Planning Commission 2.0: A political challenge
Any attempt to reform or create a new body will need to curb Delhi’s tendency to centralise power.
If voted to power, Congress president Rahul Gandhi has promised to replace the NITI Aayog with a “lean” Planning Commission peopled with economists and experts. Gandhi has offered little in terms of his critique of the Aayog and how a new “lean” Commission will address failings of the past. However, his statement does serve as a reminder that the Niti Aayog has failed to live up to its promise.
Dismantling the Planning Commission and replacing it with the Aayog was one of the most significant institutional reforms initiated by the National Democratic Alliance (NDA) government when it came to power in 2014. But five years later, the functioning of the Aayog raises far more questions about its relevance than it has answered.
The Planning Commission was in urgent need of reforms. The 1991 economic reforms had rendered the centralised plan process irrelevant. Moreover, in an era of coalition governments, the Commission provided a critical instrument through which New Delhi centralised policymaking. Central schemes (CS) that encroached on the states’ constitutional responsibilities and promoted a one-size-fits-all implementation model emerged as the dominant model for transferring plan funds to states.
States had long complained against this centralisation. Chief ministers deeply resented having to seek the Commission’s approval for state plans and expenditures. As chief minister of Gujarat, Narendra Modi was particularly vocal in his critique, even suggesting the 14th Finance Commission recommend devolution of 50% tax revenues to states so they have greater discretion over spending.
The Aayog’s primary mandate was to address these failings and reshape the federal compact. The Cabinet resolution establishing the Aayog made the case. “States of the Union”, it argued, “do not want to be mere appendages of the Centre.” The Aayog and its “Team India” was now responsible for developing a shared vision of development priorities, fostering co-operative federalism and creating a platform that brought states together in the national interest. But, unlike the Commission, the Aayog was designed as a think tank expected to fulfill its mandate without financial powers.
This presented a new conundrum for Centre-state fiscal relations. In a federal system, national governments have a legitimate responsibility to ensure all citizens receive a minimum standard of public services such as health, basic education, and sanitation. These are national goals for which the center may need to provide specific funds.
In India, widespread regional disparities or what economist Vijay Kelkar defines as the “development imbalance” between states makes central funding of this nature particularly critical. For example, poor states like Bihar may require central funding to meet these goals more than richer states. Managing this expenditure was a crucial role filled by the Commission through plan funds. Schemes were administered by line-departments but the Commission played a critical policy coordination function linking schemes to state plans and determining resource availability. Moreover, states could broadly predict the quantum of plan funds they were likely to receive, enabling somewhat predictable expenditure. In the absence of financial powers, the question of who would fulfill this role became relevant. The challenge also lay in creating fiscal instruments that ensured autonomy to states and got away from the failings of the commissions administration of funds.
The Aayog had the opportunity to do this. Its first task was to create a chief ministers’ sub-committee to reform central schemes and give states flexibility. But the critical issue of coordination, prioritisation and fund allocation, absent in the Commission, was never addressed. In the resultant institutional vacuum, the finance ministry and central line ministries took over. They all but ignored the sub-committee’s recommendations and contributed to deepening rather than weakening centralisation.
The finance ministry insisted states increase their financial contribution to central schemes from 25% to 40%. An important mandate to induce flexibility by making 25% of scheme funds discretionary was ignored and, New Delhi continues to micro-manage micromanage implementation. Rather than reform scheme functioning, successive budgets re-ordered reordered schemes in to “core of the core”, “core” and “optional” and without five-year plans, states are left guessing their annual fund allocations. It is this institutional vacuum that has also enabled the finance ministry to prescribe terms of reference to the 15th Finance Commission that seeks to bias the panel towards linking tax devolution to the national government schemes and priorities.
But the biggest challenge to fulfilling the Aayog’s mandate of reshaping the federal compact came from the prime minister and his centralising administrative style. From the Swachh Bharat mission to the Pradhan Mantri Kisan Samman Nidhi, state governments are under severe pressure to meet performance targets set by the Government of India, resulting in an entrenched culture of overcentralisation rather than cooperative cooperation or, as former Reserve Bank of India Governor YV Reddy and GR Reddy suggest in their latest book, cooperative and competitive federalism may well be substituted by coercive federalism. The Aayog, which draws its institutional legitimacy directly from the Union government, with its indicators, ranking, and aspirational district programme, is the instrument for promoting this coercive federalism.
The Aayog’s mandate of genuinely reshaping the Centre-state relation remains unfulfilled. But any attempt to reform or create a Planning Commission 2.0 will need to contend with the challenges of creating institutional spaces for genuine deliberation and political negotiation between the Centre and states and curbing New Delhi’s inherent tendency to centralise power. This is a challenge that will go beyond economists and experts. It is a political challenge. If Rahul Gandhi genuinely wants to reform the NITI Aayog, he needs to recognise this.
Yamini Aiyar is president and chief executive, Centre for Policy Research
The views expressed are personal