Why does a liberalising India still have a Planning Commission?

Why have successive governments since 1991, when India changed the paradigm of economic policy from predominantly state-controlled to predominantly market-driven, still retained the institution of the Planning Commission? After all, neither the Planning Commission nor its apex policy-making body, comprising the chief ministers of all the states â€” the National Development Council â€” figure in the Constitution. It should be a simple matter to wind it up. To many, the answer would lie in sheer institutional inertia. Once a body has been set up, it is easier to continue with it than to dismantle it. The Commission also provides a forum in which to accommodate some political heavyweights who do not quite make it to the Union council of ministers, but still matter to the political leadership. But these are simplistic explanations. The fact is that the role of planning and its nature have changed over the nineties and in its new avatar, the Planning Commission still remains relevant. What role does the Planning Commission have in a liberal economy? Although the Union finance ministry does have a department of economic affairs, India does not have a minister for economics. The Union finance minister doubles up as the economic policy-maker and the controller of both revenues and expenditure. These dual roles are not only non-complementary, but can actually be conflicting. A certain degree of macroeconomic policymaking is delegated to the Reserve Bank of India as well, which decides the monetary policy, in consultation with the finance ministry, of course. An example of possible conflict between the optimal economic course and the compulsions of the fisc is the finance ministry cutting back on investment during the downswing of a business cycle, on account of a resource crunch, although the economic requirement is an expansionary fiscal policy, or import duties not being lowered although lower duties are called for. The Planning Commission has the potential to evolve as a major government agency that takes an overall view of the economy. Political compulsions and dead habit often combine to carve up an economic sector into a number of ministries that do not coordinate with each other as they should. A good example is energy being broken up into different fiefdoms under the ministries for petroleum, power and non-conventional energy. The Planning Commission can act as a think-tank that takes a holistic view of the sector, distinct from the segmented vision of the individual ministries. How has the Planning Commission evolved to fit its new role? Earlier, the role of the Commission was primarily of allocating resources. Over the last five years, the Commission has got involved in putting together a sensible policy. This was most evident in the preparation of the Tenth Five Year Plan (â€™02-03 to â€™07-08). The Commission took up employment as a major concern, accepting the reality that employment generation on the required scale would not take place automatically. Suitable sectoral strategies were worked out accordingly. The Commission took up regional imbalances as an issue to be specifically addressed â€” no other agency in the government is equipped to address this. Further, the Tenth Plan conceptually recognises the need for specific governance reforms for a market economy to function well. Finally, it broke new ground in working out a sectoral policy for furthering reforms. Has the Planning Commission been effective in changing policy on the ground? The linkage between what the Commission crystallises as policy and what the concerned administrative ministries do, still remains tenuous. However, during the last five years, the Planning Commission has generated several reports, such as on textiles and power sector reforms, that have guided the actual policy of the Union government. Will the Commission continue to be relevant? The fact is, all developed market economies continue to have think-tanks that explore various future scenarios and policy alternatives in a systematic fashion. There is no reason why India should have just the Planning Commission to do this job; however, the Commission would continue to be an important think-tank with extensive institutional knowledge of most aspects of the Indian economy. Further, the Commission has evolved into a major facilitator of federal financial devolution. It is, therefore, likely to remain a useful and active agency for the foreseeable future.

Why does a liberalising India still have a Planning Commission?

Why have successive governments since 1991, when India changed the paradigm of economic policy from predominantly state-controlled to predominantly market-driven, still retained the institution of the Planning Commission?

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