Abandoning the social compact

The Planning Commission has been replaced by NITI Aayog, a pale shadow of it. Probity in economic policy and the pursuit of equity are the prime casualties of the change.

Published : Aug 17, 2017 16:00 IST

Prime Minister Narendra Modi  chairing the first meeting of the Governing Council of NITI Aayog in New Delhi on February 8, 2015, along with Union Ministers Nitin Gadkari, Rajnath Singh and Arun Jaitley and the then newly appointed NITI Aayog Vice Chairman Arvind Panagariya.

Prime Minister Narendra Modi chairing the first meeting of the Governing Council of NITI Aayog in New Delhi on February 8, 2015, along with Union Ministers Nitin Gadkari, Rajnath Singh and Arun Jaitley and the then newly appointed NITI Aayog Vice Chairman Arvind Panagariya.


INDIA’S first steps as an independent nation were dictated by the social compact that was the bedrock of the national movement that made it possible. The idea of planning economic and social development was dictated by the logic that a country whose development was predicated on the heft provided by a large public sector required a mechanism to orchestrate the diverse actors at play. Moreover, the objective of promoting social equity, a commitment enshrined in the implicit compact that guided the independence movement, and later enshrined in the Constitution, required the presence of a body that at least appeared to enjoy a semblance of autonomy from contending interests.

Indeed, this focus on equity was the glue that held the compact, reached among contending interests, together. For vast sections of the people who had literally put their lives on the line for national independence, it became necessary for the newly independent state to act as an unbiased arbiter of the social compact. It is this which gave rise to not only the new Constitution but to several other legislative measures such as the Industrial Disputes Act and the badly designed land reform measures after Independence. State-led planning was also a product of this new-found spirit.

The urgent recognition of these requirements was reflected in the fact that the Planning Commission, the agency entrusted with the task of conducting this orchestra, was constituted in March 1950, barely three years after Independence. The whittling down of this institution and its eventual disbandment by the current regime at the Centre is also the story of how India’s tryst with planning was usurped by the logic that demanded the abandonment of the social compact.

The gradual emasculation of the Planning Commission until its disbandment in 2015 and its replacement with a body that is a pale shadow of its promise is also the story of the unilateral abrogation of the social compact that was born in the crucible of the independence struggle. State-led planning was an obvious victim of this process of abrogation under the Congress, but it has taken a whole new dimension under the leadership of the Bharatiya Janata Party (BJP). After all, the Congress had much to claim as its own legacy of the freedom movement, unlike the BJP, whose ideological progenitors from that period left it free of such irksome encumbrances. One of Prime Minister Narendra Modi’s first policy announcements, soon after his party’s resounding victory in 2014, was his decision to disband the Planning Commission, that apparently ugly vestige of “socialist” planning of the Nehruvian era. In his first Independence Day address, Modi announced that the 64-year-old Planning Commission would be abolished. In keeping with the bombast that has been his hallmark since then, Modi said the Planning Commission would be replaced by a new institution, which would have “a new design and structure, a new body, a new soul, a new thinking, and a new direction”. Modi kept his word. NITI (National Institution for Transforming India) Aayog was constituted on January 1, 2015, and the Planning Commission sent into oblivion.

Rationale of planning The rationale of planning had many facets. It was recognised early on that the state would have to play a major role in industrialisation, especially because the colonial regime had used India primarily as a supplier of raw materials for its own industries and as a dumping ground for its own manufactured goods. In order to build an industrial base, literally from the ground, the promotion of heavy industry was a key prerequisite. For instance, steel was a special focus, but steel plants require large volumes of other raw materials such as iron ore, coal and power. It was obvious that this would require a significant extent of planning and coordination, especially because, barring the Tata’s own steel capacity in Jamshedpur, there was very little that the private sector could contribute. The investments in iron and steel, mines and power thus demanded careful planning, which is exactly what happened during the Second Five Year Plan, which, even bitter critics of the public sector accept, laid the foundation of Indian industrialisation. In fact, the spin-offs from this period flowed to many areas; the establishment of world-class educational and research institutions (in the physical as well as social sciences) such as the Indian Institutes of Technology arose from this approach.

