Monday, January 26, 2015

From the Planning Commission to the NITI Aayog

The idea of “national planning” had been in the air long before independence. Indeed, the Planning Commission established in the Nehru era was the descendant of the National Planning Committee that Subhas Chandra Bose had set up at the suggestion of Meghnad Saha when he was the president of the Congress, with economist K T Shah at its head.
One of K T Shah’s outstanding intellectual contributions had been an estimate, together with K J Khambatta, of the annual “drain” of surplus from “British India” to the home country (a figure later used by Paul Baran in his classic work, The Political Economy of Growth), which gives an inkling of Shah’s world-view. The idea of planning, in short, was closely linked to overcoming colonial exploitation and to redeeming the pledge of the anti-colonial struggle to the people of India (expressed inter alia through the Karachi Congress Resolution of 1931).
Legacy of Anti-Colonial Struggle
It is a travesty, therefore, to see the Planning Commission as a relic of the “Soviet era”, a sort of ideological baggage borrowed from the Soviet Union that has outlasted the Soviet Union. Only a person unaware of and unconnected with the anti-colonial struggle can make such a claim. Though the Soviet achievements of the time may have inspired the particular course that “planning” took after its inception, the process itself was embedded in the formation of the post-colonial state; it was a necessary legacy of the anti-colonial struggle. It is not surprising that such “planning” came into vogue not just in India but in a whole range of countries that were newly liberated from colonialism.
The Planning Commission was meant to oversee a break of the economy from the inherited pattern of colonial division of labour, which had entailed the export of a range of raw materials, including agricultural materials in raw or processed form (cotton and jute textiles), and the import of a range of manufactured goods from the metropolis. Since the cultivable land-mass was limited and could not be augmented because the state pursued a policy of “sound finance”, which excluded any significant investment in land-augmenting practices (such as irrigation or yield-raising “research and development” in publicly-funded institutions), pushing out more exports of the existing kind necessarily meant jeopardising food security, a fact evident from the massive (over 25%) decline in per capita foodgrain availability in “British India” in the last half-century of colonial rule.
Not only were the country’s natural resources to be brought back under national control (which was the economic essence of decolonisation, and necessary for mobilising all available means for the nation’s development, without any “drain” on account of the dominance of foreign capital), and the production pattern altered from what had been dictated by the colonial division of labour, but the benefits of all these measures were to accrue to the people at large by ensuring that wealth and income inequalities were kept in check. The point here is not whether planning actually achieved these objectives (it obviously did not); the point is that this was the perception which informed planning and it was in keeping with the promise of the anti-colonial struggle.
Extinction – the Result of Neo-liberalism
The fact that neo-liberalism entails a break with this perception, the fact that the neo-liberal state is qualitatively different from the postcolonial dirigiste state (even when both promote capitalism in different ways), underlies the extinction of the old Planning Commission. Its extinction is not linked per se to the collapse of the Soviet Union (though it is obviously not unrelated to the change in the international scenario following this collapse); it is linked directly to the abandonment by the Indian state of any anti-colonial, or more generally any anti-imperialist, agenda, and to its embrace of international capital with which the domestic corporate-financial oligarchy is closely integrated.
It is not just the policy direction of the neo-liberal state that precludes a “planning” body of the type that the Nehruvian era had envisioned; the very structure of a neo-liberal state, where the Ministry of Finance is elevated to a domineering status above all other official organs and is in turn peopled by employees of the World Bank, the IMF (International Monetary Fund) and other institutions of finance capital, who are thereby basically put in charge of the economy, has little room for any such autonomous Planning Commission.
The Manmohan Singh government, committed to neo-liberalism but wary of being accused of deviating from its Nehruvian ancestry, sought an amusing way out of this impasse: it retained a Planning Commission, but “neo-liberalised” its key personnel. Narendra Modi has gone one step further and has dismantled it altogether, making India join, quite openly, the ranks of several other third world countries, where, basically, global financial bureaucrats get entrusted with the task of running the economy. The transition from the Planning Commission to theNiti (National Institution for Transforming India) Aayog thus reflects a transition from a state professing anti-imperialism to a neo-liberal state.
Niti Aayog and Centralisation of Power
All this, though important, is too well known to merit much discussion. What does need discussion, since it has received little recognition as yet, is the tremendous centralisation of economic power that the transition toNiti Aayog entails. The old Planning Commission had two serious failings. The first, an obvious one, was that in an economy in which the means of production were largely privately owned, there were no effective mechanisms for the “realisation” of the plans formulated by it. And it was not even the case that plans could be “realised” only in the public sector but not in the private sector; the “non-realisation” of plans in the private sector also entailed in a “resource-constrained system” (whose being resource-constrained was in fact the sign of a “good” plan, since it meant the absence of any “slack”) the “non-realisation” of plans in the public sector.
Various instruments were tried, such as a licensing policy, to make the private sector conform to the overall plan. But these, as is well known from a host of official committees, were ineffective, which also resulted in a significant trend towards centralisation of capital, and hence an increase in wealth and income inequalities. This fact had so alarmed Jawaharlal Nehru that he had set up in the late 1950s the Mahalanobis Committee on inequalities. In short, planning in India was hamstrung from the beginning, by being at best what Amiya Bagchi has called “partial planning”.1
