. Having progressed so far towards rethinking its role, Sengupta should take a step further and plead for its abolition.