Although this rationale for coordination in areas of industrial activity in which the public sector played a domineering role was recognised as vital, there was also the question of marshalling resources and directing them to areas designated according to a transparently recognised national priority; these were articulated in voluminous Plan documents, which even if not accessible to common citizens was open to scrutiny and discussion among academics not necessarily of the sarkari kind. In economic parlance, this meant the management of savings and investment and then directing them towards areas deemed important in terms of priority. This meant at least two things: first, a layer of economic expertise that could devise a coherent plan, and second, a body that maintained a semblance of distance from the claims of competing economic and social interests.

It was not without meaning that P.C. Mahalanobis, widely considered the doyen of Indian planning, was at the Planning Commission between 1955 and 1967, during which much of this industrial base was laid. The centrality of the Perspective Planning Division within the Planning Commission’s overall agenda was evident in the formulation of the strategy of industrialisation adopted by it in these years. The continuing pejorative designation of all planning of that era as “Soviet-style” displays an extraordinary extent of ignorance of history as well as a lack of economic sense. Although it was indeed true that Soviet assistance at that time was much more forthcoming, it was not as if Indian planning was at the mercy of the Soviet Union. Moreover, the description of a state-led “command economy” displays a duplicity that is stunning in its ignorance of what was happening across the world at that time. Countries as diverse and as far apart as Japan and Germany (West) were at that time embarking on a process of industrialisation that was heavily steered not only by their national states but also by the domineering presence of the United States in their economy. What else was the Marshall Plan, which poured resources into economies across Europe after the Second World War? In both Japan and in Germany, the state and its institutions, most notably their banks, played a powerful role in rapid industrialisation. Not only were resources made available, but they were deployed in areas that the state, not private capital, decided were critical.

Neoliberal impact The logic of neoliberalism that the role of the Planning Commission is rendered redundant in a situation in which the private sector occupies the “commanding heights” that were initially the preserve of the public sector is fallacious for a number of reasons. For one, there still remains the question of coordination between the two realms of economic activity in order to achieve national targets or priorities defined and made transparent by the state. There can be meticulous planning in relation to the public sector but what is actually realised is left to the caprices of the private sector. This was demonstrated disastrously during the Eleventh Plan when the private sector, egged on by neoliberal policies in the power sector, simply failed to invest capital in power plants that it was supposed to. This left a yawning gap between the target and what was actually achieved during the Plan period. To blame planning for this failure is like blaming the victim of a crime for the crime.

Despite the rich legacy of planning, however, the counter-revolution was also in evidence. A structural flaw in the design of the Planning Commission was the fact that its role as an arbiter of Centre-State relations was never defined satisfactorily. Although its actions had a significant impact on States in terms of allocation of resources, the States themselves did not see it as belonging to them. Moreover, over time, as the importance of centrally sponsored schemes increased and as they acquired a significant proportion of resource transfers from the Centre to the States, the Planning Commission became the device for these arbitrarily determined transfers, which the States complained as being discriminatory. The fact that the Planning Commission’s role was not constitutionally defined ensured mounting discord over the manner in which its independence was seen as being suspect in the eyes of the States. Although the National Development Council (NDC) did provide a forum for States to articulate their concerns, their day-to-day concerns ought to have been better addressed in a forum such as the Planning Commission. Modi’s decision to disband the NDC points to a higher order of centralisation under the current regime.

Although the Congress may take credit for the initial success of planning and its character, its focus on liberalisation played a critical role in undermining the process of planning. This was achieved in two ways: one, by the induction of those with a neoliberal outlook, most notably by accommodating World Bank-returnees within the portals of the Planning Commission, and two, by the shift in the Commission’s agenda.

The shifting focus of the Planning Commission was particularly visible after the onset of aggressive economic liberalisation after 1991. Its acceptance of the logic of neoliberalism—without a hint of serious debate—is evident in the key aspects of economic policy since then. For instance, its acceptance of the suspect estimates of poverty in India, which when combined with its acceptance of the logic of targeting distribution of food grains (using the pernicious device of Aadhaar to implement it) has had disastrous consequences. The Planning Commission not only accepted the logic of privatisation of public enterprises but laid the conceptual foundation for Public-Private Partnerships (PPP), which are most opaque in character (“The Trojan Horse”, Frontline , February 5, 2016). In doing this, the Commission displayed an utter disregard for evidence of massive drain of public resources as a result of such exercises in countries around the world—no doubt goaded by the World Bank, which was its key evangelist. More critically, it damaged its integrity as an institution by failing to maintain a semblance of neutrality and objectivity, especially because such PPPs remain notoriously unavailable for public scrutiny. Even the single most shining example of success during the two terms of the United Progressive Alliance (UPA), the National Rural Employment Guarantee Act, was engineered outside the portals of the Planning Commission, most notably because of the steady political pressure that came from outside the Congress party.

