There once was a time when the belief prevailed that theeconomy was some intricate Rube Goldberg contraption of connected pulleys, cogs, levers and conveyor belts that achieved desired results by pressing required buttons. And it wasn't confined to the Fabian acolyte Jawaharlal Nehru. The whole world recovering from ravages of a global war (and the depression preceding it) subscribed to it. John Maynard Keynes was the high priest of pump-priming to get economies going. The showcase of the Soviet Union's achievements post-war was accepted as proof positive of efficacy of planning.
Thus was born the Planning Commission of India in 1950, charged with the task of fostering development. Prime Minister Narendra Modi announced its imminent replacement in his Independence Day address, but the new name, structure and key personnel became known only a week ago.
From When Dinosaurs Ruled the Earth ...
India was the first non-Communist practitioner of central planning. Economists worldwide keenly watched the experiment. The starting point was the celebrated Harrod-Domar model. In essence, it suggested with breath-taking simplicity that savings, which were exogenous, equalled investment, which in turn bore a fixed relationship with the rate of growth. Ergo, all that was required to achieve the desired rate of growth (the model made no distinction between growth and development) was to crank up savings to the required level.
But macroeconomic policy design remained largely in the realm of guesswork, as it does even today in countries with far more reliable databases. Disaggregation followed with the Mahalanobis two-sector models and the Leontief intersectoral transaction tables. The commission set sector-specific output and investment targets based on them. It had the final say on resource allocations, and told the states not just what to do but how to do it as well.
"Quantitative targeting of domestic production became irrelevant ... [because of] obsolete methodology ... and working practices," Nitin Desai observed in these pages ("RIP Planning Commission", Business Standard, August 21, 2014) and with good reasons. Plan funds were tied to the straitjacket of the commission designs. These comprised more often than not recycled versions of tried, trusted and failed schemes, since powerful interests, political as well as bureaucratic, demanded their continuation. States became increasingly frustrated with this approach, but yielded to the agency controlling funding. A measure of arbitrariness was evident as early as 1980. I prepared a note about this and V Kurien took it to a commission meeting. It received a barely polite hearing. The Maharashtra government's earnest pleas for effecting modifications to the prime minister's package for suicide-prone districts in the late 2000s fell on deaf ears.
The Planning Commission had morphed into Tyrannosaurus rex.
... to Where Eagles Dare?
The dysfunctional evolution of the Planning Commission provides two vital lessons to the new NITI Aayog. One, it must give up the impossible task of modelling and prescribing for a continental macroeconomy, and two, it must give up the obsession to micromanage projects on the ground. It ought to concentrate on key interventions cutting across states and subject disciplines instead. That would enable it to carve out a unique role for itself offering innovative approaches in this era of new federalism.
Here is a sampler of such projects, all high on the government priority list:
The Northeast: The region remains a distant outpost full of promise and poverty. Decades of grand assurances from central agencies brought it not improved connectivity but varieties of rice not suited to the local palate and fruit-processing plants without matching logistics and marketing support. No other territory has suffered as much from the Planning Commission's dogged prescription of one-size-fits-all schemes. Its potential - hydropower, horticulture, tourism, craftsmanship - remains barely exploited, adding to the already enormous sense of alienation. Inclusiveness acquires an added, more urgent dimension east of Kolkata.
Ganga renaissance: The premier river system continues to suffer unimaginable degradation even as thousands of crores have gone down the drain in the last 30 years. The problem is not just of cleaning up, but also of rejuvenation of sources and managing the sedimentation. That calls for a varied pool of knowledge and experience. Setting up a few waste-treatment plants does not even scratch the surface. And at least half a dozen states with a third of the country's population must be on board.
Sagarmala: India's large coastline and its location has become a security concern when it could be its greatest asset in an interdependent world. Infrastructure is only the beginning. Ports must be connected through cost-effective multi-modal transport network to hinterland manufacturing facilities competitively producing goods for the world market. When discounted for quality and labour productivity, the much-touted Indian cost advantage often disappears altogether. "Make in India" subsumes some of these concerns and must be linked to the project.
All these projects require large commitments of resources. More importantly, they need out-of-the-box solutions based on multi-domain expertise and situation-specific improvisations, not lazy stereotyping. Above all, they must be pursued with a sense of urgency. In other words, tasks cut out for an ideal NITI Aayog.
