Building a new house, returning to an original foundation

  • Blog Post Date 05 November, 2014
  • Perspectives
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Most commentators in the Planning Commission debate believe that the new body should be some form of national think-tank focusing on the technical function of formulating an economy-wide strategic vision. In this article, Seddon and Srinivasan argue that the choice of strategic vision is political as well as technical, and make a case for a strengthened Inter-State Council to succeed the Commission and perform both roles.

The principles and practice of economic planning have evolved substantially since the Government of India established the Planning Commission by Central Cabinet Resolution in March 1950. A part of the motivation for the Commission rings true today, as do aspects of the proposed design of the Commission. “Experience has shown that progress [in schemes of development] has been hampered by the absence of adequate co-ordination and of sufficiently precise information about the availability of resources,” noted the resolution, “…the need for comprehensive planning based on a careful appraisal of resources and on an objective analysis of all the relevant economic factors has become imperative.” In terms of design, “these purposes can best be achieved through an organization free from the burden of…administration, but in constant touch with the Government at the highest level on policy issues.” (Government of India, 1950). Although it does not specifically mention eradication of mass poverty or define a particular role for the Planning Commission, the resolution invokes the State’s constitutional commitment to “strive to promote the welfare of the people” and protect a social order in which economic and social justice inform institutions.

Other aspects of the Commission are better left behind. The resolution made no mention of the instruments to be used by the Commission to implement its “determination of priorities, …the stages in which the Plan should be carried out, and [its proposed] allocation of resources at each stage” except a vague statement that the Commission will “determine the nature of machinery which will be necessary for securing the successful implementation of each stage of the plan in all its aspects.” The machinery adopted, however, was all-encompassing. It made little distinction between the State’s authority to command State and private sector activity; restricted the market activity, foreign trade, and investment; and emphasised public sector and heavy industry dominated industrialisation. The advisory body thus grew into a central player in the allocation of national resources across activities and between public and private sectors as well as an arbiter of the parameters by which operational Ministries issued licenses, permits, and opportunities for private industry.

Halting reforms in the 1980s and more systemic liberalisation in 1991 removed the so-called “license-permit raj” and left more decisions about allocation of resources to the market. The Planning Commission, however, remained. Some version of planning specifying targets for public and private investment in various sectors continued until Independence Day 2014, when the Prime Minister announced his government’s intention to replace the Planning Commission by a “new institution having a new design and structure, a new body, a new soul, a new thinking, a new direction, 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 of the nation, to promote the aspirations of state governments seeking development, to empower the state governments and to empower the federal structure.” (Government of India, Press Information Bureau 2014).

What next? More than two months later, there have been proposals, but no formal announcement of what should replace the Planning Commission. The seeming consensus, at least among commentators, is that the successor to the Planning Commission should focus first and foremost on formulating a strategic economy-wide vision for the medium and long run. The vision should anticipate and articulate forward-looking strategies for navigating technological, economic, and social change, as well as create adequate response mechanisms should unanticipated changes occur. It could focus exclusively on public investment strategy and policy or include a vision statement for the broader mix of public sector activities, but it should not assume that the State can command private activities in the same way that it can and should direct public sector action. We agree and would emphasise that above all the vision should take an integrated view of mutually reinforcing responses by the public and private sectors to environmental, international, economic, social, and other challenges on the horizon.

We disagree with most commentators’ narrow focus on the successor body’s technical functions. The consensus seems to be that political involvement is important to provide credibility to the successor institution, but that neither the Planning Commission nor its successor was or will be part of the political system as such. In our view, a body that articulates a particular vision for the nation, choosing among possible alternatives, is necessarily making a political decision. There is no one right vision and the strategy chosen will involve trade-offs between competing goals across alternatives that have distributional implications at a point in time, over time, and across states and regions. Choosing a vision that defines the contours of economic policy should be a political decision involving aggregation of households’, states’, and regions’ preferences. In the existing federal constitutional framework, the aggregations and their underlying substitution and complementarities in costs and benefits must have the political support of the constituent units of the federation. The decision on how to modify the strategy significantly on the basis of new information is also political by the same logic.

In this article, we add two new points to the discussion. First, the replacement to the Planning Commission will inevitably have a political function. We argue that this political function should be taken up by a strengthened version of the Inter-State Council (ISC) established under Article 263 of the Constitution. This would represent an important foundation for realising the constitutional intent that India be a Union of states. As the Prime Minister noted, “State governments have been at the center of development and I consider this a good indication. If we have to take India forward, it can happen only by taking the states forward. India´s federal structure is more important today than in the last 60 years. To strengthen our federal structure, to make our federal structure vibrant, to take our federal structure as a heritage of development, a team of Chief Minister and Prime Minister should be there, a joint team of the Centre and the states should move forward, then to do this job.” (Government of India, Press Information Bureau, 2014).

