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Economic Survey and Indian Economy: Move To Scrap Planning Commission Raises Constitutional Questions

Prime Minister Narendra Modi’s decision to scrap the Planning Commission has raised administrative and Constitutional questions that the Centre will have to address in the coming days.

The first of these is what happens to the ongoing 12th Five Year Plan? Will this Plan, which was adopted by the National Development Council (NDC) that comprises not only the Centre but also States, including Gujarat, be junked or be allowed to run its course till 2017?

“The 12th Plan is an ideologically-neutral, NDCapproved, growth policy document with inclusion and sustainability as its pillars and technically the Centre cannot on its own decide to junk it,” a high-level source said.

Second, since indications are that the role of making plan allocations to States for development spending will be transferred to the Finance Ministry, there are likely to be implications of this for India’s federal system.

Will the States, especially those governed by the Opposition parties, readily accept allocations from the Union Finance Ministry is the question, says Y.K. Alagh, who was Planning Minister in the Deve Gowda government.

The Commission made these annual allocations to them under Article 282 of the Constitution following discussions with each of the States at its Yojana Bhawan office in Delhi every year. “At present, the Finance Ministry does not have the expertise or capacity to decide fresh allocations for States and Ministries at the Centre and more importantly over time it could gain too much power with such a role,” said Abjijit Sen, a member of the last Planning Commission.

Though differences between it and the State governments cropped up often at these discussions, there is not a single case of a dispute remaining unresolved. “Despite the differences, there is not a single case of a State government in over 60 years ever having rejected an annual plan approved for it by the Commission,” Mr. Alagh said. “That’s because the Commission wasn’t just of the government of India but of both States and the Centre.”

In his Independence Day speech, Mr. Modi announced plans to replace the Planning Commission with a new institution that will have “a new body, soul, thinking, direction and faith” , bringing the curtains down on the 64-year old institution founded on the former Soviet Union’s command-style development model. This new institution would be powered by creative thinking, public-private partnership, optimum utilisation of resources, and the utilisation of youth power, Mr. Modi said, adding that it would empower the federal structure of India.

The announcement, which came during Modi’s Independence Day address, ends weeks of speculation over the future of what was once India’s premier policy making body but has increasingly weakened since India switched from a socialist-style economy to embrace market-opening polices in the early 1990s. India’s first Prime Minister Jawaharlal Nehru, inspired by the Gosplan-aided industrialisation of the Soviet Union, set up the Planning Commission in 1950.

The dominant view at the time, drawn from Fabian socialism, backed the need for state-led planned industrialisation and development.

For the first eight Plans, the emphasis was on a growing public sector with massive public investments in basic and heavy industries.

Mr. Abjijit Sen, a member of the last Planning Commission also pointed out that with no “buffer” of the Commission’s Deputy Chairperson, the Prime Minister will have to directly respond to demands for allocations from his Cabinet colleagues and States. “Demands are normally raised for three times of what can be allocated and so it helps to be able to divert them to the DCH,” he said.

In a statement, Kerala Pradesh Congress Committee President Sudheeran said abolishing the Planning Commission would upset the time-tested planning and development model touching all sectors and would harm the federal structure of the country as envisaged by the Constitution. ”This is a move to extend Gujarat model of development to the entire country, whose focus is to allow the corporates to grow at the cost of the marginalised sections,” the Congress leader said.

This would also sound the death knell of the widely recognised Nehruvian model of development followed by the country for over six decades, he said. Before announcing such a crucial decision that would have far-reaching consequences, the Union Government should have consulted all major political parties or discussed the issue in Parliament, he added. The commission has been headless since the last deputy chairman, Montek Singh Ahluwalia, and his panel of members resigned after Modi came to power, ousting the UPA government in elections held in April-May this year.

But the commission came under increased scrutiny in recent years, with many experts questioning its role in a market-economy model where private enterprises are the primary growth engines.

“Since the Planning Commission has defied attempts to reform it to bring it in line with the needs of a modern economy and the trend of empowering the states, it is proposed that the Planning Commission be abolished,” a report of the government-appointed Independent Evaluation Office (IEO) had said, asking the government to replace the commission with a new Reforms and Solutions Commission.

“Very shortly, we are about to move in a direction when this institute would be functioning in place of Planning Commission,” Modi said. Modi did not specify details about the new body’s likely structure, but there was speculation it would be modelled on China’s National Development and Reform Commission. The Prime Minister could head the new commission with representatives from states and industry as members.

In the new structure, the finance ministry will likely take the final call on the annual gross budgetary support for various central schemes, as well states’ annual plans, which until last year was decided by the Planning Commission.

He didn’t name the new body, but a television channel reported that it would be called the National Development and Reforms Commission. Consultations on Planning Commission Consultative meetings were held relating to the proposed new design and structure for the Planning Commission. These were part of consultations after the Prime Minister Shri Narendra Modi, in his Independence Day speech, from the ramparts of Red Fort, on the 15th of this month, had said “….We will replace Planning Commission with a new institution having a new design and structure… a new faith towards forging a new direction to lead the country based on creative thinking, Public Private Partnership, optimum utilization of resources, utilization of youth power to the nation, to promote the aspiration of State Governments seeking development, to empower the State Governments and to empower the federal structure.”

Subsequently, the Prime Minister had invited ideas from people on what shape the new institution to replace the Planning Commission can take. A special open forum was created on the website mygov.nic.in for inviting suggestions on the new institution.

“We envision the proposed Institution as one that caters to the aspirations of 21st century India & strengthens participation of the States.... Let the ideas flow,” Shri Narendra Modi said as the above Open Forum was created on mygov.nic.in .

Various experts were invited for the consultations held at the Planning Commission today. Among those who participated in today’s meetings were Shri Yashwant Sinha, Dr. Bimal Jalan, Dr. Saumitra Chaudhury, Dr. Vijay Kelkar, Shri M.J. Akbar, Dr. Y.K. Alagh, Dr. Nitin Desai, Dr. Shankar N. Acharya, Shri T.N. Ninan, Dr. Pratap Bhanu Mehta, Dr. Shekar Shah, Dr. Pronab Sen, Dr. T.C.A. Srinivasa Raghavan, Dr. Rajat Kathuria, Dr. Rajiv Kumar, Dr. Surjit Bhalla and Shri Sumit Bose.

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