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06 January, 2015

Control over levers of economy

BRP Bhaskar
Gulf Today

Months of uncertainty over the future of planning ended last week with the government deciding to set up a National Institution for Transforning India (NITI) Aayog.

Like the Planning Commission which it replaces, NITIAayog will have the Prime Minister as its chairman. Unlike it, the new body will have a governing council comprising the chief ministers of the states and the lieutenant governors of the union territories.

A brainchild of the first Prime Minister, Jawaharlal Nehru, who was an admirer of both Soviet planning and post-war Japanese reconstruction, the Planning Commission was established in 1950.

Finance Minister John Mathai, who was inducted into the Cabinet from the business house of Tatas, announced the decision to set up the Commission in his budget speech. As it happened, he quit shortly afterwards saying the Commission was ill-timed and its working and set-up ill-conceived. He feared that it would take away the finance ministry’s powers.

High inflation, steep capital costs and low savings rates were factors that demanded governmental intervention to determine the course of the economy. Nehru expected the Planning Commission’s labours to result in improvement of living standards of the people through efficient exploitation of resources, stepping up of production and expansion of employment opportunities.

The Commission’s main task was to formulate five-year plans for economic development and apportion funds for implementation of plan projects. Unusual circumstances interrupted formulation of five-year plans. On both occasions planning was continued on an annual basis. The fate of the 12th five-year plan, which is due to run till 2017, now hangs in the balance.

It is wrong to suggest, as some critics have done, that planning was a failure. The public sector undertakings, the ownership of which is now being divested to find money for new projects, were the products of the first eight five-year plans. Just as Deng Ziaoping’s reforms could not have succeeded without the modest achievements of the Mao period, the accelerated development of the Indian economy in the period of globalisation would not have been possible without the limited growth of the period of five-year plans.

Centralised planning was a failure inasmuch as the fruits of development did not reach the poor. Not long after the process began it became clear that intermediaries were siphoning off benefits that should flow to those at the bottom. The administration could not fashion measures to redress the situation.

As early as the 1970s Sukhmoy Chakravarty, a leading economist who was associated with the Commission for long, said it was not functioning the way it should. He suggested that it was suffering from “plan weariness”. But Prime Minister Indira Gandhi ignored the criticism. Her son and successor, Rajiv Gandhi, referred to the Commission members as “a bunch of jokers.” He too made no effort to reform the body.

The globalisation project, which led to further growth of inequality, brought the Commission’s failure into sharp focus. Large-scale suicide by impoverished farmers cried for immediate action. Initially the Commission and the government remained impassive. Later they sought to mitigate the situation by laying emphasis on inclusive growth.

Prime Minister Manmohan Singh, himself an economist, started talking about the inadequacies of the Commission as he began his second term in 2009. But he too failed to act. Just before laying down office, he was still voicing doubts about the Commission’s role. “Are we using tools and approaches which were designed for a different era?” he asked at the Commission’s last meeting he addressed as its chairman.

Within days of assuming office Prime Minister Narendra Modi received a report from the Independent Evaluation Office, which the Planning Commission itself had set up to study its working and recommend measures for reform. It said, “It is clear that the Planning Commission, in its current form and function, is a hindrance and not a help to India’s development.” It proposed that a think tank be constituted in its place.

While the Planning Commission was dominated by economists, the composition of the NITIAayog indicates that control of the levers of the economy will now be fully in the hands of politicians. It remains to be seen if this will improve the quality of developmental activity. -- Gulf Today, Sharjah, January 6, 2015

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