The New Year began with an announcement that the 65 year old practice of planning the economy will be discontinued; the process and even the principle of planning have ostensibly become unnecessary in the project of ‘development’. The first eight Plans allegedly inspired by socialism for nation building were promoting the public sector, investing in basic and heavy industries, besides allocating for the social sector. They were using resources to influence expenditures of the state governments so as to promote chosen objectives in line with planned national priorities. The state level plans dovetailed into national plans. Centrally Sponsored Schemes in the social sector urged states to change in certain ways with central assistance. The plans were made with inputs from economists, elected representatives and bureaucrats in a relatively open and consultative manner. They survived governments and maintained consistency in methods of recording plan and non-plan expenditures, and continuity in policy. Planning survived liberalisation and economic reforms of the 1990’s, but by the Ninth Plan in 1997, the emphasis on the public sector had become less distinct, it was fashionable to suggest that planning in the country must change, the plan should be of an act of indication and facilitation, not direction. By 2015 it has now become politically feasible to wind down the Planning Commission entirely.
The process of setting targets, harnessing resources, allocating them among sectors, states and reviewing performance is indeed dispensable if the share of public expenditure in all sectors (including social sector, welfare, poverty alleviation) is slated to shrink rapidly, making space for ‘free market’, ‘social enterprise’ and random ‘growth’. Now in place of the Planning Commission is a Neeti Aayog. Three months later not much is known about its methods and processes, but what is known is that the Neeti Aayog has a Chief Executive Officer (CEO) from America, it has leaders of 29 states and seven union territories as its members who may meet occasionally (they seem to have met soon after it was announced), it has experts who form a core that reports to the PM directly. This set of thinkers is set to transform India. We are not debating how that is going to happen yet, except the occasional catch phrase ‘Cooperative Federalism’, ‘Make in India’, ‘Smart Cities’ and ‘Jan Dhan’. There is no hurry to discuss the names, credentials and experience of the worthy thinkers in the public space.
To add to the list of changes is the recent announcement of the Fourteenth Finance Commission. It recommended a 10% increase in the states’ share in the Union taxes to 42%, which has been accepted by the Centre and will give the states an additional Rs. 1.78 lakh crore in 2015-16. The report of the Commission, headed by former RBI Governor Y. V. Reddy, also recommended a grants-in-aid of Rs. 48,906 crore for 11 revenue deficit states, including Andhra Pradesh post division, West Bengal and Jammu and Kashmir, for 2015-16. The total devolution to the states in 2015-16 will be Rs. 5.26 lakh crore, as against Rs. 3.48 lakh crore in 2014-15, representing an increase of Rs. 1.78 lakh crore. The total devolution to states during the five year period up to 2019-20 will be Rs. 39.48 lakh crore( by then the 12 plan period would have ended). This is being described as an unprecedented bonanza.
Will this allocation eventually compensate states for the loss of revenues from indirect state taxes once the GST is rolled out? Will there be a 13th Plan? What will be the cumulative effect of states spending this amount without a plan? What is the Neeti Aayog going to do, particularly in distributing planned and non-planned expenditures between states? Are we heading for federal cooperation or just unplanned competition between states that shower fiscal incentives on investors? The first casualty of an unplanned future may be exactitude.