Key mediator

THE decision to replace the Planning Commission with a “think tank” has important ramifications for Centre-State relations. The States have consistently described the Planning Commission as a centralising institution and the planning process as a top-down approach. Of late, Union Ministers have also started describing the interventions of the Planning Commission as unwarranted. Kamal Nath, Road Transport Minister in the United Progressive Alliance II government, once described the Planning Commission as “armchair adviser”. This political environment facilitated the sudden closure of the Planning Commission by the new government.

Centre-State Financial Transfers

The sudden closure of this institution can change the course of financial transfers to the States. Are we doing away with planning as an economic institution? If so, we may not have the famous bifurcation of expenditures as Plan and non-Plan in our Budgets. Will the individual Ministries continue to plan without a Planning Commission? If so, then the nomenclatures Plan and non-Plan expenditures will continue. In such a situation, the new think tank could act as a guiding post to suggest directive principles that could coordinate the plans of different Ministries. Of course, the success of coordination will depend on the willingness to accept the directive principles as non-intrusive.

The 14th Finance Commission has been constituted; it is expected to submit its recommendations by the end of October, for five years starting from 2015-16. Since the Third Finance Commission, the Union government has directed it to recommend grants to cover the estimated non-Plan revenue deficit in the State budgets, as the Planning Commission was expected to finance the Plan expenditures of the States. When we remove the Plan and non-Plan classification of expenditures, then the Finance Commission should recommend grants to fill the estimated revenue deficit in State budgets for two reasons. One, if there is no Plan expenditure, then the entire revenue expenditure is non-Plan in character and the Finance Commission should consider the entire revenue expenditure in its devolution system. Two, hitherto, the Planning Commission was recommending Plan-grants for State Plans based on the Gadgil-Mukherjee formula. Now, this part of the financial transfer, which legitimately belongs to the States, should be decided on the basis of a scientifically drawn distribution formula. Hence, it would be appropriate to assign this task to the Finance Commission, with additional terms of reference. Either way, the formula-based untied transfers to States should be intact.

Is the Planning Commission a Centralising Agency?

Yes, it is. But it has evolved over the years and acquired some federal characters. Soon after the Third Finance Commission recommendation regarding Plan grants to the States was not accepted by the Union government, the States started clamouring for a formula-based Plan grant. In 1969, the Gadgil formula was evolved to distribute Plan grants among the States and it was altered in the early 1990s as the Gadgil-Mukherjee formula.

Since the 1960s State Chief Ministers, mainly from the regional parties, have forcefully articulated the need to reduce the number of Centrally sponsored schemes (CSS) at National Development Council meetings, and successive Union governments have also tried every now and then to regulate the financial transfers to the States for implementing the CSSs. Since the early 2000s, the growth of the Union government’s own revenue net of the States’ share facilitated Union Ministries, particularly those in infrastructure and social welfare sectors, to proliferate CSSs and schemes eligible for obtaining Additional Central Assistance (ACA) for Plans. Over the years, the quantum of financial transfers for CSS/ACA outstripped the formula-based Plan transfers to State Plans. The stringent conditionality for the implementation of these CSS/ACA schemes stifled the active participation of State governments in administering them. There were complaints about the transfer of funds directly to local bodies and quasi-government organisations, bypassing the State governments for these Plan schemes, which undermined the authority of the State governments over these institutions. In the last 15 years, many regional parties that have been part of the Union government have been silent spectators to these centralising efforts and sometimes they were active participants in their respective Ministries.

Once again, in 2011 the Union government constituted the Chaturvedi Committee to suggest ways to restructure CSSs. Though its report has not been debated by the States, its recommendations to reduce the number of flagship programmes and other ACA programmes and to transfer the rest of the schemes to the State plan can be construed as yet another effort to accommodate the States’ views on planning at the national level. Hence, continuous efforts have been made to bring in the federal dimension to the otherwise centralised planning process in India. These efforts have had varying degrees of success, but they do give us hope that evolving a nationwide planning strategy with active State participation is feasible.

Annual plan meet at Yojana Bhavan

Sometimes, Chief Ministers have aired the opinion that the annual Plan meetings between the States and the Planning Commission were ritualistic and that it was humiliating for an elected Chief Minister to ask for funds from nominated members of the Planning Commission who are not directly answerable to the people. These opinions have, at best, been more popular as political posturing and do not have much substance.

The Planning Commission is expected to mediate between the Union and State governments and to channel more funds towards Plan schemes. Every year, the Planning Commission engages with the Union Finance Ministry to get more funds for both State Plans and the Central Plan. Then it uses the Gadgil-Mukherjee forumula to distribute the Union government’s allocation for State plans among the States. Another major part of the Plan transfer is through the CSS/ACA route, wherein matching grant requirements should be fulfilled by the States. Hence, the meeting between the Chief Minister and the Planning Commission is only a procedural issue; otherwise, most of these Plan transfers are formula-driven. The annual Plan meeting at Yojana Bhavan should be treated as a stock-taking of our developmental efforts and an opportunity to make our policies more people-centric. No doubt, only elected representatives are answerable in the peoples’ forum, but autonomous bodies like the Planning Commission can be a participant and act as a real-time critic of State policies.

In the absence of the Planning Commission, the Union government directly gets additional financial and expenditure powers to distribute moneys across States without any guiding principle or formula. This is nothing but the transfer of power from Yojana Bhavan to 7, Race Course Road, coupled with opaqueness in the transfer system as far as the States are concerned.