There was however a second flaw of the plan process. The Planning Commission, though it was meant to effect “nationaleconomic planning”, was a central government entity with no representation from the states. It thus went against the spirit of federalism, and gave expression to that strand of thinking within the Constituent Assembly which saw the centralgovernment as the continuation of the British imperium. While neo-liberal economists have gone to town over the “constricting of private initiative” that planning in India involved (though the private sector itself had asked in its 1944 Bombay Plan for substantial public investment, to be financed not by taxing capitalists but through deficit financing and to be handed over to capitalists after the teething troubles were over), not much is ever heard about the constricting of state government initiatives under Indian planning, notwithstanding Ashok Mitra’s strenuous efforts.2 And the crucial point here is this: the constraints on state governments will be tightened rather than loosened in the Niti Aayog era.
To be sure, only the outline of theNiti Aayog is available till now, but the indications are already quite clear. There are, as is well known, three main channels through which funds get devolved from the centre to the states: through the Finance Commission, through the Planning Commission and through discretionary transfers. Barring the Finance Commission which is a onstitutional body, the other two channels basically express the discretion of the central government; and even in the case of the Finance Commission, since the centre appoints its members and ultimately fixes its terms of reference, the central writ is all powerful, a fact that had caused Amaresh Bagchi to submit a dissenting note to the Eleventh Finance Commission when it laid down “conditionalities” (in keeping with the neo-liberal predilections of the centre) for making available to states even such resources as were constitutionally their due.
Likewise the proliferation of “centrally-sponsored schemes” handed down to the states where they have to contribute a certain share, which is itself arbitrarily fixed by the centre, has further taken away the freedom of state governments to make their own state plans.
Further Control over States
Even so, however, the three bodies, the Finance Commission, the Planning Commission, and the Ministry of Finance, can be ranked in that order in terms of the looseness of the restrictions they impose on the transfers effected through them from the centre to the states. The disappearance of the Planning Commission, which would mean that what used to be plan transfers would now be doled out through the finance ministry, would entail both a possible reduction in the total magnitude of transfers, and a definite increase in the centre’s control over states’ plans.
There is a second reason for believing this to be so, and that has to do with the abolition of the National Development Council (NDC), where the state chief ministers were represented. This, though not a constitutional body, had a commanding presence, where the states, deriving strength from one another, made a definite impact. Since its decisions, which included the ultimate approval of plans, were taken through a consensus, the centre was often forced to yield on certain matters (though this did not prevent it from flouting the unanimous views of chief ministers on some occasions, such as the funding of the Sarva Shiksha Abhiyan). The elimination of the NDC is a major blow to the power of the states. While the governing council where chief ministers are to be represented is likely to be a purely formal body concerned with the “governance” of theNiti Aayog, rather than with basic development issues, the meetings of the regional councils are likely to be occasions where the states supplicate to the centre for this or that favour. The regional consultations that are supposed to replace NDC meetings are more likely to be occasions where the states supplicate to the centre for this or that favour, rather than serious challenges to central schemes and programmes.
I should make one point clear here. It may be argued that theNiti Aayog will entail neither a reduction in the amount of resources available to the states, nor any increase in the centre’s control over state plans, since it will be open to the states to tie up with capitalists, both domestic and foreign, to work out investment projects of any description and any amount. But that is precisely what I mean by an increase in central control over state plans. The centre’s forcing states to go in for public-private partnerships (which the Manmohan Singh government had tried to do unsuccessfully), the centre’s forcing states to vie with one another to attract private capital to their territories, the centre’s imposition of the neo-liberal model on all states by ensuring that resources available to each state, which the concerned state government can spend on a plan of its own choice rather than on a plan in keeping with what the centre considers “development”, are minuscule: all this is precisely what I mean by the centralisation of economic powers. TheNiti Aayog era will mean that states will not be allowed to go their own ways, not even to the extent that the Planning Commission era had allowed. Centralisation will be the mechanism for imposing neo-liberalism on the country at large.
This may appear odd at first sight. The dominant capitalist powers imposing neo-liberalism on the world have in the past been accused of breaking up large countries, Yugoslavia being a prime example. Should not India, by analogy, be the sort of country that they would be interested in breaking up rather than centralising? The answer is “no”, because in India neo-liberalism has made greater inroads into the central government than into the state governments. Its sweep over the country as a whole therefore requires centralisation. The fiscal crisis of state governments engineered deliberately by the centre through its Shylock-like usurious interest rate loans in the 1990s was an effort in this direction. TheNiti Aayog will continue that effort.

Prabhat Patnaik ( is Professor Emeritus, Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University, New Delhi.

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