Centralised thinking From what was happening to the Planning Commission, NITI Aayog was only a small step away. Its characterisation as a “think tank” says a lot about its role, especially in an atmosphere in which all thinking is centralised in the Prime Minister’s Office and the Finance Ministry, a process that was already under way during the previous UPA regime, especially during its second term. The constitution of the Aayog—in terms of both its key personnel and the shaping of its agenda—has signalled that even the pretence of arm’s-length from the government has been dispensed with. In NITI Aayog’s own words (from its website) it seeks to define its “core” roles as those of creating a Team India Hub and a Knowledge and Innovation Hub. While the first is a poor caricature of the NDA—a platform for substantive Centre-State dialogue, which the Modi government dismantled, the latter is an activity that is better left to one of the many private training institutions run by corporates.

But even more shocking has been the role of NITI Aayog with reference to major policy matters of the day. Its role in the aftermath of demonetisation—independent India’s single biggest economic adventure—was particularly striking. Instead of conducting a rigorous and impartial analysis of demonetisation, it embarked on a no-holds-barred eulogy of the wonders of the most dangerous experience with the national currency since 1947 (after all, more than 100 people lost their lives across the country). Moreover, its gleeful acceptance of the digital nirvana that the Modi government had offered, without an adequate appreciation of either the regulatory issues or the pitfalls that were quickly obvious to all, was certainly not in keeping with its status as a think tank. To cap it all, driven by its euphoric acceptance of the cashless revolution that was unfolding, it even conducted “lucky dips” as prizes for those using digital payment systems. It was almost as if the country’s premier think tank had converted itself into a lottery agent. Seen from this perspective, even the Planning Commission’s slide, especially in its last decade, appears almost benign.

The recent resignation of Arvind Panagariya from his position as Vice Chairman of NITI Aayog has fuelled speculation that even its docile conduct has been met with disapproval from within the Sangh Parivar, much like at the end of Raghuram Rajan’s tenure as the Governor of the Reserve Bank of India. In a recent interaction with a television channel, Dr Ashwini Mahajan, co-convener of the Swadeshi Jagran Manch (SJM), said: “We have nothing to do with the resignation but we have been saying that any think tank in the government set-up should work in sync with the government’s agenda.” He alleged NITI Aayog was “not functioning as per its preamble, and was not in sync with Prime Minister’s wishes and his government’s policies”. What this reveals in all its depravity is that the rising intolerance is not confined to matters concerning what people eat, but go far beyond, into the realm of economic policy, where even marginal dissent will not be tolerated.

Incidentally, Panagariya’s replacement, Rajiv Kumar, a trained economist, mounted a spirited defence of Modi’s demonetisation exercise. His basic argument then (soon after demonetisation, in November 2016) rested on two points: one, the equation of all that is “black” with cash, and two, the notion that farmers, especially small and marginal ones, have ready access to credit from formal institutional sources. His naive assertion that digital would work like a magic wand in banishing the evil of cash was also a hallmark of his writing then, in defence of Modi.

One of the key aspects of planning as practised by the Planning Commission, especially in its initial years, was the respect for academic probity and for transparency. This meant that policy was crafted in a relatively open environment, critically open to scrutiny, dialogue and criticism. The neoliberal invasion, which has dismantled this structure, has destroyed the modicum of transparency that was available earlier. The aggressive pursuit of policies that blatantly favour a thinner and thinner sliver of Indian society thus requires much to hide; policy-crafting in such an environment necessarily requires it to be based on the whims of a few so that favours may be dispensed without being hampered by well-defined principles or a rationale that defines them as necessary for the greater public good.

One of the meanings of niti is “principle”. To name an organisation whose conduct has been anything but a shadow of the venerable institution it replaced at whim is ironic.

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