The tale of two ‘commissions’

Why a radical restructuring of the role of the Planning Commission is a good idea.

The word “central planning” is a relic of a socialist past when the dominant narrative was that only the central government has the wherewithal and the prerogative of pursuing development. In such a setting, the private sector was expected to play a largely supplemental role in this task of “national resource building”.

In accordance with this task of central planning, a Planning Commission was established in 1950. There is no reference of a Planning Commission in the Constitution. Nor was it a statutory body. It was created through a government resolution and has subsequently become a permanent appendage of the Union governments. Its Deputy Chairman has the status equivalent to a cabinet minister. According to the 1950 resolution, it was tasked with vaguely outlined functions, some of which are:

  1. To make an assessment of the material, capital and human resources of the country, including technical personnel, and investigate the possibilities of augmenting those that are related resources which are found to be deficient in relation to the nation’s requirement.
  2. To formulate a plan for the most effective and balanced utilisation of country’s resources.
  3. To define the stages, on the basis of priority, in which the plan should be carried out and propose the allocation of resources for the due completion of each stage.
  4. To determine the nature of the machinery required for securing the successful implementation of each stage of the plan in all its aspects.

(emphasis are mine)

However, there was another commission which took birth at around the same time. This is the Finance Commission. It had a specific constitutional backing under Article 280. It was tasked with coming up with a formula every five years to decide how the proceeds of taxes and grants are divided between the Centre and the state governments.

There was an inherent conflict between the two commissions right from the kickoff. The Finance Commission was only concerned about distributing the national wealth to the state depending on a formula like this one. It did not have any specific diktat of planned direction associated with the proceeds that it gives to the states. So, a state like Punjab could invest the money it received in ground water rejuvenation while a state like Orissa could use these proceeds for tackling malnutrition.

On the other hand, proceeds from the Planning Commission were tied to specific goals and targets defined by the Union government. As time rolled by, the Planning Commission drew up grand plans called Centrally Sponsored Schemes (CSS) like NREGA, Sarva Shiksha Abhiyaan and Pradhan Mantri Gram Sadak Yojna. The states were allocated funds for implementing these specific projects, while the share of funds available with the Finance Commission kept declining.

Though the revenue starved states are happy to receive any sort of funds, they are inclined towards Finance Commission funding as these come through a constitutional right to them and are derived on the basis of a predetermined formula. Moreover, since the Planning Commission’s funds are tied to specific projects, it does not give the states a flexibility to decide their own priorities. In this way, it is an impediment for devolution of monetary resources to states and local governments.

May be the Planning Commission syndrome suited the idea of a state-driven economy, but it has little relevance in today’s economy for two reasons. First, we now need governments that are responsive to local needs rather than grand pan-nation initiatives. To ensure that power is devolved to the state and then to the local governmental bodies, plans cannot be fixed by the government in Delhi. Second, with the opening up of the economy and growth of the private sector, the scope of planning has lost its relevance. Also, the ill-effects of making a non-constitutional body so powerful is that it can easily be steamrolled by another non-constitutional body. The previous government showed us how this can be done by creating another monster – the National Advisory Council.

 A more endowed Finance Commission which incentivises states that perform well on the counts of reducing poverty, improving healthcare and education will be a more acceptable solution going ahead, given that it is the complex and disparate cities and towns that hold the key to India’s future.


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