Second, we argue that the production of a vision and strategy – likely to be the main technical function of the successor to the Planning Commission - should be opened to the broader ecosystem of researchers and think tanks with relevant expertise. Designation of the successor as the ‘Official Think Tank of the Nation’ does not automatically confer credibility or remove conflicts of interest. It merely circumscribes the ideas and intellectual inputs that become part of the Plan. Moreover its researchers would be – or should be part - of larger professional communities that compete with any narrow incentives that could be created within the organisation. And if we are going to acknowledge that point then why not open the challenge of creating India’s vision to the broader, even global community of relevant experts?

A Secretariat to the ISC should manage the solicitation, selection, and initial screening of the proposals, monitor the implementation of the selected strategic vision and suggest responses to significant deviations from the anticipated circumstances. One part of the Secretariat would thus function as a Public Investment Board charged with design, monitoring, and coordination between various agencies and levels of government. Others have noted that effective monitoring requires a body that is independent of the implementing agencies and powerful enough to override their aversion to being monitored, and have suggested the Cabinet Secretariat or the Department of Expenditure for this function. These are both parts of the central government. We argue that a permanent Secretariat to the ISC would better ensure that the choice of a vision among alternatives and monitoring its implementation are squarely federal decisions, with the participation and commitment of the Union and states, and for which both Union and states are accountable.

Planning politics: A case for the Inter-State Council

The original Planning Commission was established as a technical advisory body expected to act “in close understanding and consultation with the Ministries of the Central Government and the Governments of the States” and leave responsibility for taking and implementing decisions with the central and the state governments. While the resolution noted that both central and state governments could also refer specific problems to it for advice, the body was clearly a product of the central government. It reported to the Cabinet, was based in New Delhi, and had the Prime Minister as Chairman. Its powers to undertake and successfully achieve close understanding, consultation and coordination in policy among state and central governments were based entirely on the assertion that “the Government of India feels confident that the States will give the fullest measure of help to the Commission, so as to assure the maximum coordination in policy and unity in effort.” (Government of India, 1950).

Over time its identity as an agency of the central government was reinforced, as was its political role in resource allocation. It became more and more centralised as time went on, epitomised by the Deputy Chairman’s annual “Delhi Durbar,” at which the state authorities appeared as supplicants for adjustments to five-year or annual plans and to seek greater Central assistance for their state’s plans. We have written elsewhere about the way in which so-called Centrally Sponsored Schemes (in which expenditures were partly or wholly shared by the central government) became another means of the exercise of central power over states. Other than in the discussion of the Approach Paper of each five-year plan and of the draft plan itself at the National Development Council and in the Parliament, the States had very little, if anything, to contribute to formulation of the plans. Again, in the mid-term appraisal of each plan, the states were spectators and not contributors. Thus the Planning Commission came to acquire a significant political role in centre–state issues, and in particular on the vertical imbalances between centre and states. For obvious reasons, the latter role came into conflict with the role of the Finance Commission as envisaged in the Constitution.

We would be naïve to think that this political role will disappear. The Planning Commission’s successor should embrace and take advantage of the legitimacy that a constitutionally-grounded political process can confer and the information that it can offer. There is currently no formal channel through which the development experience of states can be shared and discussed, let alone the possibility of learning from them as laboratories for experimentation with alternative policies. The National Development Council was not mentioned in the Constitution, and states as such do not participate in Parliamentary debates.

The ISC could provide a constitutionally-supported home for deliberations on a vision for the Indian Union and implications for its constituent units. We would have to support it with a skilled Secretariat, and we may wish to revisit its composition and rules of business, but there is no legal or Constitutional reason that the ISC could not be far more relevant for federal dialogue than it is today.

Article 263 of the Constitution (part of the Chapter on “Relations Between Union and States”) gives the President a power to establish a Council for “(b) investigating and discussing subjects in which some or all of the States, or the Union and one or more of the States, have a common interest; or (c) making recommendations upon any such subject and in particular, recommendations for the better co-ordination of policy and action with respect to that subject." The Administrative Reforms Committee of 1969 recommended establishing a standing body focusing on these two functions, leaving out dispute resolution (the item (a) mentioned in the Constitution).

