Why we still need economic planning
This book both looks back and forward at the role of planning in the economic development of countries. It examines the history and experiences of planning in India but in a global context. In the light of this history, it also looks forward, trying to evaluate, beyond ideologies, what role the practice of planning has in contemporary India. It then proposes that the National Institution for Transforming India (NITI) Aayog, the think tank founded on January 1, 2015, after the demise of the Planning Commission (PC), could learn from this experience.
Starting 1980, the dominance of neoliberal thinking gave the impression that economic planning as theory and practice was something of the past. The conditions imposed by the World Bank and the International Monetary Fund resulted in the collapse of planning and planning institutions in many countries that had high public debt. Then, planning fell into disregard completely with the end of the Soviet Union in 1991. But several western countries continued to plan (notably France). South Africa created a Planning Commission in 2010. Most importantly, most Southeast Asian and South Asian countries also pursued the practice of economic planning.
In India, the PC devised 12 five-year plans between its creation in 1950 and its folding up in 2014. Its end came soon after the arrival of the Narendra Modi regime. As former chief minister of Gujarat, Mr Modi had felt humiliated at having to attend PC meetings and beg for funds. Therefore, one of the first things he did after becoming prime minister was to abolish the PC. He then floated NITI Aayog as the government think tank to discharge the functions of both but without fund allocation powers, which were transferred to the finance ministry.
The end of planning in many countries, however, witnessed a collapse of GDP growth, decline of per capita incomes, while poverty increased and adult mortality rates rose sharply.
Economies have sustained growth when they use planning judiciously, editors Santosh Mehrotra and Sylvie Guichard argue. Every East Asian miracle economy since 1945 has had an uninterrupted series of five-year plans, managed by a planning institution, which also resolved coordination failures. In China, they write, after the market-oriented reforms began in 1979, the State Planning Commission became more powerful, not less.
This book addresses three leading questions: “Why plan for economic and human development?”, “how to plan?” (through which institutional settings), and “what exactly can/should be planned?”. This book is structured in three parts: The first part addresses the history of planning and of the PC. It shows that the answers to the three questions have a history, linked notably with the history of ideas and economic history.
So, while the early part of the book looks back, its later part looks forward to whether India, after the demise of the PC and its replacement by a much weaker and smaller think tank, NITI Aayog, can do without planning. It proposes that the NITI Aayog will need to reinvent itself.
First, it needs to reinvent itself by reinforcing “cooperative federalism”, as enjoined by the Indian Constitution, by recommending grants not as the Planning Commission did, but in consultation with the finance ministry. It should do so by reducing the growing imbalances in development achievement of different states in the Union, over and above the role of the Finance Commissions.
Second, it needs to become the source of an integrated economic policy, combining elements of industrial policy, trade policy and competition policy, in the absence of which India has allowed manufacturing share in GDP and employment to stagnate. Such a large and complex economy, already since 2014 the world’s third largest (in purchasing power parity terms), but still a developing country in the last two decades of its demographic dividend, needs a powerful and domain-competent NITI Aayog. The three-year Action Agenda and India @75 programmes need to be implemented sincerely. Active cooperation of states will be needed and for that, the Union government should try and maintain harmonious relations with all states and Union Territories.
From 1950 to 1965, the PC played a critical role in India’s industrialisation. Then, after an eclipse for over two decades, in the 1990s, the PC found a second life as an instrument of social policy. Its role was no longer focused on industrialisation — that was handed over to the private sector whose share in total investment rose — but filling the infrastructure and social development gap. In this period, it acquired at least as much significance for social development as it had for industry in the first 15 years after independence.
The focus of a new revamped planning institution for India in the 21st century, Dr Mehrotra argues, especially after the Covid-19 pandemic must be: (a) filling the social development gaps in India; (b) reviving a holistic economic strategy (many countries have some type of industrial policy along with trade and competition policies since 2008); and (c) planning for sectors where there are cross-sectoral or cross-state synergies: Water; energy; infrastructure; and climate change.
The book makes theoretical and empirical arguments to show why India still needs planning even more than before. Based on the experience of being former insiders in the PC, many of its contributors (Dr Mehrotra, Pronab Sen, Y K Alagh), also recommend how the new planning function should be structured in terms of human resources for it to execute these functions effectively.