This is only for starters. But the new body must learn to hasten slowly and establish its credentials through actions.
The extinct dinosaurs have left two vastly different descendants: the loathsome lizards and crocodiles resembling their forebear, and the graceful birds. That just about sums up possibilities for the NITI Aayog.
Thus was born the Planning Commission of India in 1950, charged with the task of fostering development. Prime Minister Narendra Modi announced its imminent replacement in his Independence Day address, but the new name, structure and key personnel became known only a week ago.
From When Dinosaurs Ruled the Earth ...
India was the first non-Communist practitioner of central planning. Economists worldwide keenly watched the experiment. The starting point was the celebrated Harrod-Domar model. In essence, it suggested with breath-taking simplicity that savings, which were exogenous, equalled investment, which in turn bore a fixed relationship with the rate of growth. Ergo, all that was required to achieve the desired rate of growth (the model made no distinction between growth and development) was to crank up savings to the required level.
But macroeconomic policy design remained largely in the realm of guesswork, as it does even today in countries with far more reliable databases. Disaggregation followed with the Mahalanobis two-sector models and the Leontief intersectoral transaction tables. The commission set sector-specific output and investment targets based on them. It had the final say on resource allocations, and told the states not just what to do but how to do it as well.
"Quantitative targeting of domestic production became irrelevant ... [because of] obsolete methodology ... and working practices," Nitin Desai observed in these pages ("RIP Planning Commission", Business Standard, August 21, 2014) and with good reasons. Plan funds were tied to the straitjacket of the commission designs. These comprised more often than not recycled versions of tried, trusted and failed schemes, since powerful interests, political as well as bureaucratic, demanded their continuation. States became increasingly frustrated with this approach, but yielded to the agency controlling funding. A measure of arbitrariness was evident as early as 1980. I prepared a note about this and V Kurien took it to a commission meeting. It received a barely polite hearing. The Maharashtra government's earnest pleas for effecting modifications to the prime minister's package for suicide-prone districts in the late 2000s fell on deaf ears.
The Planning Commission had morphed into Tyrannosaurus rex.
... to Where Eagles Dare?
The dysfunctional evolution of the Planning Commission provides two vital lessons to the new NITI Aayog. One, it must give up the impossible task of modelling and prescribing for a continental macroeconomy, and two, it must give up the obsession to micromanage projects on the ground. It ought to concentrate on key interventions cutting across states and subject disciplines instead. That would enable it to carve out a unique role for itself offering innovative approaches in this era of new federalism.
Here is a sampler of such projects, all high on the government priority list:
The Northeast: The region remains a distant outpost full of promise and poverty. Decades of grand assurances from central agencies brought it not improved connectivity but varieties of rice not suited to the local palate and fruit-processing plants without matching logistics and marketing support. No other territory has suffered as much from the Planning Commission's dogged prescription of one-size-fits-all schemes. Its potential - hydropower, horticulture, tourism, craftsmanship - remains barely exploited, adding to the already enormous sense of alienation. Inclusiveness acquires an added, more urgent dimension east of Kolkata.
Ganga renaissance: The premier river system continues to suffer unimaginable degradation even as thousands of crores have gone down the drain in the last 30 years. The problem is not just of cleaning up, but also of rejuvenation of sources and managing the sedimentation. That calls for a varied pool of knowledge and experience. Setting up a few waste-treatment plants does not even scratch the surface. And at least half a dozen states with a third of the country's population must be on board.
Sagarmala: India's large coastline and its location has become a security concern when it could be its greatest asset in an interdependent world. Infrastructure is only the beginning. Ports must be connected through cost-effective multi-modal transport network to hinterland manufacturing facilities competitively producing goods for the world market. When discounted for quality and labour productivity, the much-touted Indian cost advantage often disappears altogether. "Make in India" subsumes some of these concerns and must be linked to the project.
All these projects require large commitments of resources. More importantly, they need out-of-the-box solutions based on multi-domain expertise and situation-specific improvisations, not lazy stereotyping. Above all, they must be pursued with a sense of urgency. In other words, tasks cut out for an ideal NITI Aayog.
This is only for starters. But the new body must learn to hasten slowly and establish its credentials through actions.
The extinct dinosaurs have left two vastly different descendants: the loathsome lizards and crocodiles resembling their forebear, and the graceful birds. That just about sums up possibilities for the NITI Aayog.
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