The standing ISC was established on 28 May 1990 by Presidential Order with duties including “investigating and discussing such subjects, in which some or all of the States or the Union and one or more of the States have a common interest, as may be brought up before it,” and “making recommendations upon any such subject and in particular recommendations for the better coordination of policy and action with respect to that subject.” It is currently chaired by the Prime Minister and includes Chief Ministers of all states and Union Territories as well as six Ministers of Cabinet Rank nominated by the Prime Minister, but membership and rules of deliberation can and have been revised by Presidential order.

We propose that the President constitute the ISC as per Article 263 of the Constitution and assign to it the formal responsibility for serving both the essential political and technical functions that are currently being served in large part by the Planning Commission. The fundamental political functions consist of the formal approval of what are currently, the Approach Paper of a forthcoming five-year plan, its draft and the discussions between central and state governments individually on state plans, Centrally Sponsored Schemes etc. The monitoring of implementation of plans (central and state) including the mid-term appraisals also have political as well as technical aspects.

The selection of membership and rules for deliberation are obviously critical for the functioning of the ISC as political overseer of a vision for the Indian Union. A full discussion of various options is beyond the scope of this note and we are writing a separate, longer note, on these aspects of institutional design. Our point here is that the ISC’s constitutional antecedents make it possible to have this discussion and to revise the rules as required.

An open vision process

Many contributors to the debate about post-Planning Commission institutions have proposed some form of “public sector think tank” to serve the technical functions. In our view, we need a competitive environment for generating innovative ideas as to how to serve technical functions better and not necessarily a single institution for that purpose. The alternative short-term macro scenarios for the economy may be formulated by the Ministry of Finance or the Reserve Bank of India, which both have extensive research departments and policy interests in knowing what lies ahead. The alternative pathways for India’s economy, however, including rolling scenarios for development within this macro envelope in the short (the coming fiscal year and the next) the medium (the next five fiscal years) and the long term (the next twenty years), and their evaluation from a social cost-benefit perspective should be open to the broader research community.

We suggest the creation of a technically well-qualified Secretariat for the ISC that would pre-qualify technically capable research groups in India and abroad who could be invited to submit scenarios for the consideration of the ISC Secretariat. In principle, subject to appropriate national security considerations, foreign research groups could be included. Operational Ministries of the centre, states, Union Territories, and groups of Ministries could be included particularly for visions for interrelated sectors (example, energy and water or energy and transport). The Secretariat would evaluate them from a techno-economic-social perspective and shortlist some, from which the ISC will choose primarily from political and social perspectives. Terms of payment, whether the research groups to be pre-qualified should be chosen for their economy-wide expertise or their sectoral knowledge, and the related issue of whether proposals for economy-wide and or sectoral scenarios should be invited, are questions that are best left for the technical Secretariat to decide, based on the context.

The main point is that we rely on the ISC deliberation and choice, rather than a designation as the ‘Official Think Tank of India’ to confer legitimacy on the Secretariat. The fundamental principle of institutional choice is the ownership by the ISC of the scenarios it chooses for implementation after extensive discussions, and not those chosen by the central government as at present. ISC is thus made accountable for the achievement of the scenarios it chooses and their implications for other aspects of federalism. The chosen vision for the medium term, for example, would provide background for the deliberations of the Finance Commission.

Needless to say that implementation of chosen scenarios will not only involve actions by private and public sectors including households and Non-Governmental Organisations (NGO) but also monitoring and coordination of their actions. These are complex tasks and the performance of the economy would depend crucially on their successful execution. Careful thought, and taking advantage of evolving information and communication technologies, are needed in setting up mechanisms of monitoring including those for gathering required information and regulatory regimes, including a system of contingent corrective actions as needed. Again, the Secretariat of the ISC would be responsible for designing and installing the system for coordination of actions of active entities, monitoring and taking corrective actions as needed. The structure of incentives facing the staff of the system (and of all the newly created institutions) has to such that they take actions compatible with the objectives of the system or institution.

An important cautionary consideration in designing the monitoring–corrective action system is to ensure appropriate balance between too little oversight so that coordination fails to occur with high probability, and too much oversight so that the freedom of action of entities is unduly restricted – a situation that could replicate some of the worst features of the discretionary and corrupt License-Permit Raj.

In our view, our proposal, drawing on ISC, incorporates the needed political ownership and accountability in our federal system, while leaving room for a more open process to generate innovative ideas for India. The Secretariat must have the technical competence to formulate terms of reference for research groups to propose scenarios and to evaluate (from a social cost-benefit perspective) the responses received, but would rely on the global community of experts to generate a range of options.

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